Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.
Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, or the top 15% and top 5% of stocks, respectively, should outperform the market. Strong Buy stocks should outperform more than any other rank.
Should You Consider Etsy?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Etsy (ETSY) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.64 a share, just 22 days from its upcoming earnings release on May 7, 2025.
By taking the percentage difference between the $0.64 Most Accurate Estimate and the $0.57 Zacks Consensus Estimate, Etsy has an Earnings ESP of +11.37%. Investors should also know that ETSY is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
ETSY is part of a big group of Retail and Wholesale stocks that boast a positive ESP, and investors may want to take a look at MercadoLibre (MELI) as well.
Slated to report earnings on May 1, 2025, MercadoLibre holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $8.19 a share 16 days from its next quarterly update.
The Zacks Consensus Estimate for MercadoLibre is $7.52, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +8.86%.
ETSY and MELI's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
Find Stocks to Buy or Sell Before They're Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>
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Etsy, Inc. (ETSY): Free Stock Analysis Report MercadoLibre, Inc. (MELI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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