Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
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.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 RTX?
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. RTX (RTX) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.39 a share, just seven days from its upcoming earnings release on April 22, 2025.
By taking the percentage difference between the $1.39 Most Accurate Estimate and the $1.34 Zacks Consensus Estimate, RTX has an Earnings ESP of +3.76%. Investors should also know that RTX 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.
RTX is one of just a large database of Aerospace stocks with positive ESPs. Another solid-looking stock is Woodward (WWD).
Slated to report earnings on May 5, 2025, Woodward holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.48 a share 20 days from its next quarterly update.
The Zacks Consensus Estimate for Woodward is $1.44, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +3.1%.
RTX and WWD's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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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RTX Corporation (RTX): Free Stock Analysis Report Woodward, Inc. (WWD): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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