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.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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 #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 Marriott International?
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. Marriott International (MAR) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $2.36 a share, just 21 days from its upcoming earnings release on May 7, 2025.
MAR has an Earnings ESP figure of +3.79%, which, as explained above, is calculated by taking the percentage difference between the $2.36 Most Accurate Estimate and the Zacks Consensus Estimate of $2.27. Marriott International is one of a large database 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.
MAR is part of a big group of Consumer Discretionary stocks that boast a positive ESP, and investors may want to take a look at Under Armour (UAA) as well.
Under Armour is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on May 15, 2025. UAA's Most Accurate Estimate sits at -$0.07 a share 29 days from its next earnings release.
For Under Armour, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of -$0.09 is +20.75%.
MAR and UAA'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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Marriott International, Inc. (MAR): Free Stock Analysis Report Under Armour, Inc. (UAA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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