Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
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.
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.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 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 Allegheny Technologies?
The final step today is to look at a stock that meets our ESP qualifications. Allegheny Technologies (ATI) earns a #2 (Buy) 15 days from its next quarterly earnings release on May 1, 2025, and its Most Accurate Estimate comes in at $0.60 a share.
Allegheny Technologies' Earnings ESP sits at +2.46%, which, as explained above, is calculated by taking the percentage difference between the $0.60 Most Accurate Estimate and the Zacks Consensus Estimate of $0.58. ATI is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
ATI is one of just a large database of Basic Materials stocks with positive ESPs. Another solid-looking stock is B2Gold (BTG).
Slated to report earnings on May 6, 2025, B2Gold holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.10 a share 20 days from its next quarterly update.
The Zacks Consensus Estimate for B2Gold is $0.09, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.79%.
ATI and BTG'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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ATI Inc. (ATI): Free Stock Analysis Report B2Gold Corp (BTG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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