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.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
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, 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.
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.
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 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 CME Group?
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. CME Group (CME) earns a #1 (Strong Buy) right now and its Most Accurate Estimate sits at $2.81 a share, just six days from its upcoming earnings release on April 23, 2025.
CME has an Earnings ESP figure of +1.82%, which, as explained above, is calculated by taking the percentage difference between the $2.81 Most Accurate Estimate and the Zacks Consensus Estimate of $2.76. CME Group 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.
CME is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is EPR Properties (EPR).
Slated to report earnings on May 7, 2025, EPR Properties holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.19 a share 20 days from its next quarterly update.
EPR Properties' Earnings ESP figure currently stands at +1.25% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.17.
CME and EPR'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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CME Group Inc. (CME): Free Stock Analysis Report EPR Properties (EPR): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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