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.
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.
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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more 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.
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 NextEra Energy?
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. NextEra Energy (NEE) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.99 a share, just five days from its upcoming earnings release on April 23, 2025.
NEE has an Earnings ESP figure of +2.33%, which, as explained above, is calculated by taking the percentage difference between the $0.99 Most Accurate Estimate and the Zacks Consensus Estimate of $0.97. NextEra Energy 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.
NEE is just one of a large group of Utilities stocks with a positive ESP figure. American Electric Power (AEP) is another qualifying stock you may want to consider.
Slated to report earnings on May 6, 2025, American Electric Power holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.05 a share 18 days from its next quarterly update.
The Zacks Consensus Estimate for American Electric Power is $1.88, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +9.22%.
NEE and AEP'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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NextEra Energy, Inc. (NEE): Free Stock Analysis Report American Electric Power Company, Inc. (AEP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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