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.
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 Estee Lauder?
The final step today is to look at a stock that meets our ESP qualifications. Estee Lauder (EL) earns a #3 (Hold) 13 days from its next quarterly earnings release on May 1, 2025, and its Most Accurate Estimate comes in at $0.34 a share.
EL has an Earnings ESP figure of +14.31%, which, as explained above, is calculated by taking the percentage difference between the $0.34 Most Accurate Estimate and the Zacks Consensus Estimate of $0.30. Estee Lauder 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.
EL is just one of a large group of Consumer Staples stocks with a positive ESP figure. Tyson Foods (TSN) is another qualifying stock you may want to consider.
Tyson Foods, which is readying to report earnings on May 5, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.87 a share, and TSN is 17 days out from its next earnings report.
For Tyson Foods, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.85 is +2.35%.
Because both stocks hold a positive Earnings ESP, EL and TSN could potentially post earnings beats in their next reports.
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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The Estee Lauder Companies Inc. (EL): Free Stock Analysis Report Tyson Foods, Inc. (TSN): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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