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.
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, 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.
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 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 General Dynamics?
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. General Dynamics (GD) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $3.48 a share, just five days from its upcoming earnings release on April 23, 2025.
By taking the percentage difference between the $3.48 Most Accurate Estimate and the $3.47 Zacks Consensus Estimate, General Dynamics has an Earnings ESP of +0.22%. Investors should also know that GD is one of a large group 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.
GD is just one of a large group of Aerospace stocks with a positive ESP figure. TransDigm Group (TDG) is another qualifying stock you may want to consider.
TransDigm Group is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 6, 2025. TDG's Most Accurate Estimate sits at $9.40 a share 18 days from its next earnings release.
For TransDigm Group, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $8.86 is +6.05%.
Because both stocks hold a positive Earnings ESP, GD and TDG 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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General Dynamics Corporation (GD): Free Stock Analysis Report Transdigm Group Incorporated (TDG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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