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.
Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.
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 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 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 Take-Two Interactive?
The final step today is to look at a stock that meets our ESP qualifications. Take-Two Interactive (TTWO) earns a #3 (Hold) 30 days from its next quarterly earnings release on February 5, 2026, and its Most Accurate Estimate comes in at $0.85 a share.
By taking the percentage difference between the $0.85 Most Accurate Estimate and the $0.83 Zacks Consensus Estimate, Take-Two Interactive has an Earnings ESP of +2.41%. Investors should also know that TTWO 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.
TTWO is one of just a large database of Consumer Discretionary stocks with positive ESPs. Another solid-looking stock is K12 (LRN).
K12, which is readying to report earnings on January 27, 2026, sits at a Zacks Rank #2 (Buy) right now. Its Most Accurate Estimate is currently $2.42 a share, and LRN is 21 days out from its next earnings report.
K12's Earnings ESP figure currently stands at +3.72% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.33.
TTWO and LRN'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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Take-Two Interactive Software, Inc. (TTWO): Free Stock Analysis Report Stride, Inc. (LRN): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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