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 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.
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 #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 Nextracker?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Nextracker (NXT) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.00 a share 18 days away from its upcoming earnings release on January 27, 2026.
By taking the percentage difference between the $1.00 Most Accurate Estimate and the $0.93 Zacks Consensus Estimate, Nextracker has an Earnings ESP of +7.14%. Investors should also know that NXT 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.
NXT is one of just a large database of Oils and Energy stocks with positive ESPs. Another solid-looking stock is Kinder Morgan (KMI).
Kinder Morgan is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on January 28, 2026. KMI's Most Accurate Estimate sits at $0.37 a share 19 days from its next earnings release.
Kinder Morgan's Earnings ESP figure currently stands at +0.83% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.36.
NXT and KMI'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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Nextracker Inc. (NXT): Free Stock Analysis Report Kinder Morgan, Inc. (KMI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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