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.
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.
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, 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.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Urban Outfitters?
The final step today is to look at a stock that meets our ESP qualifications. Urban Outfitters (URBN) earns a #2 (Buy) 29 days from its next quarterly earnings release on May 20, 2025, and its Most Accurate Estimate comes in at $0.83 a share.
URBN has an Earnings ESP figure of +2.05%, which, as explained above, is calculated by taking the percentage difference between the $0.83 Most Accurate Estimate and the Zacks Consensus Estimate of $0.81. Urban Outfitters 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.
URBN is one of just a large database of Retail and Wholesale stocks with positive ESPs. Another solid-looking stock is Dick's Sporting Goods (DKS).
Dick's Sporting Goods is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on June 4, 2025. DKS' Most Accurate Estimate sits at $3.22 a share 44 days from its next earnings release.
The Zacks Consensus Estimate for Dick's Sporting Goods is $3.21, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.01%.
Because both stocks hold a positive Earnings ESP, URBN and DKS 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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Urban Outfitters, Inc. (URBN): Free Stock Analysis Report DICK'S Sporting Goods, Inc. (DKS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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