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.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
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 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 Entergy?
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. Entergy (ETR) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.76 a share eight days away from its upcoming earnings release on April 29, 2025.
By taking the percentage difference between the $0.76 Most Accurate Estimate and the $0.62 Zacks Consensus Estimate, Entergy has an Earnings ESP of +23.08%. Investors should also know that ETR 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.
ETR is just one of a large group of Utilities stocks with a positive ESP figure. NextEra Energy (NEE) is another qualifying stock you may want to consider.
NextEra Energy is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on April 23, 2025. NEE's Most Accurate Estimate sits at $0.99 a share two days from its next earnings release.
NextEra Energy's Earnings ESP figure currently stands at +2.33% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.97.
ETR and NEE'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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Entergy Corporation (ETR): Free Stock Analysis Report NextEra Energy, Inc. (NEE): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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