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.
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.
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.
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 Phillips 66?
The final step today is to look at a stock that meets our ESP qualifications. Phillips 66 (PSX) earns a #3 (Hold) 14 days from its next quarterly earnings release on February 4, 2026, and its Most Accurate Estimate comes in at $2.22 a share.
PSX has an Earnings ESP figure of +0.80%, which, as explained above, is calculated by taking the percentage difference between the $2.22 Most Accurate Estimate and the Zacks Consensus Estimate of $2.21. Phillips 66 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.
PSX is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at Enphase Energy (ENPH) as well.
Enphase Energy, which is readying to report earnings on February 3, 2026, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $0.59 a share, and ENPH is 13 days out from its next earnings report.
Enphase Energy's Earnings ESP figure currently stands at +10.63% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.53.
PSX and ENPH'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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Phillips 66 (PSX): Free Stock Analysis Report Enphase Energy, Inc. (ENPH): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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