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.
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 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.
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 Cleveland-Cliffs?
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. Cleveland-Cliffs (CLF) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at -$0.61 a share 13 days away from its upcoming earnings release on February 9, 2026.
CLF has an Earnings ESP figure of +0.81%, which, as explained above, is calculated by taking the percentage difference between the -$0.61 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.62. Cleveland-Cliffs 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.
CLF is just one of a large group of Basic Materials stocks with a positive ESP figure. Nutrien (NTR) is another qualifying stock you may want to consider.
Slated to report earnings on February 18, 2026, Nutrien holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $0.92 a share 22 days from its next quarterly update.
For Nutrien, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.87 is +5.58%.
CLF and NTR'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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Cleveland-Cliffs Inc. (CLF): Free Stock Analysis Report Nutrien Ltd. (NTR): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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