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.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 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 Garmin?
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. Garmin (GRMN) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.70 a share eight days away from its upcoming earnings release on April 30, 2025.
GRMN has an Earnings ESP figure of +2.88%, which, as explained above, is calculated by taking the percentage difference between the $1.70 Most Accurate Estimate and the Zacks Consensus Estimate of $1.65. Garmin 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.
GRMN is just one of a large group of Computer and Technology stocks with a positive ESP figure. Blink Charging (BLNK) is another qualifying stock you may want to consider.
Blink Charging, which is readying to report earnings on May 8, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently -$0.14 a share, and BLNK is 16 days out from its next earnings report.
For Blink Charging, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of -$0.14 is +2.32%.
Because both stocks hold a positive Earnings ESP, GRMN and BLNK 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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Garmin Ltd. (GRMN): Free Stock Analysis Report Blink Charging Co. (BLNK): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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