Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
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.
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.
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.
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 Nextracker?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Nextracker (NXT) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.01 a share, just 21 days from its upcoming earnings release on May 13, 2025.
Nextracker's Earnings ESP sits at +2.76%, which, as explained above, is calculated by taking the percentage difference between the $1.01 Most Accurate Estimate and the Zacks Consensus Estimate of $0.98. NXT is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
NXT is one of just a large database of Oils and Energy stocks with positive ESPs. Another solid-looking stock is Diamondback Energy (FANG).
Diamondback Energy is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 5, 2025. FANG's Most Accurate Estimate sits at $3.94 a share 13 days from its next earnings release.
The Zacks Consensus Estimate for Diamondback Energy is $3.82, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +3.06%.
Because both stocks hold a positive Earnings ESP, NXT and FANG 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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Nextracker Inc. (NXT): Free Stock Analysis Report Diamondback Energy, Inc. (FANG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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