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 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 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 Cardinal Health?
The final step today is to look at a stock that meets our ESP qualifications. Cardinal Health (CAH) earns a #3 (Hold) nine days from its next quarterly earnings release on May 1, 2025, and its Most Accurate Estimate comes in at $2.16 a share.
By taking the percentage difference between the $2.16 Most Accurate Estimate and the $2.15 Zacks Consensus Estimate, Cardinal Health has an Earnings ESP of +0.54%. Investors should also know that CAH 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.
CAH is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at Vertex Pharmaceuticals (VRTX) as well.
Slated to report earnings on May 5, 2025, Vertex Pharmaceuticals holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $4.24 a share 13 days from its next quarterly update.
For Vertex Pharmaceuticals, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.22 is +0.4%.
CAH and VRTX'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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Cardinal Health, Inc. (CAH): Free Stock Analysis Report Vertex Pharmaceuticals Incorporated (VRTX): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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