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.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
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.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider TransDigm Group?
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. TransDigm Group (TDG) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $8.36 a share, just four days from its upcoming earnings release on February 3, 2026.
TDG has an Earnings ESP figure of +4.12%, which, as explained above, is calculated by taking the percentage difference between the $8.36 Most Accurate Estimate and the Zacks Consensus Estimate of $8.02. TransDigm Group 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.
TDG is just one of a large group of Aerospace stocks with a positive ESP figure. Textron (TXT) is another qualifying stock you may want to consider.
Slated to report earnings on April 23, 2026, Textron holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $1.36 a share 83 days from its next quarterly update.
The Zacks Consensus Estimate for Textron is $1.29, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +5.43%.
Because both stocks hold a positive Earnings ESP, TDG and TXT 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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Transdigm Group Incorporated (TDG): Free Stock Analysis Report Textron Inc. (TXT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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