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.
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 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.
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.
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 Halozyme Therapeutics?
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. Halozyme Therapeutics (HALO) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.21 a share 14 days away from its upcoming earnings release on February 17, 2026.
Halozyme Therapeutics' Earnings ESP sits at +4.28%, which, as explained above, is calculated by taking the percentage difference between the $2.21 Most Accurate Estimate and the Zacks Consensus Estimate of $2.12. HALO 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.
HALO is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at Cardinal Health (CAH) as well.
Slated to report earnings on February 5, 2026, Cardinal Health holds a #2 (Buy) ranking on the Zacks Rank, and its Most Accurate Estimate is $2.38 a share two days from its next quarterly update.
The Zacks Consensus Estimate for Cardinal Health is $2.37, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.46%.
Because both stocks hold a positive Earnings ESP, HALO and CAH 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 >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Halozyme Therapeutics, Inc. (HALO): Free Stock Analysis Report Cardinal Health, Inc. (CAH): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
