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.
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.
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 Booz Allen Hamilton?
The final step today is to look at a stock that meets our ESP qualifications. Booz Allen Hamilton (BAH) earns a #3 (Hold) 28 days from its next quarterly earnings release on May 23, 2025, and its Most Accurate Estimate comes in at $1.68 a share.
By taking the percentage difference between the $1.68 Most Accurate Estimate and the $1.59 Zacks Consensus Estimate, Booz Allen Hamilton has an Earnings ESP of +5.74%. Investors should also know that BAH 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.
BAH is one of just a large database of Business Services stocks with positive ESPs. Another solid-looking stock is Fidelity National Information Services (FIS).
Fidelity National Information Services is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on May 6, 2025. FIS' Most Accurate Estimate sits at $1.21 a share 11 days from its next earnings release.
For Fidelity National Information Services, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.20 is +0.88%.
Because both stocks hold a positive Earnings ESP, BAH and FIS 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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Booz Allen Hamilton Holding Corporation (BAH): Free Stock Analysis Report Fidelity National Information Services, Inc. (FIS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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