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.
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.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
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.
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.
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 DTE Energy?
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. DTE Energy (DTE) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $2.01 a share six days away from its upcoming earnings release on May 1, 2025.
By taking the percentage difference between the $2.01 Most Accurate Estimate and the $1.98 Zacks Consensus Estimate, DTE Energy has an Earnings ESP of +1.64%. Investors should also know that DTE 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.
DTE is part of a big group of Utilities stocks that boast a positive ESP, and investors may want to take a look at Atmos Energy (ATO) as well.
Atmos Energy, which is readying to report earnings on May 7, 2025, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $2.93 a share, and ATO is 12 days out from its next earnings report.
The Zacks Consensus Estimate for Atmos Energy is $2.89, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.33%.
Because both stocks hold a positive Earnings ESP, DTE and ATO 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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DTE Energy Company (DTE): Free Stock Analysis Report Atmos Energy Corporation (ATO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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