How to Find Strong Consumer Discretionary Stocks Slated for Positive Earnings Surprises

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.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive 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 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 PlayAGS?

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. PlayAGS (AGS) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.21 a share 13 days away from its upcoming earnings release on May 8, 2025.

PlayAGS's Earnings ESP sits at +68%, which, as explained above, is calculated by taking the percentage difference between the $0.21 Most Accurate Estimate and the Zacks Consensus Estimate of $0.13. AGS 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.

AGS is one of just a large database of Consumer Discretionary stocks with positive ESPs. Another solid-looking stock is Royal Caribbean (RCL).

Royal Caribbean is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on April 29, 2025. RCL's Most Accurate Estimate sits at $2.54 a share four days from its next earnings release.

Royal Caribbean's Earnings ESP figure currently stands at +0.7% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.52.

AGS and RCL's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.

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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This article originally published on Zacks Investment Research (zacks.com).

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