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.
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.
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.
Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, or the top 15% and top 5% of stocks, respectively, should outperform the market. Strong Buy stocks should outperform more than any other rank.
Should You Consider Axon Enterprise?
The final step today is to look at a stock that meets our ESP qualifications. Axon Enterprise (AXON) earns a #3 (Hold) nine days from its next quarterly earnings release on May 7, 2025, and its Most Accurate Estimate comes in at $1.39 a share.
Axon Enterprise's Earnings ESP sits at +3.22%, which, as explained above, is calculated by taking the percentage difference between the $1.39 Most Accurate Estimate and the Zacks Consensus Estimate of $1.35. AXON 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.
AXON is part of a big group of Aerospace stocks that boast a positive ESP, and investors may want to take a look at GE Aerospace (GE) as well.
GE Aerospace, which is readying to report earnings on July 22, 2025, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $1.42 a share, and GE is 85 days out from its next earnings report.
The Zacks Consensus Estimate for GE Aerospace is $1.39, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.68%.
Because both stocks hold a positive Earnings ESP, AXON and GE 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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Axon Enterprise, Inc (AXON): Free Stock Analysis Report GE Aerospace (GE): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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