Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
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.
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 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.
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.
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 Trane Technologies?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Trane Technologies (TT) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $2.22 a share, just two days from its upcoming earnings release on April 30, 2025.
TT has an Earnings ESP figure of +1.25%, which, as explained above, is calculated by taking the percentage difference between the $2.22 Most Accurate Estimate and the Zacks Consensus Estimate of $2.19. Trane Technologies is one of a large database 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.
TT is just one of a large group of Construction stocks with a positive ESP figure. Dream Finders Homes Inc. (DFH) is another qualifying stock you may want to consider.
Slated to report earnings on May 1, 2025, Dream Finders Homes Inc. holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.72 a share three days from its next quarterly update.
For Dream Finders Homes Inc. the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.61 is +19.01%.
TT and DFH's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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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Trane Technologies plc (TT): Free Stock Analysis Report Dream Finders Homes, Inc. (DFH): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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