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.
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 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.
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.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 Generac Holdings?
The final step today is to look at a stock that meets our ESP qualifications. Generac Holdings (GNRC) earns a #3 (Hold) one day from its next quarterly earnings release on April 30, 2025, and its Most Accurate Estimate comes in at $1.03 a share.
GNRC has an Earnings ESP figure of +3.71%, which, as explained above, is calculated by taking the percentage difference between the $1.03 Most Accurate Estimate and the Zacks Consensus Estimate of $0.99. Generac Holdings 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.
GNRC is one of just a large database of Industrial Products stocks with positive ESPs. Another solid-looking stock is Core & Main (CNM).
Slated to report earnings on June 3, 2025, Core & Main holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.52 a share 35 days from its next quarterly update.
The Zacks Consensus Estimate for Core & Main is $0.52, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.65%.
GNRC and CNM'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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Generac Holdings Inc. (GNRC): Free Stock Analysis Report Core & Main, Inc. (CNM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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