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.
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.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
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.
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.
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 Humana?
The final step today is to look at a stock that meets our ESP qualifications. Humana (HUM) earns a #3 (Hold) one day from its next quarterly earnings release on April 30, 2025, and its Most Accurate Estimate comes in at $10.04 a share.
By taking the percentage difference between the $10.04 Most Accurate Estimate and the $9.98 Zacks Consensus Estimate, Humana has an Earnings ESP of +0.57%. Investors should also know that HUM 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.
HUM is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at AbbVie (ABBV) as well.
AbbVie is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on July 24, 2025. ABBV's Most Accurate Estimate sits at $3.13 a share 86 days from its next earnings release.
The Zacks Consensus Estimate for AbbVie is $3.11, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.83%.
HUM and ABBV'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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Humana Inc. (HUM): Free Stock Analysis Report AbbVie Inc. (ABBV): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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