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.
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 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.
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.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Exact Sciences?
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. Exact Sciences (EXAS) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at -$0.14 a share one day away from its upcoming earnings release on May 1, 2025.
Exact Sciences' Earnings ESP sits at +61.75%, which, as explained above, is calculated by taking the percentage difference between the -$0.14 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.37. EXAS 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.
EXAS is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Novartis (NVS).
Novartis is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on July 17, 2025. NVS' Most Accurate Estimate sits at $2.34 a share 78 days from its next earnings release.
Novartis' Earnings ESP figure currently stands at +4.46% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.24.
EXAS and NVS' 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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Exact Sciences Corporation (EXAS): Free Stock Analysis Report Novartis AG (NVS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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