Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these 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 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.
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.
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 ConocoPhillips?
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. ConocoPhillips (COP) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $2.05 a share, just eight days from its upcoming earnings release on May 8, 2025.
ConocoPhillips' Earnings ESP sits at +1.88%, which, as explained above, is calculated by taking the percentage difference between the $2.05 Most Accurate Estimate and the Zacks Consensus Estimate of $2.01. COP 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.
COP is one of just a large database of Oils and Energy stocks with positive ESPs. Another solid-looking stock is Excelerate Energy (EE).
Excelerate Energy is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 7, 2025. EE's Most Accurate Estimate sits at $0.42 a share seven days from its next earnings release.
The Zacks Consensus Estimate for Excelerate Energy is $0.39, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +9.85%.
COP and EE'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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ConocoPhillips (COP): Free Stock Analysis Report Excelerate Energy, Inc. (EE): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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