Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.
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.
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 Malibu Boats?
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. Malibu Boats (MBUU) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.74 a share, just six days from its upcoming earnings release on May 8, 2025.
By taking the percentage difference between the $0.74 Most Accurate Estimate and the $0.67 Zacks Consensus Estimate, Malibu Boats has an Earnings ESP of +10.04%. Investors should also know that MBUU 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.
MBUU is part of a big group of Consumer Discretionary stocks that boast a positive ESP, and investors may want to take a look at PlayAGS (AGS) as well.
PlayAGS is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 8, 2025. AGS' Most Accurate Estimate sits at $0.21 a share six days from its next earnings release.
PlayAGS's Earnings ESP figure currently stands at +68% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.13.
MBUU and AGS' 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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Malibu Boats, Inc. (MBUU): Free Stock Analysis Report PlayAGS, Inc. (AGS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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