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.
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.
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 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.
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 #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 Urban Outfitters?
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. Urban Outfitters (URBN) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.82 a share 13 days away from its upcoming earnings release on May 21, 2025.
URBN has an Earnings ESP figure of +1.03%, which, as explained above, is calculated by taking the percentage difference between the $0.82 Most Accurate Estimate and the Zacks Consensus Estimate of $0.81. Urban Outfitters 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.
URBN is one of just a large database of Retail and Wholesale stocks with positive ESPs. Another solid-looking stock is Brinker International (EAT).
Brinker International, which is readying to report earnings on August 13, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $2.33 a share, and EAT is 97 days out from its next earnings report.
Brinker International's Earnings ESP figure currently stands at +4.09% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.24.
URBN and EAT'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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Urban Outfitters, Inc. (URBN): Free Stock Analysis Report Brinker International, Inc. (EAT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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