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.
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 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.
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 Broadcom Inc.
The final step today is to look at a stock that meets our ESP qualifications. Broadcom Inc. (AVGO) earns a #2 (Buy) three days from its next quarterly earnings release on June 5, 2025, and its Most Accurate Estimate comes in at $1.59 a share.
By taking the percentage difference between the $1.59 Most Accurate Estimate and the $1.57 Zacks Consensus Estimate, Broadcom Inc. has an Earnings ESP of +1.27%. Investors should also know that AVGO 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.
AVGO is just one of a large group of Computer and Technology stocks with a positive ESP figure. Salesforce.com (CRM) is another qualifying stock you may want to consider.
Salesforce.com, which is readying to report earnings on August 27, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $2.77 a share, and CRM is 86 days out from its next earnings report.
Salesforce.com's Earnings ESP figure currently stands at +1.59% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.73.
AVGO and CRM's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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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Broadcom Inc. (AVGO): Free Stock Analysis Report Salesforce Inc. (CRM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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