Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
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.
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.
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.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 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 Ally Financial?
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. Ally Financial (ALLY) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.78 a share, just 16 days from its upcoming earnings release on July 18, 2025.
Ally Financial's Earnings ESP sits at +1.83%, which, as explained above, is calculated by taking the percentage difference between the $0.78 Most Accurate Estimate and the Zacks Consensus Estimate of $0.77. ALLY 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.
ALLY is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is First Bancorp (FBP).
First Bancorp, which is readying to report earnings on July 22, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.48 a share, and FBP is 20 days out from its next earnings report.
The Zacks Consensus Estimate for First Bancorp is $0.46, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +3.6%.
ALLY and FBP'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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Ally Financial Inc. (ALLY): Free Stock Analysis Report First BanCorp. (FBP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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