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, 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.
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 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 Southwest Airlines?
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. Southwest Airlines (LUV) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.54 a share, just 21 days from its upcoming earnings release on July 24, 2025.
Southwest Airlines' Earnings ESP sits at +0.94%, which, as explained above, is calculated by taking the percentage difference between the $0.54 Most Accurate Estimate and the Zacks Consensus Estimate of $0.53. LUV 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.
LUV is part of a big group of Transportation stocks that boast a positive ESP, and investors may want to take a look at SkyWest (SKYW) as well.
SkyWest is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on July 24, 2025. SKYW's Most Accurate Estimate sits at $2.40 a share 21 days from its next earnings release.
For SkyWest, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.33 is +3%.
LUV and SKYW'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 >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Southwest Airlines Co. (LUV): Free Stock Analysis Report SkyWest, Inc. (SKYW): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
