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.
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.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
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.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
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.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider TSMC?
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. TSMC (TSM) holds a #1 (Strong Buy) at the moment and its Most Accurate Estimate comes in at $2.38 a share nine days away from its upcoming earnings release on July 17, 2025.
TSMC's Earnings ESP sits at +1.62%, which, as explained above, is calculated by taking the percentage difference between the $2.38 Most Accurate Estimate and the Zacks Consensus Estimate of $2.34. TSM 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.
TSM is just one of a large group of Computer and Technology stocks with a positive ESP figure. Hewlett Packard Enterprise (HPE) is another qualifying stock you may want to consider.
Hewlett Packard Enterprise is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on September 3, 2025. HPE's Most Accurate Estimate sits at $0.44 a share 57 days from its next earnings release.
Hewlett Packard Enterprise's Earnings ESP figure currently stands at +0.69% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.43.
TSM and HPE'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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Taiwan Semiconductor Manufacturing Company Ltd. (TSM): Free Stock Analysis Report Hewlett Packard Enterprise Company (HPE): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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