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.
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.
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.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Skyward Specialty Insurance?
The final step today is to look at a stock that meets our ESP qualifications. Skyward Specialty Insurance (SKWD) earns a #2 (Buy) 26 days from its next quarterly earnings release on August 4, 2025, and its Most Accurate Estimate comes in at $0.91 a share.
SKWD has an Earnings ESP figure of +5.20%, which, as explained above, is calculated by taking the percentage difference between the $0.91 Most Accurate Estimate and the Zacks Consensus Estimate of $0.87. Skyward Specialty Insurance 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.
SKWD is just one of a large group of Finance stocks with a positive ESP figure. Arch Capital Group (ACGL) is another qualifying stock you may want to consider.
Slated to report earnings on July 29, 2025, Arch Capital Group holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $2.52 a share 20 days from its next quarterly update.
For Arch Capital Group, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.34 is +7.56%.
SKWD and ACGL'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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Skyward Specialty Insurance Group, Inc. (SKWD): Free Stock Analysis Report Arch Capital Group Ltd. (ACGL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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