Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.
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 is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.
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 #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 Eaton?
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. Eaton (ETN) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.93 a share 29 days away from its upcoming earnings release on August 7, 2025.
ETN has an Earnings ESP figure of +0.28%, which, as explained above, is calculated by taking the percentage difference between the $2.93 Most Accurate Estimate and the Zacks Consensus Estimate of $2.92. Eaton 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.
ETN is one of just a large database of Industrial Products stocks with positive ESPs. Another solid-looking stock is Oshkosh (OSK).
Slated to report earnings on August 1, 2025, Oshkosh holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $3.00 a share 23 days from its next quarterly update.
For Oshkosh, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.98 is +0.72%.
Because both stocks hold a positive Earnings ESP, ETN and OSK could potentially post earnings beats in their next reports.
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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Eaton Corporation, PLC (ETN): Free Stock Analysis Report Oshkosh Corporation (OSK): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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