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 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.

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 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 Consolidated Edison?

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. Consolidated Edison (ED Quick QuoteED - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.75 a share, just 29 days from its upcoming earnings release on May 4, 2023.

By taking the percentage difference between the $1.75 Most Accurate Estimate and the $1.70 Zacks Consensus Estimate, Consolidated Edison has an Earnings ESP of +2.99%. Investors should also know that ED is one of a large group 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.

ED is one of just a large database of Utilities stocks with positive ESPs. Another solid-looking stock is Sempra (SRE Quick QuoteSRE - Free Report) .

Slated to report earnings on May 4, 2023, Sempra holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.90 a share 29 days from its next quarterly update.

The Zacks Consensus Estimate for Sempra is $2.88, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.49%.

ED and SRE'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 >>