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.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.

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.

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.

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 Canadian Solar?

The final step today is to look at a stock that meets our ESP qualifications. Canadian Solar (CSIQ Quick QuoteCSIQ - Free Report) earns a #3 (Hold) 16 days from its next quarterly earnings release on May 18, 2023, and its Most Accurate Estimate comes in at $0.72 a share.

By taking the percentage difference between the $0.72 Most Accurate Estimate and the $0.48 Zacks Consensus Estimate, Canadian Solar has an Earnings ESP of +51.58%. Investors should also know that CSIQ 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.

CSIQ is just one of a large group of Oils and Energy stocks with a positive ESP figure. Occidental Petroleum (OXY Quick QuoteOXY - Free Report) is another qualifying stock you may want to consider.

Occidental Petroleum is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 9, 2023. OXY's Most Accurate Estimate sits at $1.30 a share seven days from its next earnings release.

The Zacks Consensus Estimate for Occidental Petroleum is $1.30, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.09%.

CSIQ and OXY'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 >>