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.
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.
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 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.
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.
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 Air Products and Chemicals?
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. Air Products and Chemicals (APD - Free Report) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $2.80 a share two days away from its upcoming earnings release on February 2, 2023.
Air Products and Chemicals' Earnings ESP sits at +2.67%, which, as explained above, is calculated by taking the percentage difference between the $2.80 Most Accurate Estimate and the Zacks Consensus Estimate of $2.73. APD 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.
APD is just one of a large group of Basic Materials stocks with a positive ESP figure. Allegheny Technologies (ATI - Free Report) is another qualifying stock you may want to consider.
Allegheny Technologies is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 2, 2023. ATI's Most Accurate Estimate sits at $0.53 a share two days from its next earnings release.
For Allegheny Technologies, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.53 is +0.76%.
APD and ATI's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
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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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.
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.
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 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.
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.
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 Air Products and Chemicals?
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. Air Products and Chemicals (APD - Free Report) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $2.80 a share two days away from its upcoming earnings release on February 2, 2023.
Air Products and Chemicals' Earnings ESP sits at +2.67%, which, as explained above, is calculated by taking the percentage difference between the $2.80 Most Accurate Estimate and the Zacks Consensus Estimate of $2.73. APD 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.
APD is just one of a large group of Basic Materials stocks with a positive ESP figure. Allegheny Technologies (ATI - Free Report) is another qualifying stock you may want to consider.
Allegheny Technologies is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 2, 2023. ATI's Most Accurate Estimate sits at $0.53 a share two days from its next earnings release.
For Allegheny Technologies, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.53 is +0.76%.
APD and ATI's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
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 >>
Free Report Reveals How You Could Profit from the Growing Electric Vehicle Industry
Globally, electric car sales continue their remarkable growth even after breaking records in 2021. High gas prices have fueled his demand, but so has evolving EV comfort, features and technology. So, the fervor for EVs will be around long after gas prices normalize. Not only are manufacturers seeing record-high profits, but producers of EV-related technology are raking in the dough as well. Do you know how to cash in? If not, we have the perfect report for you – and it’s FREE! Today, don't miss your chance to download Zacks' top 5 stocks for the electric vehicle revolution at no cost and with no obligation.
>>Send me my free report on the top 5 EV stocks<<
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