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.
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 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.
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.
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 Constellation Brands?
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. Constellation Brands (STZ - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.83 a share 14 days away from its upcoming earnings release on June 30, 2023.
STZ has an Earnings ESP figure of +0.6%, which, as explained above, is calculated by taking the percentage difference between the $2.83 Most Accurate Estimate and the Zacks Consensus Estimate of $2.81. Constellation Brands 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.
STZ is part of a big group of Consumer Staples stocks that boast a positive ESP, and investors may want to take a look at Hormel Foods (HRL - Free Report) as well.
Hormel Foods, which is readying to report earnings on September 7, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.42 a share, and HRL is 83 days out from its next earnings report.
The Zacks Consensus Estimate for Hormel Foods is $0.41, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.13%.
STZ and HRL'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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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.
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 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.
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.
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 Constellation Brands?
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. Constellation Brands (STZ - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.83 a share 14 days away from its upcoming earnings release on June 30, 2023.
STZ has an Earnings ESP figure of +0.6%, which, as explained above, is calculated by taking the percentage difference between the $2.83 Most Accurate Estimate and the Zacks Consensus Estimate of $2.81. Constellation Brands 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.
STZ is part of a big group of Consumer Staples stocks that boast a positive ESP, and investors may want to take a look at Hormel Foods (HRL - Free Report) as well.
Hormel Foods, which is readying to report earnings on September 7, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.42 a share, and HRL is 83 days out from its next earnings report.
The Zacks Consensus Estimate for Hormel Foods is $0.41, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.13%.
STZ and HRL'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 >>
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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