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.
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 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.
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.
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 American Airlines?
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. American Airlines (AAL - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.11 a share, just 30 days from its upcoming earnings release on January 25, 2024.
By taking the percentage difference between the $0.11 Most Accurate Estimate and the $0.04 Zacks Consensus Estimate, American Airlines has an Earnings ESP of +190.43%. Investors should also know that AAL 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.
AAL is part of a big group of Transportation stocks that boast a positive ESP, and investors may want to take a look at Ryder (R - Free Report) as well.
Ryder is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 21, 2024. R's Most Accurate Estimate sits at $2.80 a share 57 days from its next earnings release.
The Zacks Consensus Estimate for Ryder is $2.75, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2%.
Because both stocks hold a positive Earnings ESP, AAL and R 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 >>
Zacks Naming Top 10 Stocks for 2024
Want to be tipped off early to our 10 top picks for the entirety of 2024?
History suggests their performance could be sensational.
From 2012 (when our Director of Research, Sheraz Mian assumed responsibility for the portfolio) through November, 2023, the Zacks Top 10 Stocks gained +974.1%, nearly TRIPLING the S&P 500’s +340.1%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2024. Don’t miss your chance to get in on these stocks when they’re released on January 2.
Be First to New Top 10 Stocks >>
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.
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 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.
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.
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 American Airlines?
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. American Airlines (AAL - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.11 a share, just 30 days from its upcoming earnings release on January 25, 2024.
By taking the percentage difference between the $0.11 Most Accurate Estimate and the $0.04 Zacks Consensus Estimate, American Airlines has an Earnings ESP of +190.43%. Investors should also know that AAL 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.
AAL is part of a big group of Transportation stocks that boast a positive ESP, and investors may want to take a look at Ryder (R - Free Report) as well.
Ryder is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 21, 2024. R's Most Accurate Estimate sits at $2.80 a share 57 days from its next earnings release.
The Zacks Consensus Estimate for Ryder is $2.75, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2%.
Because both stocks hold a positive Earnings ESP, AAL and R 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 >>
Zacks Naming Top 10 Stocks for 2024
Want to be tipped off early to our 10 top picks for the entirety of 2024?
History suggests their performance could be sensational.
From 2012 (when our Director of Research, Sheraz Mian assumed responsibility for the portfolio) through November, 2023, the Zacks Top 10 Stocks gained +974.1%, nearly TRIPLING the S&P 500’s +340.1%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2024. Don’t miss your chance to get in on these stocks when they’re released on January 2.
Be First to New Top 10 Stocks >>
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