Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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 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.
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 #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 United States Steel?
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. United States Steel (X - Free Report) holds a #1 (Strong Buy) at the moment and its Most Accurate Estimate comes in at $0.29 a share 29 days away from its upcoming earnings release on February 1, 2024.
By taking the percentage difference between the $0.29 Most Accurate Estimate and the $0.20 Zacks Consensus Estimate, United States Steel has an Earnings ESP of +42.5%. Investors should also know that X 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.
X is just one of a large group of Basic Materials stocks with a positive ESP figure. International Paper (IP - Free Report) is another qualifying stock you may want to consider.
International Paper, which is readying to report earnings on February 1, 2024, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $0.35 a share, and IP is 29 days out from its next earnings report.
International Paper's Earnings ESP figure currently stands at +1.74% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.34.
X and IP'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 >>
Zacks Names #1 Semiconductor Stock
It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.
See This Stock Now for Free >>
Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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 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.
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 #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 United States Steel?
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. United States Steel (X - Free Report) holds a #1 (Strong Buy) at the moment and its Most Accurate Estimate comes in at $0.29 a share 29 days away from its upcoming earnings release on February 1, 2024.
By taking the percentage difference between the $0.29 Most Accurate Estimate and the $0.20 Zacks Consensus Estimate, United States Steel has an Earnings ESP of +42.5%. Investors should also know that X 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.
X is just one of a large group of Basic Materials stocks with a positive ESP figure. International Paper (IP - Free Report) is another qualifying stock you may want to consider.
International Paper, which is readying to report earnings on February 1, 2024, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $0.35 a share, and IP is 29 days out from its next earnings report.
International Paper's Earnings ESP figure currently stands at +1.74% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.34.
X and IP'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 >>
Zacks Names #1 Semiconductor Stock
It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.
See This Stock Now for Free >>
Get the latest research report on X - FREE
Get the latest research report on IP - FREE