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.
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.
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 Prudential?
The final step today is to look at a stock that meets our ESP qualifications. Prudential (PRU - Free Report) earns a #3 (Hold) 27 days from its next quarterly earnings release on February 6, 2024, and its Most Accurate Estimate comes in at $2.68 a share.
By taking the percentage difference between the $2.68 Most Accurate Estimate and the $2.62 Zacks Consensus Estimate, Prudential has an Earnings ESP of +2.47%. Investors should also know that PRU 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.
PRU is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is RLI Corp. (RLI - Free Report) .
Slated to report earnings on January 24, 2024, RLI Corp. holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.65 a share 14 days from its next quarterly update.
The Zacks Consensus Estimate for RLI Corp. is $1.44, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +14.39%.
Because both stocks hold a positive Earnings ESP, PRU and RLI 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 >>
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.2% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>
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.
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.
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 Prudential?
The final step today is to look at a stock that meets our ESP qualifications. Prudential (PRU - Free Report) earns a #3 (Hold) 27 days from its next quarterly earnings release on February 6, 2024, and its Most Accurate Estimate comes in at $2.68 a share.
By taking the percentage difference between the $2.68 Most Accurate Estimate and the $2.62 Zacks Consensus Estimate, Prudential has an Earnings ESP of +2.47%. Investors should also know that PRU 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.
PRU is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is RLI Corp. (RLI - Free Report) .
Slated to report earnings on January 24, 2024, RLI Corp. holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.65 a share 14 days from its next quarterly update.
The Zacks Consensus Estimate for RLI Corp. is $1.44, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +14.39%.
Because both stocks hold a positive Earnings ESP, PRU and RLI 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 >>
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.2% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>
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