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Zacks Earnings ESP: A Better Way to Find Earnings Surprises for Industrial Products

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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.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

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.

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.

Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Deere?

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. Deere (DE - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $4.99 a share, just 17 days from its upcoming earnings release on August 20, 2021.

DE has an Earnings ESP figure of 11.97%, which, as explained above, is calculated by taking the percentage difference between the $4.99 Most Accurate Estimate and the Zacks Consensus Estimate of $4.46. Deere is one of just a large database of stocks with positive ESPs. These stocks can be filtered by ESP, Zacks Rank, % Surprise (Last Qtr.), and Reporting date.

Don't forget to head to the Earnings ESP Home Page. There, you'll find lots more earnings-related investing strategies to help build a winning portfolio.

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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