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.
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.
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 ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 Malibu Boats?
The final step today is to look at a stock that meets our ESP qualifications.
Malibu Boats ( earns a #3 (Hold) 23 days from its next quarterly earnings release on August 25, 2022, and its Most Accurate Estimate comes in at $2.40 a share. MBUU Quick Quote MBUU - Free Report)
Malibu Boats' Earnings ESP sits at +3.78%, which, as explained above, is calculated by taking the percentage difference between the $2.40 Most Accurate Estimate and the Zacks Consensus Estimate of $2.31. MBUU is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our
Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
MBUU is just one of a large group of Consumer Discretionary stocks with a positive ESP figure.
Penn National Gaming ( is another qualifying stock you may want to consider. PENN Quick Quote PENN - Free Report)
Slated to report earnings on August 4, 2022, Penn National Gaming holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.53 a share two days from its next quarterly update.
The Zacks Consensus Estimate for Penn National Gaming is $0.51, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +4.58%.
MBUU and PENN'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 >>