Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
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, 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.
With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.
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 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 New Fortress Energy?
The final step today is to look at a stock that meets our ESP qualifications.
New Fortress Energy ( earns a #1 (Strong Buy) one day from its next quarterly earnings release on August 4, 2022, and its Most Accurate Estimate comes in at $0.65 a share. NFE Quick Quote NFE - Free Report)
NFE has an Earnings ESP figure of +7.44%, which, as explained above, is calculated by taking the percentage difference between the $0.65 Most Accurate Estimate and the Zacks Consensus Estimate of $0.61. New Fortress Energy is one of a large database 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.
NFE is one of just a large database of Oils and Energy stocks with positive ESPs. Another solid-looking stock is
Exxon Mobil (. XOM Quick Quote XOM - Free Report)
Exxon Mobil is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on November 4, 2022. XOM's Most Accurate Estimate sits at $3.49 a share 93 days from its next earnings release.
The Zacks Consensus Estimate for Exxon Mobil is $3.36, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +3.87%.
NFE and XOM's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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 >>