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

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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.

Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.

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.

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.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 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 Greif?

The final step today is to look at a stock that meets our ESP qualifications. Greif (GEF - Free Report) earns a #1 (Strong Buy) 28 days from its next quarterly earnings release on August 31, 2022, and its Most Accurate Estimate comes in at $1.99 a share.

Greif's Earnings ESP sits at +0.51%, which, as explained above, is calculated by taking the percentage difference between the $1.99 Most Accurate Estimate and the Zacks Consensus Estimate of $1.98. GEF 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.

GEF is just one of a large group of Industrial Products stocks with a positive ESP figure. Agco (AGCO - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on October 27, 2022, Agco holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $3.10 a share 85 days from its next quarterly update.

The Zacks Consensus Estimate for Agco is $3.09, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.5%.

GEF and AGCO'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 >>


See More Zacks Research for These Tickers


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AGCO Corporation (AGCO) - free report >>

Greif, Inc. (GEF) - free report >>

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