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Zacks Earnings ESP: A Better Way to Find Earnings Surprises for Retail and Wholesale
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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.
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 Dollar General?
The final step today is to look at a stock that meets our ESP qualifications. Dollar General (DG - Free Report) earns a #2 (Buy) 17 days from its next quarterly earnings release on August 25, 2022, and its Most Accurate Estimate comes in at $2.93 a share.
By taking the percentage difference between the $2.93 Most Accurate Estimate and the $2.91 Zacks Consensus Estimate, Dollar General has an Earnings ESP of +0.5%. Investors should also know that DG 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.
DG is part of a big group of Retail and Wholesale stocks that boast a positive ESP, and investors may want to take a look at Builders FirstSource (BLDR - Free Report) as well.
Builders FirstSource, which is readying to report earnings on November 3, 2022, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $3.23 a share, and BLDR is 87 days out from its next earnings report.
Builders FirstSource's Earnings ESP figure currently stands at +0.53% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $3.21.
DG and BLDR'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 >>
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Zacks Earnings ESP: A Better Way to Find Earnings Surprises for Retail and Wholesale
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.
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 Dollar General?
The final step today is to look at a stock that meets our ESP qualifications. Dollar General (DG - Free Report) earns a #2 (Buy) 17 days from its next quarterly earnings release on August 25, 2022, and its Most Accurate Estimate comes in at $2.93 a share.
By taking the percentage difference between the $2.93 Most Accurate Estimate and the $2.91 Zacks Consensus Estimate, Dollar General has an Earnings ESP of +0.5%. Investors should also know that DG 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.
DG is part of a big group of Retail and Wholesale stocks that boast a positive ESP, and investors may want to take a look at Builders FirstSource (BLDR - Free Report) as well.
Builders FirstSource, which is readying to report earnings on November 3, 2022, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $3.23 a share, and BLDR is 87 days out from its next earnings report.
Builders FirstSource's Earnings ESP figure currently stands at +0.53% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $3.21.
DG and BLDR'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 >>