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.
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 is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.
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.
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.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider Amcor?
The final step today is to look at a stock that meets our ESP qualifications.
Amcor ( earns a #3 (Hold) five days from its next quarterly earnings release on August 17, 2022, and its Most Accurate Estimate comes in at $0.25 a share. AMCR Quick Quote AMCR - Free Report)
Amcor's Earnings ESP sits at +2.08%, which, as explained above, is calculated by taking the percentage difference between the $0.25 Most Accurate Estimate and the Zacks Consensus Estimate of $0.24. AMCR 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.
AMCR is one of just a large database of Industrial Products stocks with positive ESPs. Another solid-looking stock is
CECO Environmental .
CECO Environmental, which is readying to report earnings on November 14, 2022, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $0.16 a share, and CECE is 94 days out from its next earnings report.
The Zacks Consensus Estimate for CECO Environmental is $0.14, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +18.52%.
AMCR and CECE'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 >>