Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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.
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 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.
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.
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 Foot Locker?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock.
Foot Locker ( holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.84 a share one day away from its upcoming earnings release on August 19, 2022. FL Quick Quote FL - Free Report)
By taking the percentage difference between the $0.84 Most Accurate Estimate and the $0.81 Zacks Consensus Estimate, Foot Locker has an Earnings ESP of +3.47%. Investors should also know that FL 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.
FL is just one of a large group of Retail and Wholesale stocks with a positive ESP figure.
CVS Health ( is another qualifying stock you may want to consider. CVS Quick Quote CVS - Free Report)
Slated to report earnings on November 2, 2022, CVS Health holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.99 a share 76 days from its next quarterly update.
For CVS Health, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.99 is +0.01%.
Because both stocks hold a positive Earnings ESP, FL and CVS could potentially post earnings beats in their next reports.
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 >>