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.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these 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.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Matador Resources?

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Matador Resources (MTDR Quick QuoteMTDR - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $2.72 a share, just 28 days from its upcoming earnings release on October 25, 2022.

By taking the percentage difference between the $2.72 Most Accurate Estimate and the $2.70 Zacks Consensus Estimate, Matador Resources has an Earnings ESP of +0.77%. Investors should also know that MTDR 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.

MTDR is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at Black Stone Minerals (BSM Quick QuoteBSM - Free Report) as well.

Black Stone Minerals is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on November 7, 2022. BSM's Most Accurate Estimate sits at $0.43 a share 41 days from its next earnings release.

For Black Stone Minerals, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.43 is +1.18%.

Because both stocks hold a positive Earnings ESP, MTDR and BSM 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 >>