Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
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.
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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more 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.
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 Comcast?
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.
Comcast ( earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.93 a share, just 29 days from its upcoming earnings release on October 27, 2022. CMCSA Quick Quote CMCSA - Free Report)
CMCSA has an Earnings ESP figure of +3.43%, which, as explained above, is calculated by taking the percentage difference between the $0.93 Most Accurate Estimate and the Zacks Consensus Estimate of $0.89. Comcast is one of a large database 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.
CMCSA is part of a big group of Consumer Discretionary stocks that boast a positive ESP, and investors may want to take a look at
BJ's Wholesale Club ( as well. BJ Quick Quote BJ - Free Report)
BJ's Wholesale Club is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on November 17, 2022. BJ's Most Accurate Estimate sits at $0.82 a share 50 days from its next earnings release.
BJ's Wholesale Club's Earnings ESP figure currently stands at +2.98% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.80.
CMCSA and BJ'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 >>