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.
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.
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.
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.
Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 Twilio?
The final step today is to look at a stock that meets our ESP qualifications.
Twilio ( earns a #3 (Hold) 27 days from its next quarterly earnings release on October 26, 2022, and its Most Accurate Estimate comes in at -$0.37 a share. TWLO Quick Quote TWLO - Free Report)
Twilio's Earnings ESP sits at +4.52%, which, as explained above, is calculated by taking the percentage difference between the -$0.37 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.39. TWLO 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.
TWLO is just one of a large group of Computer and Technology stocks with a positive ESP figure.
Box ( is another qualifying stock you may want to consider. BOX Quick Quote BOX - Free Report)
Box is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on November 29, 2022. BOX's Most Accurate Estimate sits at $0.30 a share 61 days from its next earnings release.
The Zacks Consensus Estimate for Box is $0.30, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.96%.
TWLO and BOX'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 >>