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How Investors Can Grab Better Returns for Utilities Using the Zacks ESP Screener
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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.
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.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
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.
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 #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 CenterPoint Energy?
The final step today is to look at a stock that meets our ESP qualifications. CenterPoint Energy (CNP - Free Report) earns a #2 (Buy) 28 days from its next quarterly earnings release on November 1, 2022, and its Most Accurate Estimate comes in at $0.32 a share.
By taking the percentage difference between the $0.32 Most Accurate Estimate and the $0.31 Zacks Consensus Estimate, CenterPoint Energy has an Earnings ESP of +2.13%. Investors should also know that CNP 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.
CNP is just one of a large group of Utilities stocks with a positive ESP figure. Sempra (SRE - Free Report) is another qualifying stock you may want to consider.
Slated to report earnings on November 4, 2022, Sempra holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.37 a share 31 days from its next quarterly update.
The Zacks Consensus Estimate for Sempra is $1.95, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +21.54%.
CNP and SRE'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 >>
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How Investors Can Grab Better Returns for Utilities Using the Zacks ESP Screener
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.
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.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
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.
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 #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 CenterPoint Energy?
The final step today is to look at a stock that meets our ESP qualifications. CenterPoint Energy (CNP - Free Report) earns a #2 (Buy) 28 days from its next quarterly earnings release on November 1, 2022, and its Most Accurate Estimate comes in at $0.32 a share.
By taking the percentage difference between the $0.32 Most Accurate Estimate and the $0.31 Zacks Consensus Estimate, CenterPoint Energy has an Earnings ESP of +2.13%. Investors should also know that CNP 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.
CNP is just one of a large group of Utilities stocks with a positive ESP figure. Sempra (SRE - Free Report) is another qualifying stock you may want to consider.
Slated to report earnings on November 4, 2022, Sempra holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.37 a share 31 days from its next quarterly update.
The Zacks Consensus Estimate for Sempra is $1.95, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +21.54%.
CNP and SRE'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 >>