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.

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, 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.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 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 Huntington Ingalls?

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. Huntington Ingalls (HII Quick QuoteHII - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $3.54 a share, just seven days from its upcoming earnings release on November 3, 2022.

HII has an Earnings ESP figure of +0.35%, which, as explained above, is calculated by taking the percentage difference between the $3.54 Most Accurate Estimate and the Zacks Consensus Estimate of $3.53. Huntington Ingalls 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.

HII is one of just a large database of Aerospace stocks with positive ESPs. Another solid-looking stock is Lockheed Martin (LMT Quick QuoteLMT - Free Report) .

Lockheed Martin is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on January 24, 2023. LMT's Most Accurate Estimate sits at $7.42 a share 89 days from its next earnings release.

The Zacks Consensus Estimate for Lockheed Martin is $7.40, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.37%.

HII and LMT's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.

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 >>