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.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive 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 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.

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.

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.

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 Expedia?

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. Expedia (EXPE Quick QuoteEXPE - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $3.93 a share, just one day from its upcoming earnings release on November 3, 2022.

By taking the percentage difference between the $3.93 Most Accurate Estimate and the $3.89 Zacks Consensus Estimate, Expedia has an Earnings ESP of +0.93%. Investors should also know that EXPE 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.

EXPE is part of a big group of Retail and Wholesale stocks that boast a positive ESP, and investors may want to take a look at CarMax (KMX Quick QuoteKMX - Free Report) as well.

CarMax is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on December 28, 2022. KMX's Most Accurate Estimate sits at $0.85 a share 56 days from its next earnings release.

For CarMax, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.78 is +7.95%.

EXPE and KMX'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 >>