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.

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 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.

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 Foot Locker?

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. Foot Locker (FL Quick QuoteFL - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.13 a share, just seven days from its upcoming earnings release on November 18, 2022.

FL has an Earnings ESP figure of +0.89%, which, as explained above, is calculated by taking the percentage difference between the $1.13 Most Accurate Estimate and the Zacks Consensus Estimate of $1.12. Foot Locker 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.

FL 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 Builders FirstSource (BLDR Quick QuoteBLDR - Free Report) as well.

Builders FirstSource, which is readying to report earnings on March 7, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $2.30 a share, and BLDR is 116 days out from its next earnings report.

The Zacks Consensus Estimate for Builders FirstSource is $2.24, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2.94%.

FL and BLDR'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 >>