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.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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.
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.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider American Express?
The final step today is to look at a stock that meets our ESP qualifications.
American Express ( earns a #3 (Hold) 28 days from its next quarterly earnings release on January 24, 2023, and its Most Accurate Estimate comes in at $2.41 a share. AXP Quick Quote AXP - Free Report)
By taking the percentage difference between the $2.41 Most Accurate Estimate and the $2.19 Zacks Consensus Estimate, American Express has an Earnings ESP of +10.03%. Investors should also know that AXP 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.
AXP is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at
Rithm ( as well. RITM Quick Quote RITM - Free Report)
Slated to report earnings on February 14, 2023, Rithm holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.31 a share 49 days from its next quarterly update.
Rithm's Earnings ESP figure currently stands at +6.09% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.29.
AXP and RITM'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 >>