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.
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.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
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.
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 Prologis?
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.
Prologis ( earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.22 a share, just 13 days from its upcoming earnings release on January 18, 2023. PLD Quick Quote PLD - Free Report)
PLD has an Earnings ESP figure of +0.55%, which, as explained above, is calculated by taking the percentage difference between the $1.22 Most Accurate Estimate and the Zacks Consensus Estimate of $1.21. Prologis 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.
PLD is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is
Jefferies (. JEF Quick Quote JEF - Free Report)
Jefferies is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on January 9, 2023. JEF's Most Accurate Estimate sits at $0.75 a share four days from its next earnings release.
For Jefferies, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.56 is +33.93%.
PLD and JEF'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.
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