Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
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 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.
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 Kellogg?
The final step today is to look at a stock that meets our ESP qualifications.
Kellogg ( earns a #3 (Hold) 23 days from its next quarterly earnings release on February 9, 2023, and its Most Accurate Estimate comes in at $0.89 a share. K Quick Quote K - Free Report)
Kellogg's Earnings ESP sits at +6.52%, which, as explained above, is calculated by taking the percentage difference between the $0.89 Most Accurate Estimate and the Zacks Consensus Estimate of $0.84. K is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our
Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
K is part of a big group of Consumer Staples stocks that boast a positive ESP, and investors may want to take a look at
Procter & Gamble ( as well. PG Quick Quote PG - Free Report)
Procter & Gamble, which is readying to report earnings on January 19, 2023, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $1.58 a share, and PG is two days out from its next earnings report.
The Zacks Consensus Estimate for Procter & Gamble is $1.58, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.28%.
Because both stocks hold a positive Earnings ESP, K and PG could potentially post earnings beats in their next reports.
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 >>