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.
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 Graphic Packaging?
The final step today is to look at a stock that meets our ESP qualifications.
Graphic Packaging ( earns a #1 (Strong Buy) 12 days from its next quarterly earnings release on February 7, 2023, and its Most Accurate Estimate comes in at $0.60 a share. GPK Quick Quote GPK - Free Report)
By taking the percentage difference between the $0.60 Most Accurate Estimate and the $0.58 Zacks Consensus Estimate, Graphic Packaging has an Earnings ESP of +3.45%. Investors should also know that GPK 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.
GPK is part of a big group of Industrial Products stocks that boast a positive ESP, and investors may want to take a look at
Plug Power ( as well. PLUG Quick Quote PLUG - Free Report)
Plug Power is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on March 7, 2023. PLUG's Most Accurate Estimate sits at -$0.21 a share 40 days from its next earnings release.
Plug Power's Earnings ESP figure currently stands at +9.02% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of -$0.23.
Because both stocks hold a positive Earnings ESP, GPK and PLUG 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 >>