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.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive 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.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% 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 Adobe Systems?

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. Adobe Systems (ADBE Quick QuoteADBE - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $3.68 a share, just 30 days from its upcoming earnings release on March 15, 2023.

By taking the percentage difference between the $3.68 Most Accurate Estimate and the $3.66 Zacks Consensus Estimate, Adobe Systems has an Earnings ESP of +0.28%. Investors should also know that ADBE 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.

ADBE is just one of a large group of Computer and Technology stocks with a positive ESP figure. SAP (SAP Quick QuoteSAP - Free Report) is another qualifying stock you may want to consider.

SAP, which is readying to report earnings on April 28, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $1.28 a share, and SAP is 74 days out from its next earnings report.

The Zacks Consensus Estimate for SAP is $1.18, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +8.48%.

Because both stocks hold a positive Earnings ESP, ADBE and SAP 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 >>