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.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these 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 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.

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.

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 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 General Dynamics?

The final step today is to look at a stock that meets our ESP qualifications. General Dynamics (GD Quick QuoteGD - Free Report) earns a #3 (Hold) 21 days from its next quarterly earnings release on April 26, 2023, and its Most Accurate Estimate comes in at $2.64 a share.

GD has an Earnings ESP figure of +0.54%, which, as explained above, is calculated by taking the percentage difference between the $2.64 Most Accurate Estimate and the Zacks Consensus Estimate of $2.62. General Dynamics 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.

GD is just one of a large group of Aerospace stocks with a positive ESP figure. Virgin Galactic (SPCE Quick QuoteSPCE - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on May 4, 2023, Virgin Galactic holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is -$0.47 a share 29 days from its next quarterly update.

The Zacks Consensus Estimate for Virgin Galactic is -$0.50, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +6.75%.

Because both stocks hold a positive Earnings ESP, GD and SPCE 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 >>