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.

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 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 Quest Diagnostics?

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. Quest Diagnostics (DGX Quick QuoteDGX - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.99 a share, just 21 days from its upcoming earnings release on April 27, 2023.

DGX has an Earnings ESP figure of +0.54%, which, as explained above, is calculated by taking the percentage difference between the $1.99 Most Accurate Estimate and the Zacks Consensus Estimate of $1.97. Quest Diagnostics 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.

DGX is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Novo Nordisk (NVO Quick QuoteNVO - Free Report) .

Novo Nordisk, which is readying to report earnings on May 5, 2023, sits at a Zacks Rank #1 (Strong Buy) right now. It's Most Accurate Estimate is currently $1.23 a share, and NVO is 29 days out from its next earnings report.

The Zacks Consensus Estimate for Novo Nordisk is $1.12, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +10.31%.

Because both stocks hold a positive Earnings ESP, DGX and NVO 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 >>