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.
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.
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.
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 Nucor? 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. Nucor (NUE Quick Quote NUE - Free Report ) earns a #1 (Strong Buy) right now and its Most Accurate Estimate sits at $3.81 a share, just 10 days from its upcoming earnings release on April 20, 2023.
NUE has an Earnings ESP figure of +1.42%, which, as explained above, is calculated by taking the percentage difference between the $3.81 Most Accurate Estimate and the Zacks Consensus Estimate of $3.76. Nucor 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.
NUE is part of a big group of Basic Materials stocks that boast a positive ESP, and investors may want to take a look at Agnico Eagle Mines (AEM Quick Quote AEM - Free Report ) as well.
Agnico Eagle Mines, which is readying to report earnings on April 27, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.47 a share, and AEM is 17 days out from its next earnings report.
The Zacks Consensus Estimate for Agnico Eagle Mines is $0.39, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +18.47%.
Because both stocks hold a positive Earnings ESP, NUE and AEM 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 >>