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 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.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider S&P Global?
The final step today is to look at a stock that meets our ESP qualifications.
S&P Global ( earns a #3 (Hold) 16 days from its next quarterly earnings release on April 27, 2023, and its Most Accurate Estimate comes in at $2.94 a share. SPGI Quick Quote SPGI - Free Report)
SPGI has an Earnings ESP figure of +1.75%, which, as explained above, is calculated by taking the percentage difference between the $2.94 Most Accurate Estimate and the Zacks Consensus Estimate of $2.88. S&P Global 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.
SPGI is part of a big group of Business Services stocks that boast a positive ESP, and investors may want to take a look at
Waste Management ( as well. WM Quick Quote WM - Free Report)
Waste Management is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on April 26, 2023. WM's Most Accurate Estimate sits at $1.27 a share 15 days from its next earnings release.
Waste Management's Earnings ESP figure currently stands at +0.53% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.26.
Because both stocks hold a positive Earnings ESP, SPGI and WM 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 >>