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.
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.
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.
Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 EPR Properties?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock.
EPR Properties ( holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.25 a share 13 days away from its upcoming earnings release on April 26, 2023. EPR Quick Quote EPR - Free Report)
By taking the percentage difference between the $1.25 Most Accurate Estimate and the $1.23 Zacks Consensus Estimate, EPR Properties has an Earnings ESP of +2.04%. Investors should also know that EPR 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.
EPR is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is
Toronto-Dominion Bank (. TD Quick Quote TD - Free Report)
Toronto-Dominion Bank is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 25, 2023. TD's Most Accurate Estimate sits at $1.60 a share 42 days from its next earnings release.
The Zacks Consensus Estimate for Toronto-Dominion Bank is $1.56, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2.56%.
EPR and TD's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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 >>