Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.

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.

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.

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.

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 PlayAGS?

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. PlayAGS (AGS Quick QuoteAGS - Free Report) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at -$0.06 a share 21 days away from its upcoming earnings release on May 4, 2023.

By taking the percentage difference between the -$0.06 Most Accurate Estimate and the -$0.08 Zacks Consensus Estimate, PlayAGS has an Earnings ESP of +25%. Investors should also know that AGS 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.

AGS is one of just a large database of Consumer Discretionary stocks with positive ESPs. Another solid-looking stock is Boyd Gaming (BYD Quick QuoteBYD - Free Report) .

Slated to report earnings on April 25, 2023, Boyd Gaming holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.47 a share 12 days from its next quarterly update.

Boyd Gaming's Earnings ESP figure currently stands at +0.3% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.47.

AGS and BYD's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.

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 >>