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.

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.

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 General Mills?

The final step today is to look at a stock that meets our ESP qualifications. General Mills (GIS Quick QuoteGIS - Free Report) earns a #2 (Buy) nine days from its next quarterly earnings release on June 28, 2023, and its Most Accurate Estimate comes in at $1.07 a share.

General Mills' Earnings ESP sits at +1.91%, which, as explained above, is calculated by taking the percentage difference between the $1.07 Most Accurate Estimate and the Zacks Consensus Estimate of $1.05. GIS is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

GIS is part of a big group of Consumer Staples stocks that boast a positive ESP, and investors may want to take a look at Clorox (CLX Quick QuoteCLX - Free Report) as well.

Clorox is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on August 2, 2023. CLX's Most Accurate Estimate sits at $1.13 a share 44 days from its next earnings release.

The Zacks Consensus Estimate for Clorox is $1.11, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2.14%.

Because both stocks hold a positive Earnings ESP, GIS and CLX 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 >>