Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.

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.

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.

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 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 Prologis?

The final step today is to look at a stock that meets our ESP qualifications. Prologis (PLD Quick QuotePLD - Free Report) earns a #3 (Hold) 19 days from its next quarterly earnings release on July 18, 2023, and its Most Accurate Estimate comes in at $1.71 a share.

Prologis' Earnings ESP sits at +1.85%, which, as explained above, is calculated by taking the percentage difference between the $1.71 Most Accurate Estimate and the Zacks Consensus Estimate of $1.68. PLD 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.

PLD is just one of a large group of Finance stocks with a positive ESP figure. Extra Space Storage (EXR Quick QuoteEXR - Free Report) is another qualifying stock you may want to consider.

Extra Space Storage, which is readying to report earnings on August 1, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $2.16 a share, and EXR is 33 days out from its next earnings report.

Extra Space Storage's Earnings ESP figure currently stands at +0.35% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.15.

Because both stocks hold a positive Earnings ESP, PLD and EXR 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 >>