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.

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.

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.

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 Chesapeake Energy?

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Chesapeake Energy (CHK Quick QuoteCHK - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.92 a share, just 28 days from its upcoming earnings release on August 1, 2023.

By taking the percentage difference between the $0.92 Most Accurate Estimate and the $0.80 Zacks Consensus Estimate, Chesapeake Energy has an Earnings ESP of +15%. Investors should also know that CHK 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.

CHK is just one of a large group of Oils and Energy stocks with a positive ESP figure. Par Petroleum (PARR Quick QuotePARR - Free Report) is another qualifying stock you may want to consider.

Par Petroleum, which is readying to report earnings on August 14, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $1.32 a share, and PARR is 41 days out from its next earnings report.

For Par Petroleum, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.18 is +11.75%.

Because both stocks hold a positive Earnings ESP, CHK and PARR 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 >>