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.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

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 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.

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 T. Rowe Price?

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. T. Rowe Price (TROW Quick QuoteTROW - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $1.71 a share, just 14 days from its upcoming earnings release on July 28, 2023.

T. Rowe Price's Earnings ESP sits at +0.49%, which, as explained above, is calculated by taking the percentage difference between the $1.71 Most Accurate Estimate and the Zacks Consensus Estimate of $1.70. TROW 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.

TROW is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Simon Property (SPG Quick QuoteSPG - Free Report) as well.

Simon Property is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on August 7, 2023. SPG's Most Accurate Estimate sits at $2.94 a share 24 days from its next earnings release.

For Simon Property, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.91 is +1.07%.

TROW and SPG'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 >>