Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.
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.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
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.
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 Emerson Electric?
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.
Emerson Electric ( earns a #2 (Buy) right now and its Most Accurate Estimate sits at $1.12 a share, just 15 days from its upcoming earnings release on August 2, 2023. EMR Quick Quote EMR - Free Report)
EMR has an Earnings ESP figure of +2.35%, which, as explained above, is calculated by taking the percentage difference between the $1.12 Most Accurate Estimate and the Zacks Consensus Estimate of $1.09. Emerson Electric is one of a large database 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.
EMR is one of just a large database of Industrial Products stocks with positive ESPs. Another solid-looking stock is
Parker-Hannifin (. PH Quick Quote PH - Free Report)
Parker-Hannifin is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on August 3, 2023. PH's Most Accurate Estimate sits at $5.68 a share 16 days from its next earnings release.
For Parker-Hannifin, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $5.51 is +3.18%.
EMR and PH'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 >>