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.

The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.

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.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

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 Global Payments?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Global Payments (GPN Quick QuoteGPN - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.72 a share 28 days away from its upcoming earnings release on October 30, 2023.

Global Payments' Earnings ESP sits at +0.48%, which, as explained above, is calculated by taking the percentage difference between the $2.72 Most Accurate Estimate and the Zacks Consensus Estimate of $2.71. GPN 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.

GPN is just one of a large group of Business Services stocks with a positive ESP figure. Clean Harbors (CLH Quick QuoteCLH - Free Report) is another qualifying stock you may want to consider.

Clean Harbors, which is readying to report earnings on November 1, 2023, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $2.12 a share, and CLH is 30 days out from its next earnings report.

Clean Harbors' Earnings ESP figure currently stands at +2.71% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.06.

Because both stocks hold a positive Earnings ESP, GPN and CLH 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 >>