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.

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.

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.

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 ImmunoGen?

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. ImmunoGen earns a #1 (Strong Buy) right now and its Most Accurate Estimate sits at $0.07 a share, just 14 days from its upcoming earnings release on November 3, 2023.

ImmunoGen's Earnings ESP sits at +195.46%, which, as explained above, is calculated by taking the percentage difference between the $0.07 Most Accurate Estimate and the Zacks Consensus Estimate of $0.02. IMGN 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.

IMGN is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Astrazeneca (AZN Quick QuoteAZN - Free Report) .

Astrazeneca is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on November 9, 2023. AZN's Most Accurate Estimate sits at $0.86 a share 20 days from its next earnings release.

For Astrazeneca, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.82 is +5.13%.

IMGN and AZN's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.

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 >>