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.

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.

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.

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.

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 Pioneer Natural Resources?

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. Pioneer Natural Resources earns a #2 (Buy) right now and its Most Accurate Estimate sits at $5.54 a share, just six days from its upcoming earnings release on October 26, 2023.

PXD has an Earnings ESP figure of +0.63%, which, as explained above, is calculated by taking the percentage difference between the $5.54 Most Accurate Estimate and the Zacks Consensus Estimate of $5.51. Pioneer Natural Resources 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.

PXD is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at EOG Resources (EOG Quick QuoteEOG - Free Report) as well.

EOG Resources, which is readying to report earnings on November 2, 2023, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $2.97 a share, and EOG is 13 days out from its next earnings report.

EOG Resources' Earnings ESP figure currently stands at +2.95% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.89.

PXD and EOG'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 >>