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.

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.

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 Allison Transmission?

The final step today is to look at a stock that meets our ESP qualifications. Allison Transmission (ALSN Quick QuoteALSN - Free Report) earns a #2 (Buy) one day from its next quarterly earnings release on October 25, 2023, and its Most Accurate Estimate comes in at $1.90 a share.

ALSN has an Earnings ESP figure of +10.31%, which, as explained above, is calculated by taking the percentage difference between the $1.90 Most Accurate Estimate and the Zacks Consensus Estimate of $1.72. Allison Transmission 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.

ALSN is one of just a large database of Auto, Tires and Trucks stocks with positive ESPs. Another solid-looking stock is Harley-Davidson (HOG Quick QuoteHOG - Free Report) .

Harley-Davidson is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on October 26, 2023. HOG's Most Accurate Estimate sits at $1.41 a share two days from its next earnings release.

For Harley-Davidson, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.39 is +1.68%.

ALSN and HOG'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 >>