Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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 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.
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.
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.
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 Ligand Pharmaceuticals?
The final step today is to look at a stock that meets our ESP qualifications.
Ligand Pharmaceuticals ( earns a #1 (Strong Buy) two days from its next quarterly earnings release on November 8, 2023, and its Most Accurate Estimate comes in at $0.70 a share. LGND Quick Quote LGND - Free Report)
LGND has an Earnings ESP figure of +2.94%, which, as explained above, is calculated by taking the percentage difference between the $0.70 Most Accurate Estimate and the Zacks Consensus Estimate of $0.68. Ligand Pharmaceuticals 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.
LGND is just one of a large group of Medical stocks with a positive ESP figure.
Viatris ( is another qualifying stock you may want to consider. VTRS Quick Quote VTRS - Free Report)
Slated to report earnings on November 7, 2023, Viatris holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.78 a share one day from its next quarterly update.
Viatris' Earnings ESP figure currently stands at +6.12% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.74.
LGND and VTRS' 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 >>