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.
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 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.
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.
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 #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 Veeva Systems?
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.
Veeva Systems ( earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.29 a share, just 23 days from its upcoming earnings release on December 7, 2023. VEEV Quick Quote VEEV - Free Report)
VEEV has an Earnings ESP figure of +1.25%, which, as explained above, is calculated by taking the percentage difference between the $1.29 Most Accurate Estimate and the Zacks Consensus Estimate of $1.27. Veeva Systems 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.
VEEV is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at
Check Point Software ( as well. CHKP Quick Quote CHKP - Free Report)
Slated to report earnings on February 12, 2024, Check Point Software holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.47 a share 90 days from its next quarterly update.
For Check Point Software, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.45 is +0.61%.
VEEV and CHKP's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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 >>