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.

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.

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 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 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 Cigna?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Cigna (CI Quick QuoteCI - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $6.61 a share 29 days away from its upcoming earnings release on February 2, 2024.

CI has an Earnings ESP figure of +1.33%, which, as explained above, is calculated by taking the percentage difference between the $6.61 Most Accurate Estimate and the Zacks Consensus Estimate of $6.52. Cigna 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.

CI is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at AMN Healthcare Services (AMN Quick QuoteAMN - Free Report) as well.

AMN Healthcare Services is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 15, 2024. AMN's Most Accurate Estimate sits at $1.33 a share 42 days from its next earnings release.

For AMN Healthcare Services, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.23 is +8.13%.

Because both stocks hold a positive Earnings ESP, CI and AMN could potentially post earnings beats in their next reports.

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 >>