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.

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.

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 Terex?

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. Terex (TEX Quick QuoteTEX - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.42 a share, just seven days from its upcoming earnings release on February 8, 2024.

By taking the percentage difference between the $1.42 Most Accurate Estimate and the $1.41 Zacks Consensus Estimate, Terex has an Earnings ESP of +1.25%. Investors should also know that TEX is one of a large group 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.

TEX is one of just a large database of Industrial Products stocks with positive ESPs. Another solid-looking stock is Graphic Packaging (GPK Quick QuoteGPK - Free Report) .

Graphic Packaging is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 20, 2024. GPK's Most Accurate Estimate sits at $0.70 a share 19 days from its next earnings release.

For Graphic Packaging, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.69 is +2.04%.

Because both stocks hold a positive Earnings ESP, TEX and GPK 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 >>