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.

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.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

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 Marriott International?

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. Marriott International (MAR Quick QuoteMAR - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $2.22 a share, just 19 days from its upcoming earnings release on May 1, 2024.

Marriott International's Earnings ESP sits at +2.19%, which, as explained above, is calculated by taking the percentage difference between the $2.22 Most Accurate Estimate and the Zacks Consensus Estimate of $2.17. MAR is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

MAR is part of a big group of Consumer Discretionary stocks that boast a positive ESP, and investors may want to take a look at Netflix (NFLX Quick QuoteNFLX - Free Report) as well.

Slated to report earnings on April 18, 2024, Netflix holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $4.51 a share six days from its next quarterly update.

For Netflix, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.49 is +0.36%.

MAR and NFLX'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 >>