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.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

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 is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.

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.

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 Civitas Resources?

The final step today is to look at a stock that meets our ESP qualifications. Civitas Resources (CIVI Quick QuoteCIVI - Free Report) earns a #3 (Hold) nine days from its next quarterly earnings release on May 2, 2024, and its Most Accurate Estimate comes in at $2.54 a share.

By taking the percentage difference between the $2.54 Most Accurate Estimate and the $2.52 Zacks Consensus Estimate, Civitas Resources has an Earnings ESP of +1.04%. Investors should also know that CIVI 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.

CIVI is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at Petrobras (PBR Quick QuotePBR - Free Report) as well.

Slated to report earnings on May 9, 2024, Petrobras holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.98 a share 16 days from its next quarterly update.

For Petrobras, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.88 is +11.36%.

CIVI and PBR'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 >>