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 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.

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.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 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 Insulet?

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. Insulet (PODD Quick QuotePODD - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.43 a share, just 14 days from its upcoming earnings release on May 9, 2024.

Insulet's Earnings ESP sits at +11.11%, which, as explained above, is calculated by taking the percentage difference between the $0.43 Most Accurate Estimate and the Zacks Consensus Estimate of $0.39. PODD 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.

PODD is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Verve Therapeutics (VERV Quick QuoteVERV - Free Report) .

Verve Therapeutics is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 20, 2024. VERV's Most Accurate Estimate sits at -$0.62 a share 25 days from its next earnings release.

Verve Therapeutics' Earnings ESP figure currently stands at +8.56% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of -$0.68.

PODD and VERV'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 >>