Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.

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 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 Match Group?

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. Match Group (MTCH Quick QuoteMTCH - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.41 a share, just six days from its upcoming earnings release on May 7, 2024.

Match Group's Earnings ESP sits at +2%, which, as explained above, is calculated by taking the percentage difference between the $0.41 Most Accurate Estimate and the Zacks Consensus Estimate of $0.40. MTCH 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.

MTCH is just one of a large group of Retail and Wholesale stocks with a positive ESP figure. McDonald's (MCD Quick QuoteMCD - Free Report) is another qualifying stock you may want to consider.

McDonald's is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on July 25, 2024. MCD's Most Accurate Estimate sits at $3.17 a share 85 days from its next earnings release.

McDonald's Earnings ESP figure currently stands at +0.22% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $3.17.

Because both stocks hold a positive Earnings ESP, MTCH and MCD 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 >>