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.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

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.

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.

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 Lowe's?

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. Lowe's (LOW Quick QuoteLOW - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $2.96 a share, just 14 days from its upcoming earnings release on May 28, 2024.

By taking the percentage difference between the $2.96 Most Accurate Estimate and the $2.94 Zacks Consensus Estimate, Lowe's has an Earnings ESP of +0.83%. Investors should also know that LOW 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.

LOW is one of just a large database of Retail and Wholesale stocks with positive ESPs. Another solid-looking stock is Williams-Sonoma (WSM Quick QuoteWSM - Free Report) .

Williams-Sonoma, which is readying to report earnings on May 28, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $2.83 a share, and WSM is 14 days out from its next earnings report.

The Zacks Consensus Estimate for Williams-Sonoma is $2.78, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.96%.

Because both stocks hold a positive Earnings ESP, LOW and WSM 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 >>