Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.

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.

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 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.

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 Dominion Energy?

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. Dominion Energy (D Quick QuoteD - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.66 a share, just 30 days from its upcoming earnings release on February 12, 2025.

D has an Earnings ESP figure of +13.31%, which, as explained above, is calculated by taking the percentage difference between the $0.66 Most Accurate Estimate and the Zacks Consensus Estimate of $0.58. Dominion Energy is one of a large database 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.

D is part of a big group of Utilities stocks that boast a positive ESP, and investors may want to take a look at American Electric Power (AEP Quick QuoteAEP - Free Report) as well.

American Electric Power, which is readying to report earnings on February 24, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $1.25 a share, and AEP is 42 days out from its next earnings report.

For American Electric Power, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.24 is +0.6%.

Because both stocks hold a positive Earnings ESP, D and AEP 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 >>