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.

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.

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.

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 Skyward Specialty Insurance?

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. Skyward Specialty Insurance (SKWD Quick QuoteSKWD - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $0.84 a share, just 17 days from its upcoming earnings release on May 1, 2025.

By taking the percentage difference between the $0.84 Most Accurate Estimate and the $0.78 Zacks Consensus Estimate, Skyward Specialty Insurance has an Earnings ESP of +8.15%. Investors should also know that SKWD 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.

SKWD is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Equinix (EQIX Quick QuoteEQIX - Free Report) as well.

Slated to report earnings on April 30, 2025, Equinix holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $9.09 a share 16 days from its next quarterly update.

The Zacks Consensus Estimate for Equinix is $8.96, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.41%.

SKWD and EQIX'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 >>