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.

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.

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.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Linde?

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. Linde (LIN Quick QuoteLIN - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $3.93 a share, just 15 days from its upcoming earnings release on May 1, 2025.

By taking the percentage difference between the $3.93 Most Accurate Estimate and the $3.92 Zacks Consensus Estimate, Linde has an Earnings ESP of +0.22%. Investors should also know that LIN 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.

LIN is just one of a large group of Basic Materials stocks with a positive ESP figure. Air Products and Chemicals (APD Quick QuoteAPD - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on May 1, 2025, Air Products and Chemicals holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.84 a share 15 days from its next quarterly update.

The Zacks Consensus Estimate for Air Products and Chemicals is $2.83, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.29%.

Because both stocks hold a positive Earnings ESP, LIN and APD 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 >>