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.

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, 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.

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.

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.

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 Atlassian?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Atlassian (TEAM Quick QuoteTEAM - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.91 a share nine days away from its upcoming earnings release on May 1, 2025.

Atlassian's Earnings ESP sits at +0.93%, which, as explained above, is calculated by taking the percentage difference between the $0.91 Most Accurate Estimate and the Zacks Consensus Estimate of $0.90. TEAM 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.

TEAM is just one of a large group of Computer and Technology stocks with a positive ESP figure. Akamai Technologies (AKAM Quick QuoteAKAM - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on May 8, 2025, Akamai Technologies holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.58 a share 16 days from its next quarterly update.

The Zacks Consensus Estimate for Akamai Technologies is $1.58, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.07%.

Because both stocks hold a positive Earnings ESP, TEAM and AKAM 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 >>