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.

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.

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.

Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 Microchip Technology?

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. Microchip Technology (MCHP Quick QuoteMCHP - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $0.24 a share, just 24 days from its upcoming earnings release on August 7, 2025.

Microchip Technology's Earnings ESP sits at +3.12%, which, as explained above, is calculated by taking the percentage difference between the $0.24 Most Accurate Estimate and the Zacks Consensus Estimate of $0.23. MCHP 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.

MCHP is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at Nutanix (NTNX Quick QuoteNTNX - Free Report) as well.

Nutanix is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on August 27, 2025. NTNX's Most Accurate Estimate sits at $0.32 a share 44 days from its next earnings release.

The Zacks Consensus Estimate for Nutanix is $0.31, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2.15%.

Because both stocks hold a positive Earnings ESP, MCHP and NTNX 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 >>