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.

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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more 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.

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.

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 American Electric Power?

The final step today is to look at a stock that meets our ESP qualifications. American Electric Power (AEP Quick QuoteAEP - Free Report) earns a #3 (Hold) 12 days from its next quarterly earnings release on July 30, 2025, and its Most Accurate Estimate comes in at $1.29 a share.

By taking the percentage difference between the $1.29 Most Accurate Estimate and the $1.17 Zacks Consensus Estimate, American Electric Power has an Earnings ESP of +10.45%. Investors should also know that AEP 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.

AEP is just one of a large group of Utilities stocks with a positive ESP figure. Sempra (SRE Quick QuoteSRE - Free Report) is another qualifying stock you may want to consider.

Sempra is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on August 5, 2025. SRE's Most Accurate Estimate sits at $0.83 a share 18 days from its next earnings release.

For Sempra, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.82 is +1.22%.

AEP and SRE'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 >>