Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.

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 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.

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.

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 Illumina?

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. Illumina (ILMN Quick QuoteILMN - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.03 a share nine days away from its upcoming earnings release on July 31, 2025.

ILMN has an Earnings ESP figure of +1.10%, which, as explained above, is calculated by taking the percentage difference between the $1.03 Most Accurate Estimate and the Zacks Consensus Estimate of $1.02. Illumina is one of a large database 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.

ILMN is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at DaVita HealthCare (DVA Quick QuoteDVA - Free Report) as well.

DaVita HealthCare is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on August 5, 2025. DVA's Most Accurate Estimate sits at $2.88 a share 14 days from its next earnings release.

The Zacks Consensus Estimate for DaVita HealthCare is $2.70, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +6.67%.

Because both stocks hold a positive Earnings ESP, ILMN and DVA 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 >>