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.

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 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.

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 Ralph Lauren?

The final step today is to look at a stock that meets our ESP qualifications. Ralph Lauren (RL Quick QuoteRL - Free Report) earns a #2 (Buy) 10 days from its next quarterly earnings release on August 7, 2025, and its Most Accurate Estimate comes in at $3.46 a share.

By taking the percentage difference between the $3.46 Most Accurate Estimate and the $3.43 Zacks Consensus Estimate, Ralph Lauren has an Earnings ESP of +1.02%. Investors should also know that RL 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.

RL is part of a big group of Consumer Discretionary stocks that boast a positive ESP, and investors may want to take a look at Take-Two Interactive (TTWO Quick QuoteTTWO - Free Report) as well.

Slated to report earnings on August 7, 2025, Take-Two Interactive holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $0.30 a share 10 days from its next quarterly update.

The Zacks Consensus Estimate for Take-Two Interactive is $0.26, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +13.93%.

RL and TTWO'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 >>