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.

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.

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 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 Eaton?

The final step today is to look at a stock that meets our ESP qualifications. Eaton (ETN Quick QuoteETN - Free Report) earns a #3 (Hold) seven days from its next quarterly earnings release on August 5, 2025, and its Most Accurate Estimate comes in at $2.93 a share.

Eaton's Earnings ESP sits at +0.33%, which, as explained above, is calculated by taking the percentage difference between the $2.93 Most Accurate Estimate and the Zacks Consensus Estimate of $2.92. ETN 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.

ETN is part of a big group of Industrial Products stocks that boast a positive ESP, and investors may want to take a look at Parker-Hannifin (PH Quick QuotePH - Free Report) as well.

Parker-Hannifin, which is readying to report earnings on August 7, 2025, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $7.10 a share, and PH is nine days out from its next earnings report.

The Zacks Consensus Estimate for Parker-Hannifin is $7.08, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.23%.

ETN and PH's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.

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 >>