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.

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.

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, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.

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.

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.

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 Valero Energy?

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. Valero Energy (VLO Quick QuoteVLO - Free Report) earns a #1 (Strong Buy) right now and its Most Accurate Estimate sits at $20.53 a share, just 30 days from its upcoming earnings release on October 22, 2026.

Valero Energy's Earnings ESP sits at +13.47%, which, as explained above, is calculated by taking the percentage difference between the $20.53 Most Accurate Estimate and the Zacks Consensus Estimate of $18.09. VLO 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.

VLO is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at Phillips 66 (PSX Quick QuotePSX - Free Report) as well.

Phillips 66, which is readying to report earnings on October 28, 2026, sits at a Zacks Rank #1 (Strong Buy) right now. Its Most Accurate Estimate is currently $12.04 a share, and PSX is 36 days out from its next earnings report.

For Phillips 66, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $10.21 is +17.95%.

VLO and PSX'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 >>