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.

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.

With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.

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.

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 Capital Southwest?

The final step today is to look at a stock that meets our ESP qualifications. Capital Southwest (CSWC Quick QuoteCSWC - Free Report) earns a #3 (Hold) 12 days from its next quarterly earnings release on November 2, 2026, and its Most Accurate Estimate comes in at $0.58 a share.

Capital Southwest's Earnings ESP sits at +2.96%, which, as explained above, is calculated by taking the percentage difference between the $0.58 Most Accurate Estimate and the Zacks Consensus Estimate of $0.56. CSWC 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.

CSWC is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is Annaly Capital Management (NLY Quick QuoteNLY - Free Report) .

Slated to report earnings on January 27, 2027, Annaly Capital Management holds a #2 (Buy) ranking on the Zacks Rank, and its Most Accurate Estimate is $0.80 a share 98 days from its next quarterly update.

The Zacks Consensus Estimate for Annaly Capital Management is $0.78, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +3.00%.

CSWC and NLY'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 >>