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.

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.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

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 Kratos?

The final step today is to look at a stock that meets our ESP qualifications. Kratos (KTOS Quick QuoteKTOS - Free Report) earns a #2 (Buy) seven days from its next quarterly earnings release on November 5, 2026, and its Most Accurate Estimate comes in at $0.23 a share.

By taking the percentage difference between the $0.23 Most Accurate Estimate and the $0.21 Zacks Consensus Estimate, Kratos has an Earnings ESP of +8.78%. Investors should also know that KTOS 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.

KTOS is just one of a large group of Aerospace stocks with a positive ESP figure. Northrop Grumman (NOC Quick QuoteNOC - Free Report) is another qualifying stock you may want to consider.

Northrop Grumman, which is readying to report earnings on January 26, 2027, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $7.90 a share, and NOC is 89 days out from its next earnings report.

Northrop Grumman's Earnings ESP figure currently stands at +0.28% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $7.88.

Because both stocks hold a positive Earnings ESP, KTOS and NOC 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 >>