Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.

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 Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.

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.

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.

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 Dick's Sporting Goods?

The final step today is to look at a stock that meets our ESP qualifications. Dick's Sporting Goods (DKS Quick QuoteDKS - Free Report) earns a #2 (Buy) six days from its next quarterly earnings release on September 4, 2024, and its Most Accurate Estimate comes in at $3.75 a share.

By taking the percentage difference between the $3.75 Most Accurate Estimate and the $3.72 Zacks Consensus Estimate, Dick's Sporting Goods has an Earnings ESP of +0.79%. Investors should also know that DKS 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.

DKS is just one of a large group of Retail and Wholesale stocks with a positive ESP figure. Brinker International (EAT Quick QuoteEAT - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on November 6, 2024, Brinker International holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.63 a share 69 days from its next quarterly update.

For Brinker International, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.62 is +2.27%.

Because both stocks hold a positive Earnings ESP, DKS and EAT 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 >>