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.

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 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.

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 CME Group?

The final step today is to look at a stock that meets our ESP qualifications. CME Group (CME Quick QuoteCME - Free Report) earns a #3 (Hold) 30 days from its next quarterly earnings release on October 23, 2024, and its Most Accurate Estimate comes in at $2.61 a share.

CME Group's Earnings ESP sits at +5.13%, which, as explained above, is calculated by taking the percentage difference between the $2.61 Most Accurate Estimate and the Zacks Consensus Estimate of $2.48. CME 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.

CME is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at First Bancorp (FBP Quick QuoteFBP - Free Report) as well.

First Bancorp, which is readying to report earnings on October 18, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.45 a share, and FBP is 25 days out from its next earnings report.

The Zacks Consensus Estimate for First Bancorp is $0.42, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +6.3%.

CME and FBP'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 >>