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.

The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.

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.

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.

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 Newmont Corporation?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Newmont Corporation (NEM Quick QuoteNEM - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.73 a share 30 days away from its upcoming earnings release on October 24, 2024.

By taking the percentage difference between the $0.73 Most Accurate Estimate and the $0.71 Zacks Consensus Estimate, Newmont Corporation has an Earnings ESP of +3.18%. Investors should also know that NEM 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.

NEM is just one of a large group of Basic Materials stocks with a positive ESP figure. Cameco (CCJ Quick QuoteCCJ - Free Report) is another qualifying stock you may want to consider.

Cameco is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on October 29, 2024. CCJ's Most Accurate Estimate sits at $0.55 a share 35 days from its next earnings release.

Cameco's Earnings ESP figure currently stands at +39.24% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.40.

Because both stocks hold a positive Earnings ESP, NEM and CCJ 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 >>