Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.

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.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

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.

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.

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 Arch Capital Group?

The final step today is to look at a stock that meets our ESP qualifications. Arch Capital Group (ACGL Quick QuoteACGL - Free Report) earns a #3 (Hold) 16 days from its next quarterly earnings release on October 30, 2024, and its Most Accurate Estimate comes in at $1.92 a share.

ACGL has an Earnings ESP figure of +5.14%, which, as explained above, is calculated by taking the percentage difference between the $1.92 Most Accurate Estimate and the Zacks Consensus Estimate of $1.82. Arch Capital Group is one of a large database 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.

ACGL is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is PennyMac Mortgage (PMT Quick QuotePMT - Free Report) .

Slated to report earnings on October 24, 2024, PennyMac Mortgage holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.39 a share 10 days from its next quarterly update.

For PennyMac Mortgage, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.37 is +5.24%.

ACGL and PMT's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.

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 >>