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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more 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 #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 Comcast?

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. Comcast (CMCSA Quick QuoteCMCSA - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.10 a share 15 days away from its upcoming earnings release on October 31, 2024.

CMCSA has an Earnings ESP figure of +3.76%, which, as explained above, is calculated by taking the percentage difference between the $1.10 Most Accurate Estimate and the Zacks Consensus Estimate of $1.06. Comcast 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.

CMCSA is just one of a large group of Consumer Discretionary stocks with a positive ESP figure. Lululemon (LULU Quick QuoteLULU - Free Report) is another qualifying stock you may want to consider.

Lululemon is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on December 5, 2024. LULU's Most Accurate Estimate sits at $2.78 a share 50 days from its next earnings release.

The Zacks Consensus Estimate for Lululemon is $2.73, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.7%.

CMCSA and LULU'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 >>