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.

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.

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 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.

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 Qualcomm?

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. Qualcomm (QCOM Quick QuoteQCOM - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.57 a share 19 days away from its upcoming earnings release on November 6, 2024.

QCOM has an Earnings ESP figure of +0.48%, which, as explained above, is calculated by taking the percentage difference between the $2.57 Most Accurate Estimate and the Zacks Consensus Estimate of $2.56. Qualcomm 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.

QCOM is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at Garmin (GRMN Quick QuoteGRMN - Free Report) as well.

Slated to report earnings on October 30, 2024, Garmin holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.47 a share 12 days from its next quarterly update.

Garmin's Earnings ESP figure currently stands at +1.03% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.46.

QCOM and GRMN'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 >>