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.

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.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 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 Walt Disney?

The final step today is to look at a stock that meets our ESP qualifications. Walt Disney (DIS Quick QuoteDIS - Free Report) earns a #3 (Hold) 27 days from its next quarterly earnings release on November 14, 2024, and its Most Accurate Estimate comes in at $1.12 a share.

By taking the percentage difference between the $1.12 Most Accurate Estimate and the $1.09 Zacks Consensus Estimate, Walt Disney has an Earnings ESP of +2.82%. Investors should also know that DIS 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.

DIS is one of just a large database of Consumer Discretionary stocks with positive ESPs. Another solid-looking stock is Netflix (NFLX Quick QuoteNFLX - Free Report) .

Slated to report earnings on January 28, 2025, Netflix holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $3.99 a share 102 days from its next quarterly update.

The Zacks Consensus Estimate for Netflix is $3.86, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +3.33%.

DIS and NFLX'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 >>