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, 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.

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.

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 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 MercadoLibre?

The final step today is to look at a stock that meets our ESP qualifications. MercadoLibre (MELI Quick QuoteMELI - Free Report) earns a #2 (Buy) 14 days from its next quarterly earnings release on November 6, 2024, and its Most Accurate Estimate comes in at $12.56 a share.

MercadoLibre's Earnings ESP sits at +11.42%, which, as explained above, is calculated by taking the percentage difference between the $12.56 Most Accurate Estimate and the Zacks Consensus Estimate of $11.27. MELI is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

MELI is one of just a large database of Retail and Wholesale stocks with positive ESPs. Another solid-looking stock is McDonald's (MCD Quick QuoteMCD - Free Report) .

McDonald's, which is readying to report earnings on October 29, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $3.19 a share, and MCD is six days out from its next earnings report.

For McDonald's, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $3.17 is +0.54%.

MELI and MCD'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 >>