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.

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.

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.

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 Alphabet?

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Alphabet (GOOGL Quick QuoteGOOGL - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $1.84 a share, just four days from its upcoming earnings release on October 29, 2024.

Alphabet's Earnings ESP sits at +0.4%, which, as explained above, is calculated by taking the percentage difference between the $1.84 Most Accurate Estimate and the Zacks Consensus Estimate of $1.83. GOOGL 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.

GOOGL 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 Dynatrace (DT Quick QuoteDT - Free Report) as well.

Dynatrace is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on November 7, 2024. DT's Most Accurate Estimate sits at $0.33 a share 13 days from its next earnings release.

For Dynatrace, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.32 is +1.97%.

GOOGL and DT'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 >>