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.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.

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 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.

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.

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 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 DuPont de Nemours?

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. DuPont de Nemours (DD Quick QuoteDD - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $1.05 a share, just six days from its upcoming earnings release on November 5, 2024.

DD has an Earnings ESP figure of +1%, which, as explained above, is calculated by taking the percentage difference between the $1.05 Most Accurate Estimate and the Zacks Consensus Estimate of $1.03. DuPont de Nemours 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.

DD is part of a big group of Basic Materials stocks that boast a positive ESP, and investors may want to take a look at Carpenter Technology (CRS Quick QuoteCRS - Free Report) as well.

Carpenter Technology, which is readying to report earnings on January 23, 2025, sits at a Zacks Rank #1 (Strong Buy) right now. It's Most Accurate Estimate is currently $1.57 a share, and CRS is 85 days out from its next earnings report.

Carpenter Technology's Earnings ESP figure currently stands at +7.07% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.47.

DD and CRS' 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 >>