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.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive 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 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.

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 Qualcomm?

The final step today is to look at a stock that meets our ESP qualifications. Qualcomm (QCOM Quick QuoteQCOM - Free Report) earns a #2 (Buy) two days from its next quarterly earnings release on November 6, 2024, and its Most Accurate Estimate comes in at $2.57 a share.

Qualcomm's Earnings ESP sits at +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. QCOM 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.

QCOM is one of just a large database of Computer and Technology stocks with positive ESPs. Another solid-looking stock is Seagate (STX Quick QuoteSTX - Free Report) .

Slated to report earnings on January 22, 2025, Seagate holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.90 a share 79 days from its next quarterly update.

The Zacks Consensus Estimate for Seagate is $1.78, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +6.64%.

QCOM and STX'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 >>