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.

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.

Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.

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.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Walmart?

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. Walmart (WMT Quick QuoteWMT - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $0.54 a share, just 11 days from its upcoming earnings release on November 19, 2024.

Walmart's Earnings ESP sits at +1.61%, which, as explained above, is calculated by taking the percentage difference between the $0.54 Most Accurate Estimate and the Zacks Consensus Estimate of $0.53. WMT 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.

WMT is just one of a large group of Retail and Wholesale stocks with a positive ESP figure. Jack In The Box (JACK Quick QuoteJACK - Free Report) is another qualifying stock you may want to consider.

Jack In The Box, which is readying to report earnings on November 20, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $1.13 a share, and JACK is 12 days out from its next earnings report.

For Jack In The Box, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.12 is +0.76%.

Because both stocks hold a positive Earnings ESP, WMT and JACK could potentially post earnings beats in their next reports.

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 >>