Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.

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.

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.

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 FuelCell Energy?

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. FuelCell Energy (FCEL Quick QuoteFCEL - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at -$1.50 a share, just 29 days from its upcoming earnings release on December 17, 2024.

FCEL has an Earnings ESP figure of +16.67%, which, as explained above, is calculated by taking the percentage difference between the -$1.50 Most Accurate Estimate and the Zacks Consensus Estimate of -$1.80. FuelCell Energy 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.

FCEL is just one of a large group of Oils and Energy stocks with a positive ESP figure. Baker Hughes (BKR Quick QuoteBKR - Free Report) is another qualifying stock you may want to consider.

Baker Hughes, which is readying to report earnings on January 28, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.63 a share, and BKR is 71 days out from its next earnings report.

Baker Hughes' Earnings ESP figure currently stands at +0.13% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.63.

FCEL and BKR'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 >>