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.

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 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.

Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.

Should You Consider Carnival?

The final step today is to look at a stock that meets our ESP qualifications. Carnival (CCL Quick QuoteCCL - Free Report) earns a #1 (Strong Buy) 21 days from its next quarterly earnings release on December 19, 2024, and its Most Accurate Estimate comes in at $0.08 a share.

By taking the percentage difference between the $0.08 Most Accurate Estimate and the $0.07 Zacks Consensus Estimate, Carnival has an Earnings ESP of +17.45%. Investors should also know that CCL is one of a large group 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.

CCL is one of just a large database of Consumer Discretionary stocks with positive ESPs. Another solid-looking stock is Norwegian Cruise Line (NCLH Quick QuoteNCLH - Free Report) .

Norwegian Cruise Line, which is readying to report earnings on February 25, 2025, sits at a Zacks Rank #1 (Strong Buy) right now. It's Most Accurate Estimate is currently $0.11 a share, and NCLH is 89 days out from its next earnings report.

For Norwegian Cruise Line, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.10 is +12%.

CCL and NCLH'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 >>