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.

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 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.

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 Walgreens Boots Alliance?

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. Walgreens Boots Alliance (WBA Quick QuoteWBA - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.39 a share, just 30 days from its upcoming earnings release on January 2, 2025.

Walgreens Boots Alliance's Earnings ESP sits at +0.05%, which, as explained above, is calculated by taking the percentage difference between the $0.39 Most Accurate Estimate and the Zacks Consensus Estimate of $0.38. WBA 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.

WBA is just one of a large group of Retail and Wholesale stocks with a positive ESP figure. eBay (EBAY Quick QuoteEBAY - Free Report) is another qualifying stock you may want to consider.

eBay, which is readying to report earnings on February 25, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $1.21 a share, and EBAY is 84 days out from its next earnings report.

eBay's Earnings ESP figure currently stands at +0.64% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.21.

WBA and EBAY'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 >>