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.

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.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

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.

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 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 Netflix?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Netflix (NFLX Quick QuoteNFLX - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $4.26 a share 29 days away from its upcoming earnings release on January 21, 2025.

By taking the percentage difference between the $4.26 Most Accurate Estimate and the $4.21 Zacks Consensus Estimate, Netflix has an Earnings ESP of +1.22%. Investors should also know that NFLX 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.

NFLX is one of just a large database of Consumer Discretionary stocks with positive ESPs. Another solid-looking stock is Carnival (CCL Quick QuoteCCL - Free Report) .

Slated to report earnings on March 26, 2025, Carnival holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is -$0.03 a share 93 days from its next quarterly update.

The Zacks Consensus Estimate for Carnival is -$0.03, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +5.18%.

Because both stocks hold a positive Earnings ESP, NFLX and CCL 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 >>