Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.

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 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.

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.

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 T. Rowe Price?

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. T. Rowe Price (TROW Quick QuoteTROW - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.28 a share 26 days away from its upcoming earnings release on February 5, 2025.

TROW has an Earnings ESP figure of +0.59%, which, as explained above, is calculated by taking the percentage difference between the $2.28 Most Accurate Estimate and the Zacks Consensus Estimate of $2.27. T. Rowe Price 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.

TROW is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at XP Inc.A (XP Quick QuoteXP - Free Report) as well.

XP Inc.A is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 25, 2025. XP's Most Accurate Estimate sits at $2.41 a share 46 days from its next earnings release.

The Zacks Consensus Estimate for XP Inc.A is $1.41, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +71.53%.

Because both stocks hold a positive Earnings ESP, TROW and XP 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 >>