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.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.

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.

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.

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 United Parcel Service?

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. United Parcel Service (UPS Quick QuoteUPS - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.54 a share 25 days away from its upcoming earnings release on February 4, 2025.

UPS has an Earnings ESP figure of +0.97%, which, as explained above, is calculated by taking the percentage difference between the $2.54 Most Accurate Estimate and the Zacks Consensus Estimate of $2.52. United Parcel Service 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.

UPS is part of a big group of Transportation stocks that boast a positive ESP, and investors may want to take a look at American Airlines (AAL Quick QuoteAAL - Free Report) as well.

Slated to report earnings on January 23, 2025, American Airlines holds a #1 (Strong Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.64 a share 13 days from its next quarterly update.

For American Airlines, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.62 is +3.67%.

UPS and AAL'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 >>