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.

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, 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.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Tyson Foods?

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. Tyson Foods (TSN Quick QuoteTSN - Free Report) holds a #1 (Strong Buy) at the moment and its Most Accurate Estimate comes in at $0.82 a share 21 days away from its upcoming earnings release on February 3, 2025.

Tyson Foods' Earnings ESP sits at +3.36%, which, as explained above, is calculated by taking the percentage difference between the $0.82 Most Accurate Estimate and the Zacks Consensus Estimate of $0.79. TSN 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.

TSN is one of just a large database of Consumer Staples stocks with positive ESPs. Another solid-looking stock is Archer Daniels Midland (ADM Quick QuoteADM - Free Report) .

Archer Daniels Midland is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on March 11, 2025. ADM's Most Accurate Estimate sits at $1.26 a share 57 days from its next earnings release.

For Archer Daniels Midland, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.08 is +16.67%.

TSN and ADM'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 >>