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.

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.

Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.

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 Brinker International?

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. Brinker International (EAT Quick QuoteEAT - Free Report) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $2 a share 14 days away from its upcoming earnings release on January 29, 2025.

By taking the percentage difference between the $2 Most Accurate Estimate and the $1.68 Zacks Consensus Estimate, Brinker International has an Earnings ESP of +19.09%. Investors should also know that EAT 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.

EAT is one of just a large database of Retail and Wholesale stocks with positive ESPs. Another solid-looking stock is Booking Holdings (BKNG Quick QuoteBKNG - Free Report) .

Slated to report earnings on February 27, 2025, Booking Holdings holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $37.98 a share 43 days from its next quarterly update.

For Booking Holdings, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $35.76 is +6.2%.

Because both stocks hold a positive Earnings ESP, EAT and BKNG 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 >>