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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more 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.

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.

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 RTX?

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. RTX (RTX Quick QuoteRTX - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.39 a share, just 11 days from its upcoming earnings release on January 28, 2025.

RTX's Earnings ESP sits at +1.38%, which, as explained above, is calculated by taking the percentage difference between the $1.39 Most Accurate Estimate and the Zacks Consensus Estimate of $1.37. RTX 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.

RTX is just one of a large group of Aerospace stocks with a positive ESP figure. Leidos (LDOS Quick QuoteLDOS - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on February 11, 2025, Leidos holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.44 a share 25 days from its next quarterly update.

Leidos' Earnings ESP figure currently stands at +12.08% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.18.

RTX and LDOS' positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.

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 >>