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.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

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.

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.

Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 Transocean?

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. Transocean (RIG Quick QuoteRIG - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.05 a share, just 28 days from its upcoming earnings release on February 17, 2025.

By taking the percentage difference between the $0.05 Most Accurate Estimate and the $0.03 Zacks Consensus Estimate, Transocean has an Earnings ESP of +58.83%. Investors should also know that RIG 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.

RIG is one of just a large database of Oils and Energy stocks with positive ESPs. Another solid-looking stock is Kinder Morgan (KMI Quick QuoteKMI - Free Report) .

Slated to report earnings on January 22, 2025, Kinder Morgan holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.33 a share two days from its next quarterly update.

Kinder Morgan's Earnings ESP figure currently stands at +0.76% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.33.

Because both stocks hold a positive Earnings ESP, RIG and KMI 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 >>