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.

Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.

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 Zillow?

The final step today is to look at a stock that meets our ESP qualifications. Zillow (Z Quick QuoteZ - Free Report) earns a #1 (Strong Buy) 21 days from its next quarterly earnings release on February 11, 2025, and its Most Accurate Estimate comes in at $0.37 a share.

Z has an Earnings ESP figure of +32.14%, which, as explained above, is calculated by taking the percentage difference between the $0.37 Most Accurate Estimate and the Zacks Consensus Estimate of $0.28. Zillow 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.

Z is just one of a large group of Finance stocks with a positive ESP figure. Ares Management (ARES Quick QuoteARES - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on February 5, 2025, Ares Management holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.33 a share 15 days from its next quarterly update.

The Zacks Consensus Estimate for Ares Management is $1.30, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2.25%.

Z and ARES' 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 >>