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.

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.

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 Urban Outfitters?

The final step today is to look at a stock that meets our ESP qualifications. Urban Outfitters (URBN Quick QuoteURBN - Free Report) earns a #1 (Strong Buy) 29 days from its next quarterly earnings release on February 25, 2025, and its Most Accurate Estimate comes in at $0.92 a share.

URBN has an Earnings ESP figure of +2.99%, which, as explained above, is calculated by taking the percentage difference between the $0.92 Most Accurate Estimate and the Zacks Consensus Estimate of $0.89. Urban Outfitters 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.

URBN is one of just a large database of Retail and Wholesale stocks with positive ESPs. Another solid-looking stock is Wingstop (WING Quick QuoteWING - Free Report) .

Slated to report earnings on February 19, 2025, Wingstop holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.88 a share 23 days from its next quarterly update.

The Zacks Consensus Estimate for Wingstop is $0.86, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2.18%.

URBN and WING's 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 >>