Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.

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.

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 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.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

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.

Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 Nextracker?

The final step today is to look at a stock that meets our ESP qualifications. Nextracker (NXT Quick QuoteNXT - Free Report) earns a #3 (Hold) one day from its next quarterly earnings release on January 28, 2025, and its Most Accurate Estimate comes in at $0.66 a share.

Nextracker's Earnings ESP sits at +12.96%, which, as explained above, is calculated by taking the percentage difference between the $0.66 Most Accurate Estimate and the Zacks Consensus Estimate of $0.58. NXT 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.

NXT is one of just a large database of Oils and Energy stocks with positive ESPs. Another solid-looking stock is Sunrun (RUN Quick QuoteRUN - Free Report) .

Sunrun, which is readying to report earnings on February 27, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently -$0.20 a share, and RUN is 31 days out from its next earnings report.

Sunrun's Earnings ESP figure currently stands at +20.02% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of -$0.25.

NXT and RUN'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 >>