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.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive 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.

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 Baker Hughes?

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. Baker Hughes (BKR Quick QuoteBKR - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.64 a share, just three days from its upcoming earnings release on January 30, 2025.

BKR has an Earnings ESP figure of +2.07%, which, as explained above, is calculated by taking the percentage difference between the $0.64 Most Accurate Estimate and the Zacks Consensus Estimate of $0.63. Baker Hughes 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.

BKR is just one of a large group of Oils and Energy stocks with a positive ESP figure. Energy Transfer LP (ET Quick QuoteET - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on February 11, 2025, Energy Transfer LP holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.39 a share 15 days from its next quarterly update.

For Energy Transfer LP, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.36 is +9.09%.

BKR and ET's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.

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 >>