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.

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.

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.

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.

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 Louisiana-Pacific?

The final step today is to look at a stock that meets our ESP qualifications. Louisiana-Pacific (LPX Quick QuoteLPX - Free Report) earns a #2 (Buy) 21 days from its next quarterly earnings release on February 19, 2025, and its Most Accurate Estimate comes in at $0.83 a share.

By taking the percentage difference between the $0.83 Most Accurate Estimate and the $0.74 Zacks Consensus Estimate, Louisiana-Pacific has an Earnings ESP of +11.79%. Investors should also know that LPX 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.

LPX is one of just a large database of Construction stocks with positive ESPs. Another solid-looking stock is Aspen Aerogels (ASPN Quick QuoteASPN - Free Report) .

Slated to report earnings on February 12, 2025, Aspen Aerogels holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.14 a share 14 days from its next quarterly update.

The Zacks Consensus Estimate for Aspen Aerogels is $0.09, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +53.12%.

LPX and ASPN'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 >>