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.

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 Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.

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.

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 Southern Co.

The final step today is to look at a stock that meets our ESP qualifications. Southern Co. (SO Quick QuoteSO - Free Report) earns a #3 (Hold) 22 days from its next quarterly earnings release on February 20, 2025, and its Most Accurate Estimate comes in at $0.52 a share.

SO has an Earnings ESP figure of +1.47%, which, as explained above, is calculated by taking the percentage difference between the $0.52 Most Accurate Estimate and the Zacks Consensus Estimate of $0.51. Southern Co. 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.

SO is one of just a large database of Utilities stocks with positive ESPs. Another solid-looking stock is UGI (UGI Quick QuoteUGI - Free Report) .

UGI is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 5, 2025. UGI's Most Accurate Estimate sits at $1.21 a share seven days from its next earnings release.

UGI's Earnings ESP figure currently stands at +0.42% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.21.

SO and UGI'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 >>