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.

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.

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 #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 Paramount Global-B?

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. Paramount Global-B (PARA Quick QuotePARA - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.11 a share, just 23 days from its upcoming earnings release on February 26, 2025.

By taking the percentage difference between the $0.11 Most Accurate Estimate and the $0.10 Zacks Consensus Estimate, Paramount Global-B has an Earnings ESP of +5.44%. Investors should also know that PARA 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.

PARA is just one of a large group of Consumer Discretionary stocks with a positive ESP figure. Wolverine World Wide (WWW Quick QuoteWWW - Free Report) is another qualifying stock you may want to consider.

Wolverine World Wide is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on February 19, 2025. WWW's Most Accurate Estimate sits at $0.42 a share 16 days from its next earnings release.

Wolverine World Wide's Earnings ESP figure currently stands at +2.44% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.41.

PARA and WWW'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 >>