Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.

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.

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 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.

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.

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 Southwest Airlines?

The final step today is to look at a stock that meets our ESP qualifications. Southwest Airlines (LUV Quick QuoteLUV - Free Report) earns a #2 (Buy) 30 days from its next quarterly earnings release on April 24, 2025, and its Most Accurate Estimate comes in at -$0.15 a share.

Southwest Airlines' Earnings ESP sits at +10.29%, which, as explained above, is calculated by taking the percentage difference between the -$0.15 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.17. LUV 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.

LUV is part of a big group of Transportation stocks that boast a positive ESP, and investors may want to take a look at Copa Holdings (CPA Quick QuoteCPA - Free Report) as well.

Copa Holdings is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 21, 2025. CPA's Most Accurate Estimate sits at $3.96 a share 57 days from its next earnings release.

The Zacks Consensus Estimate for Copa Holdings is $3.78, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +4.71%.

Because both stocks hold a positive Earnings ESP, LUV and CPA could potentially post earnings beats in their next reports.

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 >>