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.

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, 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.

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 Novo Nordisk?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Novo Nordisk (NVO Quick QuoteNVO - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.92 a share 27 days away from its upcoming earnings release on May 7, 2025.

By taking the percentage difference between the $0.92 Most Accurate Estimate and the $0.91 Zacks Consensus Estimate, Novo Nordisk has an Earnings ESP of +1.01%. Investors should also know that NVO 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.

NVO is just one of a large group of Medical stocks with a positive ESP figure. Astrazeneca (AZN Quick QuoteAZN - Free Report) is another qualifying stock you may want to consider.

Astrazeneca, which is readying to report earnings on April 29, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $1.13 a share, and AZN is 19 days out from its next earnings report.

For Astrazeneca, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.10 is +2.73%.

NVO and AZN'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 >>