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.

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.

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.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% 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 Lemonade?

The final step today is to look at a stock that meets our ESP qualifications. Lemonade (LMND Quick QuoteLMND - Free Report) earns a #2 (Buy) one day from its next quarterly earnings release on August 5, 2025, and its Most Accurate Estimate comes in at -$0.79 a share.

LMND has an Earnings ESP figure of +2.40%, which, as explained above, is calculated by taking the percentage difference between the -$0.79 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.81. Lemonade 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.

LMND is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Morgan Stanley (MS Quick QuoteMS - Free Report) as well.

Morgan Stanley is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on October 15, 2025. MS' Most Accurate Estimate sits at $2.03 a share 72 days from its next earnings release.

For Morgan Stanley, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.02 is +0.67%.

LMND and MS' positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.

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 >>