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.
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.
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.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider Citigroup?
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. Citigroup (C) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.89 a share, just 28 days from its upcoming earnings release on April 15, 2025.
Citigroup's Earnings ESP sits at +0.04%, which, as explained above, is calculated by taking the percentage difference between the $1.89 Most Accurate Estimate and the Zacks Consensus Estimate of $1.88. C 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.
C is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Healthpeak (DOC) as well.
Healthpeak, which is readying to report earnings on April 24, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.46 a share, and DOC is 37 days out from its next earnings report.
For Healthpeak, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.46 is +0.66%.
Because both stocks hold a positive Earnings ESP, C and DOC 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 >>
Should You Invest in Citigroup Inc. (C)?
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Zacks Investment Research has been committed to providing investors with tools and independent research since 1978. For more than a quarter century, the Zacks Rank stock-rating system has more than doubled the S&P 500 with an average gain of +24.08% per year. (These returns cover a period from January 1, 1988 through May 6, 2024.)
Citigroup Inc. (C) : Free Stock Analysis Report
Healthpeak Properties, Inc. (DOC) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
