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.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
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.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
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.
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 Dick's Sporting Goods?
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. Dick's Sporting Goods (DKS) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $2.72 a share, just seven days from its upcoming earnings release on November 26, 2024.
Dick's Sporting Goods' Earnings ESP sits at +1.23%, which, as explained above, is calculated by taking the percentage difference between the $2.72 Most Accurate Estimate and the Zacks Consensus Estimate of $2.69. DKS 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.
DKS is one of just a large database of Retail and Wholesale stocks with positive ESPs. Another solid-looking stock is Amazon (AMZN).
Amazon is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on February 6, 2025. AMZN's Most Accurate Estimate sits at $1.51 a share 79 days from its next earnings release.
For Amazon, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.49 is +1.5%.
DKS and AMZN'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 >>
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>DICK'S Sporting Goods, Inc. (DKS) : Free Stock Analysis Report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
