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.
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.
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.
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 Aspen Aerogels?
The final step today is to look at a stock that meets our ESP qualifications. Aspen Aerogels (ASPN) earns a #3 (Hold) 27 days from its next quarterly earnings release on February 10, 2025, and its Most Accurate Estimate comes in at $0.14 a share.
By taking the percentage difference between the $0.14 Most Accurate Estimate and the $0.09 Zacks Consensus Estimate, Aspen Aerogels has an Earnings ESP of +53.12%. Investors should also know that ASPN 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.
ASPN is just one of a large group of Construction stocks with a positive ESP figure. Quanta Services (PWR) is another qualifying stock you may want to consider.
Slated to report earnings on February 27, 2025, Quanta Services holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.69 a share 44 days from its next quarterly update.
Quanta Services' Earnings ESP figure currently stands at +2.06% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.64.
ASPN and PWR'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 >>
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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.
