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.
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.
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 Baker Hughes?
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. Baker Hughes (BKR) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.49 a share, just 29 days from its upcoming earnings release on April 22, 2025.
BKR has an Earnings ESP figure of +0.83%, which, as explained above, is calculated by taking the percentage difference between the $0.49 Most Accurate Estimate and the Zacks Consensus Estimate of $0.48. Baker Hughes 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.
BKR is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at NextDecade (NEXT) as well.
Slated to report earnings on May 8, 2025, NextDecade holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is -$0.06 a share 45 days from its next quarterly update.
The Zacks Consensus Estimate for NextDecade is -$0.25, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +76%.
BKR and NEXT's 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 >>
Should You Invest in Baker Hughes Company (BKR)?
Before you invest in Baker Hughes Company (BKR), want to know the best stocks to buy for the next 30 days? Check out Zacks Investment Research for our free report on the 7 best stocks to buy.
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.)
Baker Hughes Company (BKR) : Free Stock Analysis Report
NextDecade Corporation (NEXT) : 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.
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