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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.

Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Johnson Controls?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Johnson Controls (JCI) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.10 a share 30 days away from its upcoming earnings release on August 7, 2024.

Johnson Controls' Earnings ESP sits at +1.55%, which, as explained above, is calculated by taking the percentage difference between the $1.10 Most Accurate Estimate and the Zacks Consensus Estimate of $1.08. JCI 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.

JCI is part of a big group of Industrial Products stocks that boast a positive ESP, and investors may want to take a look at Hubbell (HUBB) as well.

Slated to report earnings on July 23, 2024, Hubbell holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $4.24 a share 15 days from its next quarterly update.

The Zacks Consensus Estimate for Hubbell is $4.23, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.27%.

Because both stocks hold a positive Earnings ESP, JCI and HUBB 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 >>

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Hubbell Inc (HUBB) : Free Stock Analysis Report

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