Wall Street watches a company’s quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
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 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 ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 Oneok Inc.
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. Oneok Inc. (OKE) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $1.03 a share 17 days away from its upcoming earnings release on February 27, 2023.
By taking the percentage difference between the $1.03 Most Accurate Estimate and the $1.02 Zacks Consensus Estimate, Oneok Inc. has an Earnings ESP of +1.5%. Investors should also know that OKE 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.
OKE 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 Clearway Energy (CWEN) as well.
Clearway Energy is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on February 23, 2023. CWEN’s Most Accurate Estimate sits at -$0.20 a share 13 days from its next earnings release.
The Zacks Consensus Estimate for Clearway Energy is -$0.88, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +77.19%.
OKE and CWEN’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 >>
Free Report: Must-See Energy Stocks for 2023
Record profits at oil companies can mean big gains for you. With soaring demand and elevated prices, oil stocks could be top performers by far in 2023. Zacks has released a special report revealing the 4 oil stocks experts believe will deliver the biggest gains. (You’ll never guess Stock #2!)
Download Oil Market on Fire today, absolutely free.
ONEOK, Inc. (OKE) : Free Stock Analysis Report
Clearway Energy, Inc. (CWEN) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
