Two factors often determine stock prices in the long run: earnings and interest rates. Investors can’t control the latter, but they can focus on a company’s earnings results every quarter.
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.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 ProPetro Holding?
The final step today is to look at a stock that meets our ESP qualifications. ProPetro Holding (PUMP – Free Report) earns a #1 (Strong Buy) 13 days from its next quarterly earnings release on February 21, 2023, and its Most Accurate Estimate comes in at $0.41 a share.
By taking the percentage difference between the $0.41 Most Accurate Estimate and the $0.34 Zacks Consensus Estimate, ProPetro Holding has an Earnings ESP of +21.3%. Investors should also know that PUMP 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.
PUMP is just one of a large group of Oils and Energy stocks with a positive ESP figure. ConocoPhillips (COP – Free Report) is another qualifying stock you may want to consider.
ConocoPhillips, which is readying to report earnings on May 4, 2023, sits at a Zacks Rank #3 (Hold) right now. It’s Most Accurate Estimate is currently $2.85 a share, and COP is 85 days out from its next earnings report.
The Zacks Consensus Estimate for ConocoPhillips is $2.76, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +3.36%.
PUMP and COP’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 >>
