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.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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 United States Steel?
The final step today is to look at a stock that meets our ESP qualifications.
United States Steel (X)
earns a #3 (Hold) 30 days from its next quarterly earnings release on January 26, 2023, and its Most Accurate Estimate comes in at $0.63 a share.
United States Steel’s Earnings ESP sits at +11.6%, which, as explained above, is calculated by taking the percentage difference between the $0.63 Most Accurate Estimate and the Zacks Consensus Estimate of $0.57. X 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.
X is part of a big group of Basic Materials stocks that boast a positive ESP, and investors may want to take a look at
B2Gold (BTG)
as well.
B2Gold is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 28, 2023. BTG’s Most Accurate Estimate sits at $0.17 a share 63 days from its next earnings release.
B2Gold’s Earnings ESP figure currently stands at +13.33% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.15.
X and BTG’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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