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.
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, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
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.
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.
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 Enphase Energy?
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.
Enphase Energy
ENPH
earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.88 a share, just five days from its upcoming earnings release on July 26, 2022.
Enphase Energy’s Earnings ESP sits at +6.67%, which, as explained above, is calculated by taking the percentage difference between the $0.88 Most Accurate Estimate and the Zacks Consensus Estimate of $0.83. ENPH is also part of a large group of stocks that boast a positive ESP. All of these qualifying stocks can be filtered by ESP, Zacks Rank, % Surprise (Last Qtr.), and Reporting date.
ENPH 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
Comstock Resources (CRK)
as well.
Comstock Resources, which is readying to report earnings on August 1, 2022, sits at a Zacks Rank #2 (Buy) right now. It’s Most Accurate Estimate is currently $0.93 a share, and CRK is 11 days out from its next earnings report.
The Zacks Consensus Estimate for Comstock Resources is $0.78, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +19.61%.
ENPH and CRK’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 >>
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
