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.
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 Fortinet?
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.
Fortinet (FTNT)
earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.40 a share, just 30 days from its upcoming earnings release on February 2, 2023.
FTNT has an Earnings ESP figure of +2.35%, which, as explained above, is calculated by taking the percentage difference between the $0.40 Most Accurate Estimate and the Zacks Consensus Estimate of $0.39. Fortinet is one of a large database 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.
FTNT is one of just a large database of Computer and Technology stocks with positive ESPs. Another solid-looking stock is
Micron (MU)
.
Slated to report earnings on April 4, 2023, Micron holds a #3 (Hold) ranking on the Zacks Rank, and it’s Most Accurate Estimate is -$0.58 a share 91 days from its next quarterly update.
The Zacks Consensus Estimate for Micron is -$0.59, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.67%.
FTNT and MU’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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