Earnings are arguably the most important single number on a company’s quarterly financial report. Wall Street clearly dives into all of the other metrics and management’s input, but the EPS figure helps cut through all the noise.
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.
Now that we know how important earnings and earnings surprises are, it’s time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
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.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 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 Pfizer?
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.
Pfizer (PFE)
earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.12 a share, just 27 days from its upcoming earnings release on January 31, 2023.
By taking the percentage difference between the $1.12 Most Accurate Estimate and the $1.09 Zacks Consensus Estimate, Pfizer has an Earnings ESP of +3.06%. Investors should also know that PFE 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.
PFE is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at
Bristol Myers Squibb (BMY)
as well.
Bristol Myers Squibb is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 2, 2023. BMY’s Most Accurate Estimate sits at $1.84 a share 29 days from its next earnings release.
For Bristol Myers Squibb, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.74 is +5.83%.
PFE and BMY’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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