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.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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 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.
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.
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 Netflix?
The final step today is to look at a stock that meets our ESP qualifications.
Netflix (NFLX)
earns a #3 (Hold) 30 days from its next quarterly earnings release on January 19, 2023, and its Most Accurate Estimate comes in at $0.61 a share.
By taking the percentage difference between the $0.61 Most Accurate Estimate and the $0.44 Zacks Consensus Estimate, Netflix has an Earnings ESP of +40.09%. Investors should also know that NFLX 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.
NFLX is one of just a large database of Consumer Discretionary stocks with positive ESPs. Another solid-looking stock is
Lululemon (LULU)
.
Lululemon, which is readying to report earnings on April 4, 2023, sits at a Zacks Rank #3 (Hold) right now. It’s Most Accurate Estimate is currently $4.27 a share, and LULU is 105 days out from its next earnings report.
Lululemon’s Earnings ESP figure currently stands at +0.09% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.27.
NFLX and LULU’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 >>
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