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.
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 Nucor?
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. Nucor (NUE) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $8 a share, just 30 days from its upcoming earnings release on October 20, 2022.
By taking the percentage difference between the $8 Most Accurate Estimate and the $7.97 Zacks Consensus Estimate, Nucor has an Earnings ESP of +0.38%. Investors should also know that NUE 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.
NUE is just one of a large group of Basic Materials stocks with a positive ESP figure. Air Products and Chemicals (APD) is another qualifying stock you may want to consider.
Air Products and Chemicals, which is readying to report earnings on November 3, 2022, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $2.79 a share, and APD is 44 days out from its next earnings report.
Air Products and Chemicals' Earnings ESP figure currently stands at +0.34% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.78.
Because both stocks hold a positive Earnings ESP, NUE and APD could potentially post earnings beats in their next reports.
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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Nucor Corporation (NUE): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.