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.
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, 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.
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.
Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 Pan American Silver?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Pan American Silver (PAAS) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $0.13 a share 26 days away from its upcoming earnings release on August 7, 2024.
Pan American Silver's Earnings ESP sits at +9.35%, which, as explained above, is calculated by taking the percentage difference between the $0.13 Most Accurate Estimate and the Zacks Consensus Estimate of $0.12. PAAS is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
PAAS is part of a big group of Basic Materials stocks that boast a positive ESP, and investors may want to take a look at Southern Copper (SCCO) as well.
Southern Copper, which is readying to report earnings on August 6, 2024, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $1.27 a share, and SCCO is 25 days out from its next earnings report.
Southern Copper's Earnings ESP figure currently stands at +9.96% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.16.
PAAS and SCCO'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 >>
Free Report: 5 “Whisper” Stocks Poised to Stun Wall Street
Analysts may be seriously underestimating these stocks. When they announce earnings, they could immediately jump +10-20%.
See Stocks Now >>Pan American Silver Corp. (PAAS) : Free Stock Analysis Report
Southern Copper Corporation (SCCO) : 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.
