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.
Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
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.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
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 Southern Copper?
The final step today is to look at a stock that meets our ESP qualifications. Southern Copper (SCCO) earns a #3 (Hold) 13 days from its next quarterly earnings release on October 23, 2024, and its Most Accurate Estimate comes in at $1.20 a share.
Southern Copper's Earnings ESP sits at +7.62%, which, as explained above, is calculated by taking the percentage difference between the $1.20 Most Accurate Estimate and the Zacks Consensus Estimate of $1.12. SCCO 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.
SCCO is just one of a large group of Basic Materials stocks with a positive ESP figure. Arcadium (ALTM) is another qualifying stock you may want to consider.
Arcadium is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on October 29, 2024. ALTM's Most Accurate Estimate sits at $0.05 a share 19 days from its next earnings release.
The Zacks Consensus Estimate for Arcadium is $0.05, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2.78%.
SCCO and ALTM'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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Free: See Our Top Stock And 4 Runners UpSouthern Copper Corporation (SCCO) : Free Stock Analysis Report
Arcadium Lithium PLC (ALTM) : 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.
