Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more 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.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Adobe Systems?
The final step today is to look at a stock that meets our ESP qualifications. Adobe Systems (ADBE) earns a #2 (Buy) two days from its next quarterly earnings release on December 13, 2023, and its Most Accurate Estimate comes in at $4.14 a share.
Adobe Systems' Earnings ESP sits at +0.24%, which, as explained above, is calculated by taking the percentage difference between the $4.14 Most Accurate Estimate and the Zacks Consensus Estimate of $4.13. ADBE 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.
ADBE is one of just a large database of Computer and Technology stocks with positive ESPs. Another solid-looking stock is Uber Technologies (UBER).
Slated to report earnings on February 14, 2024, Uber Technologies holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.15 a share 65 days from its next quarterly update.
Uber Technologies' Earnings ESP figure currently stands at +4.53% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.15.
ADBE and UBER'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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