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Zacks Earnings ESP: A Better Way to Find Earnings Surprises for Finance
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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.
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.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
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 MetLife?
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. MetLife (MET - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.49 a share 27 days away from its upcoming earnings release on November 2, 2022.
MetLife's Earnings ESP sits at +11.05%, which, as explained above, is calculated by taking the percentage difference between the $1.49 Most Accurate Estimate and the Zacks Consensus Estimate of $1.34. MET 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.
MET is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Goldman Sachs (GS - Free Report) as well.
Slated to report earnings on October 21, 2022, Goldman Sachs holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $7.92 a share 15 days from its next quarterly update.
For Goldman Sachs, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $7.89 is +0.36%.
Because both stocks hold a positive Earnings ESP, MET and GS 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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Zacks Earnings ESP: A Better Way to Find Earnings Surprises for Finance
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.
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.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
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 MetLife?
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. MetLife (MET - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.49 a share 27 days away from its upcoming earnings release on November 2, 2022.
MetLife's Earnings ESP sits at +11.05%, which, as explained above, is calculated by taking the percentage difference between the $1.49 Most Accurate Estimate and the Zacks Consensus Estimate of $1.34. MET 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.
MET is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Goldman Sachs (GS - Free Report) as well.
Slated to report earnings on October 21, 2022, Goldman Sachs holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $7.92 a share 15 days from its next quarterly update.
For Goldman Sachs, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $7.89 is +0.36%.
Because both stocks hold a positive Earnings ESP, MET and GS 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 >>