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.

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.

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.

Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Astrazeneca?

The final step today is to look at a stock that meets our ESP qualifications. Astrazeneca (AZN Quick QuoteAZN - Free Report) earns a #3 (Hold) two days from its next quarterly earnings release on November 10, 2022, and its Most Accurate Estimate comes in at $0.78 a share.

AZN has an Earnings ESP figure of +2.06%, which, as explained above, is calculated by taking the percentage difference between the $0.78 Most Accurate Estimate and the Zacks Consensus Estimate of $0.77. Astrazeneca is one of a large database 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.

AZN is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is AMN Healthcare Services (AMN Quick QuoteAMN - Free Report) .

AMN Healthcare Services, which is readying to report earnings on February 16, 2023, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $2.21 a share, and AMN is 100 days out from its next earnings report.

The Zacks Consensus Estimate for AMN Healthcare Services is $2.19, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.82%.

AZN and AMN'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 >>