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.

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.

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.

Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.

Should You Consider Dominion Energy?

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. Dominion Energy (D Quick QuoteD - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.07 a share 16 days away from its upcoming earnings release on February 8, 2023.

By taking the percentage difference between the $1.07 Most Accurate Estimate and the $1.05 Zacks Consensus Estimate, Dominion Energy has an Earnings ESP of +1.22%. Investors should also know that D is one of a large group 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.

D is one of just a large database of Utilities stocks with positive ESPs. Another solid-looking stock is American Water Works (AWK Quick QuoteAWK - Free Report) .

Slated to report earnings on February 15, 2023, American Water Works holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.76 a share 23 days from its next quarterly update.

The Zacks Consensus Estimate for American Water Works is $0.76, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.66%.

D and AWK'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 >>