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.

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.

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.

With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.

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 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 Lennar?

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. Lennar (LEN Quick QuoteLEN - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.58 a share nine days away from its upcoming earnings release on March 15, 2023.

LEN has an Earnings ESP figure of +1.39%, which, as explained above, is calculated by taking the percentage difference between the $1.58 Most Accurate Estimate and the Zacks Consensus Estimate of $1.56. Lennar 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.

LEN is part of a big group of Construction stocks that boast a positive ESP, and investors may want to take a look at Toll Brothers (TOL Quick QuoteTOL - Free Report) as well.

Slated to report earnings on May 23, 2023, Toll Brothers holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $1.90 a share 78 days from its next quarterly update.

The Zacks Consensus Estimate for Toll Brothers is $1.87, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.78%.

Because both stocks hold a positive Earnings ESP, LEN and TOL 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 >>