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.

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 Arch Capital Group?

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Arch Capital Group (ACGL Quick QuoteACGL - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.57 a share, just nine days from its upcoming earnings release on April 26, 2023.

ACGL has an Earnings ESP figure of +3.92%, which, as explained above, is calculated by taking the percentage difference between the $1.57 Most Accurate Estimate and the Zacks Consensus Estimate of $1.51. Arch Capital Group 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.

ACGL is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is Boston Properties (BXP Quick QuoteBXP - Free Report) .

Boston Properties is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on April 25, 2023. BXP's Most Accurate Estimate sits at $1.82 a share eight days from its next earnings release.

The Zacks Consensus Estimate for Boston Properties is $1.70, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +7.13%.

ACGL and BXP'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 >>