Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.

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.

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.

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 KB Home?

The final step today is to look at a stock that meets our ESP qualifications. KB Home (KBH Quick QuoteKBH - Free Report) earns a #1 (Strong Buy) 26 days from its next quarterly earnings release on June 28, 2023, and its Most Accurate Estimate comes in at $1.30 a share.

KB Home's Earnings ESP sits at +9.37%, which, as explained above, is calculated by taking the percentage difference between the $1.30 Most Accurate Estimate and the Zacks Consensus Estimate of $1.19. KBH 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.

KBH is just one of a large group of Construction stocks with a positive ESP figure. Toll Brothers (TOL Quick QuoteTOL - Free Report) is another qualifying stock you may want to consider.

Toll Brothers is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on August 22, 2023. TOL's Most Accurate Estimate sits at $2.86 a share 81 days from its next earnings release.

Toll Brothers' Earnings ESP figure currently stands at +8.08% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.64.

KBH and TOL'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 >>