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.

The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.

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.

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 Zimmer Biomet?

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. Zimmer Biomet (ZBH Quick QuoteZBH - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $1.86 a share, just eight days from its upcoming earnings release on August 1, 2023.

Zimmer Biomet's Earnings ESP sits at +2.34%, which, as explained above, is calculated by taking the percentage difference between the $1.86 Most Accurate Estimate and the Zacks Consensus Estimate of $1.82. ZBH 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.

ZBH is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Boston Scientific (BSX Quick QuoteBSX - Free Report) .

Boston Scientific is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on July 27, 2023. BSX's Most Accurate Estimate sits at $0.49 a share three days from its next earnings release.

For Boston Scientific, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.49 is +0.47%.

ZBH and BSX'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 >>