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How to Find Strong Aerospace Stocks Slated for Positive Earnings Surprises

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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.

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 is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete 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.

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 Virgin Galactic?

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. Virgin Galactic (SPCE - Free Report) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at -$0.40 a share 14 days away from its upcoming earnings release on November 2, 2023.

SPCE has an Earnings ESP figure of +5.21%, which, as explained above, is calculated by taking the percentage difference between the -$0.40 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.42. Virgin Galactic 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.

SPCE is just one of a large group of Aerospace stocks with a positive ESP figure. General Dynamics (GD - Free Report) is another qualifying stock you may want to consider.

General Dynamics, which is readying to report earnings on October 25, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $2.89 a share, and GD is six days out from its next earnings report.

The Zacks Consensus Estimate for General Dynamics is $2.87, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.61%.

SPCE and GD'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 >>


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General Dynamics Corporation (GD) - free report >>

Virgin Galactic Holdings, Inc. (SPCE) - free report >>

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