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.

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.

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.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

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 Casey's General Stores?

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. Casey's General Stores (CASY Quick QuoteCASY - Free Report) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $4.15 a share seven days away from its upcoming earnings release on December 11, 2023.

CASY has an Earnings ESP figure of +13.86%, which, as explained above, is calculated by taking the percentage difference between the $4.15 Most Accurate Estimate and the Zacks Consensus Estimate of $3.65. Casey's General Stores 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.

CASY is just one of a large group of Retail and Wholesale stocks with a positive ESP figure. Abercrombie & Fitch (ANF Quick QuoteANF - Free Report) is another qualifying stock you may want to consider.

Abercrombie & Fitch is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on March 6, 2024. ANF's Most Accurate Estimate sits at $2.41 a share 93 days from its next earnings release.

Abercrombie & Fitch's Earnings ESP figure currently stands at +5.79% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.28.

Because both stocks hold a positive Earnings ESP, CASY and ANF 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 >>