Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these 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.

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 ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 Ollie's Bargain Outlet?

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. Ollie's Bargain Outlet (OLLI Quick QuoteOLLI - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.66 a share, just 12 days from its upcoming earnings release on June 5, 2024.

OLLI has an Earnings ESP figure of +1.8%, which, as explained above, is calculated by taking the percentage difference between the $0.66 Most Accurate Estimate and the Zacks Consensus Estimate of $0.65. Ollie's Bargain Outlet 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.

OLLI is just one of a large group of Consumer Staples stocks with a positive ESP figure. Hormel Foods (HRL Quick QuoteHRL - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on May 30, 2024, Hormel Foods holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.36 a share six days from its next quarterly update.

For Hormel Foods, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.35 is +2.13%.

OLLI and HRL'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 >>