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.

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 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.

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.

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.

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 United Airlines?

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. United Airlines (UAL Quick QuoteUAL - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $4.01 a share, just five days from its upcoming earnings release on July 17, 2024.

UAL has an Earnings ESP figure of +0.56%, which, as explained above, is calculated by taking the percentage difference between the $4.01 Most Accurate Estimate and the Zacks Consensus Estimate of $3.99. United Airlines 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.

UAL is one of just a large database of Transportation stocks with positive ESPs. Another solid-looking stock is GE Aerospace (GE Quick QuoteGE - Free Report) .

GE Aerospace is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on July 23, 2024. GE's Most Accurate Estimate sits at $0.99 a share 11 days from its next earnings release.

GE Aerospace's Earnings ESP figure currently stands at +1.75% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.98.

UAL and GE'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 >>