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Want Better Returns? Don?t Ignore These 2 Consumer Discretionary Stocks Set to Beat Earnings

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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 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.

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 Take-Two Interactive?

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. Take-Two Interactive (TTWO - Free Report) earns a #1 (Strong Buy) right now and its Most Accurate Estimate sits at $0.02 a share, just 22 days from its upcoming earnings release on August 8, 2024.

Take-Two Interactive's Earnings ESP sits at +118.18%, which, as explained above, is calculated by taking the percentage difference between the $0.02 Most Accurate Estimate and the Zacks Consensus Estimate of $0.01. TTWO 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.

TTWO is part of a big group of Consumer Discretionary stocks that boast a positive ESP, and investors may want to take a look at Roblox (RBLX - Free Report) as well.

Slated to report earnings on August 1, 2024, Roblox holds a #1 (Strong Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is -$0.13 a share 15 days from its next quarterly update.

The Zacks Consensus Estimate for Roblox is -$0.38, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +65.34%.

TTWO and RBLX'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 >>


See More Zacks Research for These Tickers


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Take-Two Interactive Software, Inc. (TTWO) - free report >>

Roblox Corporation (RBLX) - free report >>

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