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.

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, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.

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.

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 Deere?

The final step today is to look at a stock that meets our ESP qualifications. Deere (DE Quick QuoteDE - Free Report) earns a #3 (Hold) 10 days from its next quarterly earnings release on August 15, 2024, and its Most Accurate Estimate comes in at $5.86 a share.

By taking the percentage difference between the $5.86 Most Accurate Estimate and the $5.85 Zacks Consensus Estimate, Deere has an Earnings ESP of +0.18%. Investors should also know that DE is one of a large group 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.

DE is just one of a large group of Industrial Products stocks with a positive ESP figure. Stanley Black & Decker (SWK Quick QuoteSWK - Free Report) is another qualifying stock you may want to consider.

Stanley Black & Decker, which is readying to report earnings on October 25, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.97 a share, and SWK is 81 days out from its next earnings report.

Stanley Black & Decker's Earnings ESP figure currently stands at +3.15% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.94.

Because both stocks hold a positive Earnings ESP, DE and SWK 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 >>