Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive 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 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.

Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.

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 BJ's Wholesale Club?

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. BJ's Wholesale Club (BJ Quick QuoteBJ - Free Report) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $1 a share nine days away from its upcoming earnings release on August 22, 2024.

BJ has an Earnings ESP figure of +1.24%, which, as explained above, is calculated by taking the percentage difference between the $1 Most Accurate Estimate and the Zacks Consensus Estimate of $0.99. BJ's Wholesale Club 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.

BJ is just one of a large group of Consumer Discretionary stocks with a positive ESP figure. Roblox (RBLX Quick QuoteRBLX - Free Report) is another qualifying stock you may want to consider.

Roblox, which is readying to report earnings on November 13, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently -$0.39 a share, and RBLX is 92 days out from its next earnings report.

Roblox's Earnings ESP figure currently stands at +0.71% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of -$0.39.

BJ 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 >>