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 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.

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.

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 $0.80 a share, just 14 days from its upcoming earnings release on August 29, 2024.

OLLI has an Earnings ESP figure of +2.38%, which, as explained above, is calculated by taking the percentage difference between the $0.80 Most Accurate Estimate and the Zacks Consensus Estimate of $0.78. 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 one of just a large database of Consumer Staples stocks with positive ESPs. Another solid-looking stock is Constellation Brands (STZ Quick QuoteSTZ - Free Report) .

Constellation Brands, which is readying to report earnings on October 3, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $4.14 a share, and STZ is 49 days out from its next earnings report.

Constellation Brands' Earnings ESP figure currently stands at +0.19% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.13.

OLLI and STZ'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 >>