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.

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.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

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.

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.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.

Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 American 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. American Airlines (AAL Quick QuoteAAL - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.32 a share, just 14 days from its upcoming earnings release on October 17, 2024.

American Airlines' Earnings ESP sits at +674.82%, which, as explained above, is calculated by taking the percentage difference between the $0.32 Most Accurate Estimate and the Zacks Consensus Estimate of $0.04. AAL 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.

AAL is just one of a large group of Transportation stocks with a positive ESP figure. Southwest Airlines (LUV Quick QuoteLUV - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on October 24, 2024, Southwest Airlines holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is -$0.01 a share 21 days from its next quarterly update.

The Zacks Consensus Estimate for Southwest Airlines is -$0.07, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +82.77%.

Because both stocks hold a positive Earnings ESP, AAL and LUV 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 >>