Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.

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.

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 #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 Halozyme Therapeutics?

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. Halozyme Therapeutics (HALO Quick QuoteHALO - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1 a share, just 28 days from its upcoming earnings release on November 4, 2024.

By taking the percentage difference between the $1 Most Accurate Estimate and the $0.99 Zacks Consensus Estimate, Halozyme Therapeutics has an Earnings ESP of +1.01%. Investors should also know that HALO 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.

HALO is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at Novartis (NVS Quick QuoteNVS - Free Report) as well.

Novartis, which is readying to report earnings on October 29, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $1.98 a share, and NVS is 22 days out from its next earnings report.

The Zacks Consensus Estimate for Novartis is $1.93, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2.8%.

Because both stocks hold a positive Earnings ESP, HALO and NVS 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 >>