Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

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 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.

With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.

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.

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 Parker-Hannifin?

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. Parker-Hannifin (PH Quick QuotePH - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $6.20 a share, just 29 days from its upcoming earnings release on November 7, 2024.

Parker-Hannifin's Earnings ESP sits at +1.53%, which, as explained above, is calculated by taking the percentage difference between the $6.20 Most Accurate Estimate and the Zacks Consensus Estimate of $6.11. PH 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.

PH is just one of a large group of Industrial Products stocks with a positive ESP figure. RBC Bearings (RBC Quick QuoteRBC - Free Report) is another qualifying stock you may want to consider.

RBC Bearings, which is readying to report earnings on November 14, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $2.52 a share, and RBC is 36 days out from its next earnings report.

RBC Bearings' Earnings ESP figure currently stands at +9.57% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.30.

PH and RBC'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 >>