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.

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.

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.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

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 Stanley Black & Decker?

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. Stanley Black & Decker (SWK Quick QuoteSWK - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.07 a share eight days away from its upcoming earnings release on October 29, 2024.

Stanley Black & Decker's Earnings ESP sits at +3.54%, which, as explained above, is calculated by taking the percentage difference between the $1.07 Most Accurate Estimate and the Zacks Consensus Estimate of $1.03. SWK 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.

SWK is one of just a large database of Industrial Products stocks with positive ESPs. Another solid-looking stock is Caterpillar (CAT Quick QuoteCAT - Free Report) .

Caterpillar is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on October 30, 2024. CAT's Most Accurate Estimate sits at $5.40 a share nine days from its next earnings release.

Caterpillar's Earnings ESP figure currently stands at +0.47% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $5.37.

SWK and CAT'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 >>