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.

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.

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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.

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.

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 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 Jack In The Box?

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. Jack In The Box (JACK Quick QuoteJACK - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.14 a share 19 days away from its upcoming earnings release on November 20, 2024.

By taking the percentage difference between the $1.14 Most Accurate Estimate and the $1.12 Zacks Consensus Estimate, Jack In The Box has an Earnings ESP of +1.54%. Investors should also know that JACK 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.

JACK is just one of a large group of Retail and Wholesale stocks with a positive ESP figure. Booking Holdings (BKNG Quick QuoteBKNG - Free Report) is another qualifying stock you may want to consider.

Booking Holdings is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 27, 2025. BKNG's Most Accurate Estimate sits at $37 a share 118 days from its next earnings release.

The Zacks Consensus Estimate for Booking Holdings is $36.71, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.79%.

JACK and BKNG'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 >>