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.

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.

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 Astrazeneca?

The final step today is to look at a stock that meets our ESP qualifications. Astrazeneca (AZN Quick QuoteAZN - Free Report) earns a #3 (Hold) seven days from its next quarterly earnings release on November 12, 2024, and its Most Accurate Estimate comes in at $1.02 a share.

AZN has an Earnings ESP figure of +0.66%, which, as explained above, is calculated by taking the percentage difference between the $1.02 Most Accurate Estimate and the Zacks Consensus Estimate of $1.01. Astrazeneca is one of a large database 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.

AZN is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at Editas Medicine (EDIT Quick QuoteEDIT - Free Report) as well.

Editas Medicine, which is readying to report earnings on February 26, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently -$0.11 a share, and EDIT is 113 days out from its next earnings report.

The Zacks Consensus Estimate for Editas Medicine is -$0.67, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +83.52%.

Because both stocks hold a positive Earnings ESP, AZN and EDIT 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 >>