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.

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 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.

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.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Archrock Inc.

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. Archrock Inc. (AROC Quick QuoteAROC - Free Report) holds a #1 (Strong Buy) at the moment and its Most Accurate Estimate comes in at $0.41 a share 29 days away from its upcoming earnings release on April 29, 2025.

AROC has an Earnings ESP figure of +3.85%, which, as explained above, is calculated by taking the percentage difference between the $0.41 Most Accurate Estimate and the Zacks Consensus Estimate of $0.39. Archrock Inc. 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.

AROC is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at Baker Hughes (BKR Quick QuoteBKR - Free Report) as well.

Baker Hughes, which is readying to report earnings on April 22, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.49 a share, and BKR is 22 days out from its next earnings report.

The Zacks Consensus Estimate for Baker Hughes is $0.48, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.87%.

AROC and BKR'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 >>