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.

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.

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.

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 Diamondback Energy?

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. Diamondback Energy (FANG Quick QuoteFANG - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $3.80 a share, just 28 days from its upcoming earnings release on May 5, 2025.

By taking the percentage difference between the $3.80 Most Accurate Estimate and the $3.67 Zacks Consensus Estimate, Diamondback Energy has an Earnings ESP of +3.57%. Investors should also know that FANG 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.

FANG is just one of a large group of Oils and Energy stocks with a positive ESP figure. Kinder Morgan (KMI Quick QuoteKMI - Free Report) is another qualifying stock you may want to consider.

Slated to report earnings on April 16, 2025, Kinder Morgan holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.35 a share nine days from its next quarterly update.

For Kinder Morgan, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.35 is +1.45%.

FANG and KMI'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 >>