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.
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 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.
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.
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 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 PENN Entertainment?
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. PENN Entertainment (PENN) holds a #1 (Strong Buy) at the moment and its Most Accurate Estimate comes in at $0.39 a share 16 days away from its upcoming earnings release on August 6, 2026.
PENN has an Earnings ESP figure of +13.79%, which, as explained above, is calculated by taking the percentage difference between the $0.39 Most Accurate Estimate and the Zacks Consensus Estimate of $0.34. PENN Entertainment 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.
PENN is part of a big group of Consumer Discretionary stocks that boast a positive ESP, and investors may want to take a look at MGM Resorts (MGM) as well.
Slated to report earnings on July 29, 2026, MGM Resorts holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $0.65 a share eight days from its next quarterly update.
MGM Resorts' Earnings ESP figure currently stands at +3.32% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.62.
PENN and MGM'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 >>
Should You Invest in PENN Entertainment, Inc. (PENN)?
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PENN Entertainment, Inc. (PENN): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).