Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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.
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.
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.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Urban Outfitters?
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. Urban Outfitters (URBN) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $1.75 a share, just 28 days from its upcoming earnings release on August 26, 2026.
URBN has an Earnings ESP figure of +1.98%, which, as explained above, is calculated by taking the percentage difference between the $1.75 Most Accurate Estimate and the Zacks Consensus Estimate of $1.72. Urban Outfitters 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.
URBN is just one of a large group of Retail and Wholesale stocks with a positive ESP figure. Dutch Bros (BROS) is another qualifying stock you may want to consider.
Dutch Bros, which is readying to report earnings on August 5, 2026, sits at a Zacks Rank #2 (Buy) right now. Its Most Accurate Estimate is currently $0.30 a share, and BROS is seven days out from its next earnings report.
The Zacks Consensus Estimate for Dutch Bros is $0.29, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.43%.
Because both stocks hold a positive Earnings ESP, URBN and BROS 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 >>
Should You Invest in Urban Outfitters, Inc. (URBN)?
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Urban Outfitters, Inc. (URBN): Free Stock Analysis Report
Dutch Bros Inc. (BROS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).