Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
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.
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 United Therapeutics?
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. United Therapeutics (UTHR) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $6.70 a share, just 26 days from its upcoming earnings release on November 4, 2026.
By taking the percentage difference between the $6.70 Most Accurate Estimate and the $6.38 Zacks Consensus Estimate, United Therapeutics has an Earnings ESP of +4.99%. Investors should also know that UTHR 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.
UTHR is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at Eli Lilly (LLY) as well.
Eli Lilly, which is readying to report earnings on October 29, 2026, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $9.95 a share, and LLY is 20 days out from its next earnings report.
For Eli Lilly, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $9.83 is +1.21%.
UTHR and LLY'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 United Therapeutics Corporation (UTHR)?
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United Therapeutics Corporation (UTHR): Free Stock Analysis Report
Eli Lilly and Company (LLY): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).