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 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.
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.
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 Centene?
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. Centene (CNC) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.24 a share 18 days away from its upcoming earnings release on April 28, 2026.
CNC has an Earnings ESP figure of +18.97%, which, as explained above, is calculated by taking the percentage difference between the $2.24 Most Accurate Estimate and the Zacks Consensus Estimate of $1.88. Centene 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.
CNC is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Vertex Pharmaceuticals (VRTX).
Slated to report earnings on May 4, 2026, Vertex Pharmaceuticals holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $4.50 a share 24 days from its next quarterly update.
For Vertex Pharmaceuticals, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.43 is +1.61%.
CNC and VRTX'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 >>
Should You Invest in Centene Corporation (CNC)?
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Zacks Investment Research has been committed to providing investors with tools and independent research since 1978. For more than a quarter century, the Zacks Rank stock-rating system has more than doubled the S&P 500 with an average gain of +24.08% per year. (These returns cover a period from January 1, 1988 through May 6, 2024.)
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Centene Corporation (CNC): Free Stock Analysis Report
Vertex Pharmaceuticals Incorporated (VRTX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).