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.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
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.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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 #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 Illumina?
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. Illumina (ILMN) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.10 a share 17 days away from its upcoming earnings release on April 30, 2026.
By taking the percentage difference between the $1.10 Most Accurate Estimate and the $1.06 Zacks Consensus Estimate, Illumina has an Earnings ESP of +4.06%. Investors should also know that ILMN 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.
ILMN is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Zoetis (ZTS).
Zoetis, which is readying to report earnings on May 7, 2026, sits at a Zacks Rank #2 (Buy) right now. Its Most Accurate Estimate is currently $1.63 a share, and ZTS is 24 days out from its next earnings report.
The Zacks Consensus Estimate for Zoetis is $1.61, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.87%.
ILMN and ZTS' 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 Illumina, Inc. (ILMN)?
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Illumina, Inc. (ILMN): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).