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.
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.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.
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.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% 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 Booz Allen Hamilton?
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. Booz Allen Hamilton (BAH) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.52 a share 28 days away from its upcoming earnings release on October 23, 2026.
By taking the percentage difference between the $1.52 Most Accurate Estimate and the $1.44 Zacks Consensus Estimate, Booz Allen Hamilton has an Earnings ESP of +5.31%. Investors should also know that BAH 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.
BAH is part of a big group of Business Services stocks that boast a positive ESP, and investors may want to take a look at Coherent (COHR) as well.
Coherent is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on November 4, 2026. COHR's Most Accurate Estimate sits at $2.01 a share 40 days from its next earnings release.
For Coherent, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.97 is +2.06%.
BAH and COHR'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 Booz Allen Hamilton Holding Corporation (BAH)?
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Booz Allen Hamilton Holding Corporation (BAH): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).