Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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.
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 Generac Holdings?
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. Generac Holdings (GNRC) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $2.42 a share 30 days away from its upcoming earnings release on November 4, 2026.
Generac Holdings' Earnings ESP sits at +1.47%, which, as explained above, is calculated by taking the percentage difference between the $2.42 Most Accurate Estimate and the Zacks Consensus Estimate of $2.39. GNRC is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
GNRC is part of a big group of Industrial Products stocks that boast a positive ESP, and investors may want to take a look at Eaton (ETN) as well.
Slated to report earnings on November 3, 2026, Eaton holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $3.55 a share 29 days from its next quarterly update.
The Zacks Consensus Estimate for Eaton is $3.53, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.52%.
GNRC and ETN'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 Generac Holdings Inc. (GNRC)?
Before you invest in Generac Holdings Inc. (GNRC), want to know the best stocks to buy for the next 30 days? Check out Zacks Investment Research for our free report on the 7 best stocks to buy.
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.)
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Generac Holdings Inc. (GNRC): Free Stock Analysis Report
Eaton Corporation, PLC (ETN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).