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.
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.
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.
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 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 Lemonade?
The final step today is to look at a stock that meets our ESP qualifications. Lemonade (LMND) earns a #3 (Hold) five days from its next quarterly earnings release on April 29, 2026, and its Most Accurate Estimate comes in at -$0.57 a share.
By taking the percentage difference between the -$0.57 Most Accurate Estimate and the -$0.58 Zacks Consensus Estimate, Lemonade has an Earnings ESP of +1.72%. Investors should also know that LMND 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.
LMND is just one of a large group of Finance stocks with a positive ESP figure. Simon Property (SPG) is another qualifying stock you may want to consider.
Simon Property is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on May 11, 2026. SPG's Most Accurate Estimate sits at $3.00 a share 17 days from its next earnings release.
Simon Property's Earnings ESP figure currently stands at +0.78% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.98.
LMND and SPG'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 Lemonade, Inc. (LMND)?
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Lemonade, Inc. (LMND): Free Stock Analysis Report
Simon Property Group, Inc. (SPG): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).