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.
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 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.
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 MasterCard?
The final step today is to look at a stock that meets our ESP qualifications. MasterCard (MA) earns a #3 (Hold) three days from its next quarterly earnings release on July 30, 2026, and its Most Accurate Estimate comes in at $4.79 a share.
MasterCard's Earnings ESP sits at +0.39%, which, as explained above, is calculated by taking the percentage difference between the $4.79 Most Accurate Estimate and the Zacks Consensus Estimate of $4.77. MA 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.
MA is just one of a large group of Business Services stocks with a positive ESP figure. Trane Technologies (TT) is another qualifying stock you may want to consider.
Trane Technologies is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on July 30, 2026. TT's Most Accurate Estimate sits at $4.30 a share three days from its next earnings release.
The Zacks Consensus Estimate for Trane Technologies is $4.27, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.64%.
MA and TT'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 Mastercard Incorporated (MA)?
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Mastercard Incorporated (MA): Free Stock Analysis Report
Trane Technologies plc (TT): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).