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.
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 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.
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 Kraft Heinz?
The final step today is to look at a stock that meets our ESP qualifications. Kraft Heinz (KHC) earns a #3 (Hold) 29 days from its next quarterly earnings release on November 4, 2026, and its Most Accurate Estimate comes in at $0.44 a share.
KHC has an Earnings ESP figure of +2.47%, which, as explained above, is calculated by taking the percentage difference between the $0.44 Most Accurate Estimate and the Zacks Consensus Estimate of $0.43. Kraft Heinz is one of a large database 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.
KHC is part of a big group of Consumer Staples stocks that boast a positive ESP, and investors may want to take a look at e.l.f. Beauty (ELF) as well.
Slated to report earnings on November 4, 2026, e.l.f. Beauty holds a #1 (Strong Buy) ranking on the Zacks Rank, and its Most Accurate Estimate is $0.63 a share 29 days from its next quarterly update.
e.l.f. Beauty's Earnings ESP figure currently stands at +6.10% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.59.
KHC and ELF'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 Kraft Heinz Company (KHC)?
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Kraft Heinz Company (KHC): Free Stock Analysis Report
e.l.f. Beauty (ELF): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).