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.
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.
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 Bristol Myers Squibb?
The final step today is to look at a stock that meets our ESP qualifications. Bristol Myers Squibb (BMY) earns a #3 (Hold) 30 days from its next quarterly earnings release on April 30, 2026, and its Most Accurate Estimate comes in at $1.49 a share.
By taking the percentage difference between the $1.49 Most Accurate Estimate and the $1.46 Zacks Consensus Estimate, Bristol Myers Squibb has an Earnings ESP of +1.87%. Investors should also know that BMY 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.
BMY is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Illumina (ILMN).
Illumina, which is readying to report earnings on May 14, 2026, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $1.10 a share, and ILMN is 44 days out from its next earnings report.
The Zacks Consensus Estimate for Illumina is $1.06, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +4.06%.
BMY and ILMN'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 Bristol Myers Squibb Company (BMY)?
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Bristol Myers Squibb Company (BMY): Free Stock Analysis Report
Illumina, Inc. (ILMN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).