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.
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, 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 Lumen?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Lumen (LUMN) earns a #1 (Strong Buy) right now and its Most Accurate Estimate sits at -$0.04 a share, just one day from its upcoming earnings release on May 5, 2026.
By taking the percentage difference between the -$0.04 Most Accurate Estimate and the -$0.06 Zacks Consensus Estimate, Lumen has an Earnings ESP of +27.27%. Investors should also know that LUMN 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.
LUMN is part of a big group of Utilities stocks that boast a positive ESP, and investors may want to take a look at Xcel Energy (XEL) as well.
Slated to report earnings on July 30, 2026, Xcel Energy holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $0.80 a share 87 days from its next quarterly update.
The Zacks Consensus Estimate for Xcel Energy is $0.74, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +8.16%.
Because both stocks hold a positive Earnings ESP, LUMN and XEL could potentially post earnings beats in their next reports.
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 Lumen Technologies, Inc. (LUMN)?
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Lumen Technologies, Inc. (LUMN): Free Stock Analysis Report
Xcel Energy Inc. (XEL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).