Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.
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.
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 S&P Global?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. S&P Global (SPGI) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $5.00 a share 15 days away from its upcoming earnings release on July 28, 2026.
SPGI has an Earnings ESP figure of +1.11%, which, as explained above, is calculated by taking the percentage difference between the $5.00 Most Accurate Estimate and the Zacks Consensus Estimate of $4.94. S&P Global 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.
SPGI is just one of a large group of Finance stocks with a positive ESP figure. Morgan Stanley (MS) is another qualifying stock you may want to consider.
Morgan Stanley is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on July 15, 2026. MS' Most Accurate Estimate sits at $2.92 a share two days from its next earnings release.
The Zacks Consensus Estimate for Morgan Stanley is $2.89, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.86%.
SPGI and MS' 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 S&P Global Inc. (SPGI)?
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S&P Global Inc. (SPGI): Free Stock Analysis Report
Morgan Stanley (MS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).