Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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 #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 Chubb?
The final step today is to look at a stock that meets our ESP qualifications. Chubb (CB) earns a #3 (Hold) seven days from its next quarterly earnings release on April 21, 2026, and its Most Accurate Estimate comes in at $6.61 a share.
By taking the percentage difference between the $6.61 Most Accurate Estimate and the $6.46 Zacks Consensus Estimate, Chubb has an Earnings ESP of +2.26%. Investors should also know that CB 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.
CB is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is PennyMac Mortgage (PMT).
PennyMac Mortgage, which is readying to report earnings on April 28, 2026, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $0.39 a share, and PMT is 14 days out from its next earnings report.
For PennyMac Mortgage, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.36 is +8.54%.
CB and PMT'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 Chubb Limited (CB)?
Before you invest in Chubb Limited (CB), want to know the best stocks to buy for the next 30 days? Check out Zacks Investment Research for our free report on the 7 best stocks to buy.
Zacks Investment Research has been committed to providing investors with tools and independent research since 1978. For more than a quarter century, the Zacks Rank stock-rating system has more than doubled the S&P 500 with an average gain of +24.08% per year. (These returns cover a period from January 1, 1988 through May 6, 2024.)
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Chubb Limited (CB): Free Stock Analysis Report
PennyMac Mortgage Investment Trust (PMT): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).