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 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.
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 Woodward?
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. Woodward (WWD) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $2.51 a share two days away from its upcoming earnings release on July 29, 2026.
WWD has an Earnings ESP figure of +5.10%, which, as explained above, is calculated by taking the percentage difference between the $2.51 Most Accurate Estimate and the Zacks Consensus Estimate of $2.39. Woodward 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.
WWD is part of a big group of Aerospace stocks that boast a positive ESP, and investors may want to take a look at Northrop Grumman (NOC) as well.
Northrop Grumman, which is readying to report earnings on October 20, 2026, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $7.24 a share, and NOC is 85 days out from its next earnings report.
For Northrop Grumman, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $7.19 is +0.70%.
WWD and NOC'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 Woodward, Inc. (WWD)?
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This article originally published on Zacks Investment Research (zacks.com).