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.
Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
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.
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 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 17 days away from its upcoming earnings release on July 27, 2026.
By taking the percentage difference between the $2.51 Most Accurate Estimate and the $2.39 Zacks Consensus Estimate, Woodward has an Earnings ESP of +5.10%. Investors should also know that WWD 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.
WWD is just one of a large group of Aerospace stocks with a positive ESP figure. Northrop Grumman (NOC) is another qualifying stock you may want to consider.
Northrop Grumman, which is readying to report earnings on July 21, 2026, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $6.85 a share, and NOC is 11 days out from its next earnings report.
For Northrop Grumman, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $6.84 is +0.22%.
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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Woodward, Inc. (WWD): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).