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.
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.
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 #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 Texas Instruments?
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. Texas Instruments (TXN) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.96 a share seven days away from its upcoming earnings release on July 22, 2026.
TXN has an Earnings ESP figure of +2.66%, which, as explained above, is calculated by taking the percentage difference between the $1.96 Most Accurate Estimate and the Zacks Consensus Estimate of $1.91. Texas Instruments 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.
TXN is just one of a large group of Computer and Technology stocks with a positive ESP figure. Apple (AAPL) is another qualifying stock you may want to consider.
Slated to report earnings on July 30, 2026, Apple holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $1.89 a share 15 days from its next quarterly update.
Apple's Earnings ESP figure currently stands at +0.53% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.88.
TXN and AAPL'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 Texas Instruments Incorporated (TXN)?
Before you invest in Texas Instruments Incorporated (TXN), 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
Texas Instruments Incorporated (TXN): Free Stock Analysis Report
Apple Inc. (AAPL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).