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 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 General Motors?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. General Motors (GM) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $3.29 a share, just five days from its upcoming earnings release on July 21, 2026.
General Motors' Earnings ESP sits at +5.17%, which, as explained above, is calculated by taking the percentage difference between the $3.29 Most Accurate Estimate and the Zacks Consensus Estimate of $3.13. GM is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
GM is part of a big group of Auto, Tires and Trucks stocks that boast a positive ESP, and investors may want to take a look at Cummins (CMI) as well.
Cummins is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on August 4, 2026. CMI's Most Accurate Estimate sits at $7.37 a share 19 days from its next earnings release.
For Cummins, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $7.34 is +0.43%.
Because both stocks hold a positive Earnings ESP, GM and CMI could potentially post earnings beats in their next reports.
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 General Motors Company (GM)?
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General Motors Company (GM): Free Stock Analysis Report
Cummins Inc. (CMI): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).