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.
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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more 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.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Nextpower?
The final step today is to look at a stock that meets our ESP qualifications. Nextpower (NXT) earns a #3 (Hold) 19 days from its next quarterly earnings release on October 28, 2026, and its Most Accurate Estimate comes in at $1.15 a share.
By taking the percentage difference between the $1.15 Most Accurate Estimate and the $1.11 Zacks Consensus Estimate, Nextpower has an Earnings ESP of +3.23%. Investors should also know that NXT 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.
NXT is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at Shell (SHEL) as well.
Shell is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on October 29, 2026. SHEL's Most Accurate Estimate sits at $3.51 a share 20 days from its next earnings release.
For Shell, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.98 is +17.69%.
NXT and SHEL'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 Nextpower Inc. (NXT)?
Before you invest in Nextpower Inc. (NXT), 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
Nextpower Inc. (NXT): Free Stock Analysis Report
Shell PLC Unsponsored ADR (SHEL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).