Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
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.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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 Capital Southwest?
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. Capital Southwest (CSWC) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.58 a share, just 13 days from its upcoming earnings release on August 3, 2026.
By taking the percentage difference between the $0.58 Most Accurate Estimate and the $0.55 Zacks Consensus Estimate, Capital Southwest has an Earnings ESP of +6.10%. Investors should also know that CSWC 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.
CSWC is one of just a large database of Finance stocks with positive ESPs. Another solid-looking stock is Progressive (PGR).
Progressive, which is readying to report earnings on October 21, 2026, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $3.65 a share, and PGR is 92 days out from its next earnings report.
For Progressive, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $3.64 is +0.40%.
CSWC and PGR's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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 Capital Southwest Corporation (CSWC)?
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Capital Southwest Corporation (CSWC): Free Stock Analysis Report
The Progressive Corporation (PGR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).