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.
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 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.
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.
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 Starbucks?
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. Starbucks (SBUX) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.74 a share 30 days away from its upcoming earnings release on November 4, 2026.
Starbucks' Earnings ESP sits at +2.43%, which, as explained above, is calculated by taking the percentage difference between the $0.74 Most Accurate Estimate and the Zacks Consensus Estimate of $0.72. SBUX 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.
SBUX is just one of a large group of Retail and Wholesale stocks with a positive ESP figure. Ulta Beauty (ULTA) is another qualifying stock you may want to consider.
Ulta Beauty, which is readying to report earnings on December 3, 2026, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $5.73 a share, and ULTA is 59 days out from its next earnings report.
For Ulta Beauty, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $5.60 is +2.37%.
SBUX and ULTA'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 Starbucks Corporation (SBUX)?
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Starbucks Corporation (SBUX): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).