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 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.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Stanley Black & Decker?
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. Stanley Black & Decker (SWK) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $1.56 a share 12 days away from its upcoming earnings release on November 4, 2026.
By taking the percentage difference between the $1.56 Most Accurate Estimate and the $1.54 Zacks Consensus Estimate, Stanley Black & Decker has an Earnings ESP of +1.10%. Investors should also know that SWK 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.
SWK is just one of a large group of Industrial Products stocks with a positive ESP figure. Emerson Electric (EMR) is another qualifying stock you may want to consider.
Slated to report earnings on November 4, 2026, Emerson Electric holds a #2 (Buy) ranking on the Zacks Rank, and its Most Accurate Estimate is $1.86 a share 12 days from its next quarterly update.
For Emerson Electric, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.85 is +0.40%.
SWK and EMR'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 Stanley Black & Decker, Inc. (SWK)?
Before you invest in Stanley Black & Decker, Inc. (SWK), 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
Stanley Black & Decker, Inc. (SWK): Free Stock Analysis Report
Emerson Electric Co. (EMR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).