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.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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.
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 Novavax?
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. Novavax (NVAX) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at -$0.24 a share 29 days away from its upcoming earnings release on May 14, 2026.
By taking the percentage difference between the -$0.24 Most Accurate Estimate and the -$0.3 Zacks Consensus Estimate, Novavax has an Earnings ESP of +20.00%. Investors should also know that NVAX 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.
NVAX is just one of a large group of Medical stocks with a positive ESP figure. McKesson (MCK) is another qualifying stock you may want to consider.
McKesson is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 7, 2026. MCK's Most Accurate Estimate sits at $11.57 a share 22 days from its next earnings release.
McKesson's Earnings ESP figure currently stands at +0.06% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $11.56.
NVAX and MCK'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 Novavax, Inc. (NVAX)?
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This article originally published on Zacks Investment Research (zacks.com).