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.
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.
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.
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 Travelers?
The final step today is to look at a stock that meets our ESP qualifications. Travelers (TRV) earns a #3 (Hold) three days from its next quarterly earnings release on July 17, 2026, and its Most Accurate Estimate comes in at $5.45 a share.
By taking the percentage difference between the $5.45 Most Accurate Estimate and the $5.14 Zacks Consensus Estimate, Travelers has an Earnings ESP of +6.09%. Investors should also know that TRV 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.
TRV is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at MSCI (MSCI) as well.
MSCI, which is readying to report earnings on July 21, 2026, sits at a Zacks Rank #2 (Buy) right now. Its Most Accurate Estimate is currently $4.93 a share, and MSCI is seven days out from its next earnings report.
The Zacks Consensus Estimate for MSCI is $4.89, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.83%.
TRV and MSCI'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 The Travelers Companies, Inc. (TRV)?
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This article originally published on Zacks Investment Research (zacks.com).