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.
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 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.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Walmart?
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. Walmart (WMT) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.74 a share two days away from its upcoming earnings release on August 20, 2026.
WMT has an Earnings ESP figure of +0.96%, which, as explained above, is calculated by taking the percentage difference between the $0.74 Most Accurate Estimate and the Zacks Consensus Estimate of $0.73. Walmart is one of a large database 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.
WMT is part of a big group of Retail and Wholesale stocks that boast a positive ESP, and investors may want to take a look at Cracker Barrel Old Country Store (CBRL) as well.
Slated to report earnings on September 16, 2026, Cracker Barrel Old Country Store holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $0.28 a share 29 days from its next quarterly update.
The Zacks Consensus Estimate for Cracker Barrel Old Country Store is $0.12, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +133.33%.
Because both stocks hold a positive Earnings ESP, WMT and CBRL could potentially post earnings beats in their next reports.
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 Walmart Inc. (WMT)?
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Walmart Inc. (WMT): Free Stock Analysis Report
Cracker Barrel Old Country Store, Inc. (CBRL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).