QFactors that generally determine stock prices in the long run: earnings and interest rates. Investors cannot control the latter, but they can focus on a company’s earnings results each quarter.
Life and the stock market are both about expectations, and rising above expectations is often rewarded, while falling can have negative consequences. Investors may want to try to get stronger returns by looking for positive earnings surprises.
The ability to identify stocks that are likely to outperform quarterly earnings expectations can be useful, but it is not a 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 the latest analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual date. to release. The thinking is quite straightforward: analysts who provide earnings estimates closer to the report tend to have more information.
With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (which is the most recent) against the overall Zacks Consensus Estimate. The percentage difference gives the ESP number. The system also uses our core Zacks Rank to provide a more robust system for identifying stocks that may beat their next quarterly earnings estimate and potentially see an increase in stock price.
Combining a positive earnings ESP with a Zacks Rank #3 (Hold) or better helps stocks report a positive earnings surprise 70% of the time. In addition, by using these parameters, investors see 28.3% annual return 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 #2 (Buy) and #1 (Strong Buy) ratings, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy being stocks above all ranks.
Should You Consider Intuit?
Now that we know what ESP is and how useful it is, let’s examine a stock that currently fits the bill. Intuit (INTU) earned a #2 (Buy) today and its Best Estimate sits at $1.01 a share, just 18 days from its upcoming earnings release on August 23, 2022.
Intuit’s Earnings ESP sits at +1.92%, which, as explained above, is calculated by taking the percentage difference between the $1.01 Most Accurate Estimate and the Zacks Consensus Estimate of $0.99. INTU is also part of a large group of stocks that boast a positive ESP. Be sure to use our Earnings ESP Filter to identify the best stocks to buy or sell before reporting them.
INTU is just one of a large group of Computer and Technology stocks with a positive ESP number. Blink Charging (BLNK) is another qualifying stock you may want to consider.
Set to report earnings on August 8, 2022, Blink Charging has a Zacks Rank #2 (Buy), and it’s Best Estimate is -$0.34 a share three days from its next quarterly earnings call. update.
The Zacks Consensus Estimate for Blink Charging is -$0.36, and if you take the percentage difference between that number and its Most Accurate Estimate, you get an Earnings ESP number of +4.23%.
Since both stocks have positive Earnings ESP, INTU and BLNK may post earnings beats in their next reports.
Find Stocks to Buy or Sell Before They Report
Use the Zacks Earnings ESP Filter to highlight stocks with the highest likelihood of positive, or negative, surprise buys or sells before they are reported for profitable trading during earnings season. Check it out here >>
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Intuit Inc. (INTU): Free Stock Analysis Report
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.