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.
2 Stocks to Add to Your Watchlist
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate. The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction.
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 look at a qualifying stock. CarMax (KMX) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at $0.77 a share 10 days away from its upcoming earnings release on September 28, 2023.
By taking the percentage difference between the $0.77 Most Accurate Estimate and the $0.75 Zacks Consensus Estimate, CarMax has an Earnings ESP of 2.07%.
KMX is just one of a large group of Retail-Wholesale stocks with a positive ESP figure. Deckers (DECK) is another qualifying stock you may want to consider.
Deckers, which is readying to report earnings on October 26, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $4.67 a share, and DECK is 38 days out from its next earnings report.
For Deckers, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.41 is 5.8%.
Because both stocks hold a positive Earnings ESP, KMX and DECK 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 >>
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