Earnings Surprises: Key to Profiting in the Stock Market

Earnings are arguably the most critical number on a company’s quarterly financial report. Wall Street scrutinizes all metrics and management insights, but the EPS figure often cuts through the noise.

Understanding how a company stacks up against bottom-line expectations can be pivotal for short-term stock prices. Generally, investors may want to capitalize on earnings surprises to enhance their portfolios.

Identifying Potential Earnings Surprises with Zacks

Spotting stocks likely to exceed quarterly earnings expectations can be rewarding, though it poses challenges. At Zacks, we employ the earnings ESP filter for this purpose.

Understanding the Zacks Earnings ESP

The Zacks earnings ESP, or Expected Surprise Prediction, is designed to detect earnings surprises by focusing on recent analyst revisions. If an analyst updates their earnings estimate before a release, they likely possess updated information that may increase accuracy.

The ESP model centers on comparing the Most Accurate Estimate to the Zacks Consensus Estimate. The resulting percentage difference signifies the Expected Surprise Prediction. Furthermore, the Zacks Rank is integrated into the ESP metric to identify companies likely to exceed their consensus estimates, ideally leading to a stock price bump.

A combination of a Zacks Rank #3 (Hold) or higher and a positive earnings ESP results in a positive surprise occurrence 70% of the time. Notably, these parameters have produced an average annual return of 28.3%, based on a ten-year backtest.

Stocks rated #3 (Hold), constituting 60% of all stocks analyzed by the Zacks Rank, are expected to reflect the broader market’s performance. Conversely, stocks with #2 (Buy) and #1 (Strong Buy) ratings—representing the top 15% and 5% of stocks, respectively—are anticipated to outperform the market, with Strong Buy stocks showing the highest likelihood of exceeding expectations.

Focus on Lyft

With the ESP concept established, let’s examine a stock that meets our criteria: Lyft (LYFT). Currently rated #3 (Hold), its Most Accurate Estimate stands at $0.22 per share, just two days before its earnings release on May 8, 2025.

There is a +10% earnings ESP when we compare Lyft’s Most Accurate Estimate of $0.22 to the Zacks Consensus Estimate of $0.20. Investors should be aware that LYFT is among many stocks with positive ESPs during this period. Utilizing our earnings ESP Filter can help pinpoint the best stocks to buy or sell prior to their earnings announcements.

Besides LYFT, another noteworthy company is Meta Platforms (META). Set to report earnings on July 30, 2025, it holds a #3 (Hold) ranking with a Most Accurate Estimate of $5.85 per share, 85 days before its quarterly update.

The Zacks Consensus Estimate for Meta Platforms is $5.84, leading to an earnings ESP of +0.13% based on the percentage difference between these estimates.

Both LYFT and META’s positive ESP metrics may indicate a potential positive earnings surprise for these companies.

Identifying Stocks for Profitable Earnings Trading

Leverage the Zacks earnings ESP Filter to uncover stocks with the greatest likelihood of surprising positively or negatively before earnings are reported. By doing so, investors can navigate the earnings season strategically.

Considering an Investment in Lyft, Inc. (LYFT)?

Before committing to Lyft, Inc. (LYFT), explore opportunities for the next 30 days and consider our insights. Zacks Investment Research has been providing independent investment tools since 1978, continuously evolving to support informed financial decisions.

The Zacks Rank system has historically outperformed the S&P 500, achieving an average annual gain of +24.08% over a period from January 1, 1988, through May 6, 2024.

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This article initially appeared at Zacks Investment Research.

The views and opinions expressed herein reflect those of the author and do not necessarily represent those of Nasdaq, Inc.