Unlocking Earnings Surprises: Discovering Potential Profits with Zacks Earnings ESP
Understanding Stock Prices: The Role of Earnings and Interest Rates
Two main factors influence stock prices over time: earnings and interest rates. While investors cannot control interest rates, they can focus on quarterly earnings reports from companies.
Both life and the stock market revolve around expectations. Exceeding these expectations often leads to rewards, while falling short can have negative impacts. One strategy for investors seeking better returns is to identify companies that might surprise positively with their earnings reports.
Introducing the Zacks Earnings ESP Tool
Identifying “earnings whispers,” or companies expected to surpass their earnings forecasts, is a common trend among investors. However, this task is not without challenges. A reliable method to uncover these surprises is the Zacks Earnings ESP tool (Expected Surprise Prediction).
The Zacks Earnings ESP focuses on the latest analyst revisions to forecast earnings surprises. If an analyst updates their earnings estimate before an earnings report, it indicates they might possess new, valuable information.
To calculate the ESP, one compares the Most Accurate Estimate to the Zacks Consensus Estimate. The percentage difference gives the Zacks ESP figure.
A positive earnings ESP, coupled with a Zacks Rank #3 (Hold) or better, has led to a 70% success rate in reporting positive earnings surprises. Historical data from a 10-year backtest shows that this approach yields average annual returns of 28.3%.
Stocks rated #3 (Hold), representing 60% of all stocks covered by the Zacks Rank, are expected to match market performance. In contrast, stocks rated #2 (Buy) and #1 (Strong Buy) are anticipated to outperform, with Strong Buy stocks expected to lead significantly.
Examining Meta Platforms: A Strong Candidate
Now, let’s examine a stock that meets these favorable criteria. Meta Platforms (META) currently holds a #2 (Buy) rating, with its Most Accurate Estimate at $5.32 per share, just five days ahead of its earnings report on October 30, 2024.
The Earnings ESP for Meta Platforms is +2.83%, calculated from the difference between the $5.32 Most Accurate Estimate and the $5.17 Zacks Consensus Estimate. META is part of a broader group of stocks showing positive ESPs, and investors can use the Earnings ESP Filter to target the best buying or selling opportunities ahead of earnings announcements.
Additionally, Bilibili (BILI) is another appealing stock. Set to announce its earnings on December 4, 2024, Bilibili also boasts a #2 (Buy) rating, with a Most Accurate Estimate of $0.11 per share, which is 40 days away from its quarterly update.
Bilibili’s Earnings ESP is currently +10%, derived from the difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.10.
Strategies for Finding the Best Stocks
Given that both META and BILI hold positive Earnings ESPs, they have the potential to exceed earnings expectations in their upcoming reports.
Utilizing the Zacks Earnings ESP Filter can help investors find stocks likely to surprise positively or negatively, allowing for more informed trading decisions during earnings season. Explore the features of the ESP Filter here >>
Top 7 Stocks to Watch Over the Next Month
A recent release highlights seven elite stocks handpicked from a pool of 220 Zacks Rank #1 Strong Buys. These stocks are anticipated to deliver “Most Likely Early Price Pops.”
Since 1988, this selected list has outperformed the market more than twofold, with an impressive average annual return of +23.7%. It’s worth paying attention to these recommendations.
To access the latest investment insights from Zacks Investment Research, you can download the report titled “5 Stocks Set to Double.” Click here for your free access.
Meta Platforms, Inc. (META): Free Stock Analysis Report
Bilibili Inc. Sponsored ADR (BILI): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
