Earnings Surprises: Unlocking Stock Market Potential

Earnings reports play a crucial role in a company’s quarterly financial performance. While investors often examine multiple metrics and management commentary, earnings per share (EPS) is a key figure that simplifies evaluation.

In both life and the stock market, expectations matter. When a company exceeds expectations, it usually sees positive outcomes. Conversely, missing expectations can lead to negative repercussions. Investors often seek to enhance returns by targeting stocks that reveal unexpected earnings surprises.

Given the significance of earnings and surprises, the next step is to explore a tool that may help investors capitalize on these moments: the Zacks Earnings ESP filter.

Understanding the Zacks Earnings ESP

The Zacks Earnings ESP (Expected Surprise Prediction) is designed to identify potential earnings surprises by focusing on the latest analyst revisions. The idea is straightforward: if an analyst updates their earnings forecast before an earnings announcement, it likely indicates they possess new information that may affect accuracy.

To determine the Expected Surprise Prediction, the ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate. The percentage difference between these estimates presents the Zacks ESP figure.

A positive earnings ESP combined with a Zacks Rank of #3 (Hold) or better has historically resulted in a positive earnings surprise 70% of the time. Additionally, using these criteria has yielded an average annual return of 28.3% over the past decade according to backtesting data.

Stocks rated #3 (Hold), which form about 60% of all stocks in the Zacks Rank, are expected to match market performance. Conversely, those with rankings of #2 (Buy) and #1 (Strong Buy) – which represent the top 15% and top 5% of stocks, respectively – are expected to outperform. Stocks ranked Strong Buy tend to deliver the highest performance in this category.

Evaluating Block (SQ)

With an understanding of the ESP in mind, let’s examine a stock that embodies these criteria. Block (SQ) currently holds a #3 (Hold) rating, and its Most Accurate Estimate stands at $0.93 per share, just one day prior to its earnings release scheduled for November 7, 2024.

Block’s Earnings ESP is +5.98%, derived from the difference between the $0.93 Most Accurate Estimate and the Zacks Consensus Estimate of $0.88. Block is among a variety of stocks currently showcasing positive ESP metrics. Investors can utilize the Earnings ESP Filter to identify favorable buying or selling opportunities before earnings reports are released.

Another stock worth mentioning is Confluent (CFLT), which is scheduled to report earnings on February 5, 2025. Confluent also holds a #3 (Hold) ranking, with its Most Accurate Estimate set at $0.06 a share 91 days prior to its quarterly update.

The Zacks Consensus Estimate for Confluent is $0.05. The Earnings ESP metric comes out to +4.31% when you calculate the percentage difference between its Most Accurate Estimate and the Consensus Estimate.

The positive ESP figures for SQ and CFLT suggest that both stocks may be poised for potential earnings surprises.

Discover Investment Opportunities

Explore the Zacks Earnings ESP Filter to find stocks with the highest likelihood of surprising investors positively or negatively ahead of earnings announcements. This tool can be valuable for profitable trading during earnings season.

Zacks Identifies Top Semiconductor Stock

This stock is just 1/9,000th the market cap of NVIDIA, which has surged over +800% since our initial recommendation. While NVIDIA remains a strong player, this new semiconductor stock offers significant growth potential.

With robust earnings growth and a growing client base, it’s set to benefit from the soaring demand for Artificial Intelligence, Machine Learning, and the Internet of Things. The global semiconductor market is expected to expand from $452 billion in 2021 to $803 billion by 2028.

For additional insights and stock recommendations, consider checking out Zacks Investment Research’s latest reports.

Block, Inc. (SQ): Free Stock Analysis Report

Confluent, Inc. (CFLT): 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.