Unlocking Earnings Surprises: Strategies for Investors

Quarterly financial reports are crucial for investors on Wall Street. They provide insights into a company’s recent performance and offer hints about future trends. Among the metrics to analyze, earnings stand out as a key indicator.

While earnings results themselves are important, understanding how a company’s performance aligns with expectations can significantly impact stock prices, particularly in the short term. As such, identifying and capitalizing on earnings surprises can present a compelling opportunity for investors.

Spotting stocks likely to exceed earnings expectations can be a profitable endeavor, but it is not straightforward. Here at Zacks, we utilize our earnings ESP filter to simplify this process.

Understanding the Zacks Earnings ESP

The Zacks Expected Surprise Prediction (ESP) focuses on the latest analyst earnings revisions. These revisions are typically more reliable than earlier estimates made weeks or months before the actual report date. The rationale is simple: analysts providing estimates closer to the report date likely possess more current information.

The ESP compares the Most Accurate Estimate (the most recent revision) with the overall Zacks Consensus Estimate, calculating the percentage difference to derive the ESP figure. Our system further incorporates the Zacks Rank, enhancing our ability to identify stocks that may beat their upcoming quarterly earnings estimate, potentially driving stock prices higher.

Combining a positive earnings ESP with a Zacks Rank of #3 (Hold) or better has historically resulted in positive earnings surprises 70% of the time. Additionally, this strategy has yielded average annual returns of 28.3% over the past decade, according to our backtests.

Approximately 60% of stocks fall into the #3 (Hold) category, expected to perform in line with the market. In contrast, stocks rated #2 (Buy) and #1 (Strong Buy) — the top 15% and top 5% of stocks, respectively — are poised to outperform, with Strong Buy stocks showing the most robust performance.

Analyzing Meta Platforms (META)

To illustrate our ESP qualifications, let’s examine a pertinent stock: Meta Platforms (META). With a Zacks Rank #3 (Hold), it is 19 days away from its next quarterly earnings release on April 30, 2025. Its Most Accurate Estimate stands at $5.32 per share.

META’s ESP is +1.86%, calculated by the difference between the Most Accurate Estimate ($5.32) and the Zacks Consensus Estimate ($5.22). This positive ESP indicates that Meta Platforms is among a promising group of stocks positioned for an earnings surprise. Investors should use our earnings ESP Filter to find other promising stocks before they report.

Alongside META, another stock worth noting is Uber Technologies (UBER). This company also boasts a Zacks Rank #3 (Hold) and is set to report earnings on May 14, 2025. UBER’s Most Accurate Estimate is $0.52 per share, which is +3.04% above the Zacks Consensus Estimate of $0.50.

Discover Stocks to Trade Before Earnings Reports

To find stocks with the highest probability of favorable or unfavorable surprises, use the Zacks earnings ESP Filter. This tool helps investors make informed trading decisions ahead of profitable earnings season. Explore it here >>

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Zacks Investment Research has been dedicated to offering tools and independent research to investors since 1978. The Zacks Rank system has consistently outperformed the S&P 500, achieving an average gain of +24.08% annually (data covers January 1, 1988, to May 6, 2024).

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Meta Platforms, Inc. (META) : Free Stock Analysis report

Uber Technologies, Inc. (UBER) : Free Stock Analysis report

This article originally published on Zacks Investment Research (zacks.com).

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