Wall Street watches a company’s quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it’s no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company’s report. The idea is relatively intuitive as a newer projection might be based on more complete information.
Now that we understand the basic idea, let’s look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.
Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.
Should You Consider Sabre?
The final step today is to look at a stock that meets our ESP qualifications. Sabre (SABR) earns a #3 (Hold) eight days from its next quarterly earnings release on August 3, 2023, and its Most Accurate Estimate comes in at -$0.20 a share.
SABR has an Earnings ESP figure of +13.04%, which, as explained above, is calculated by taking the percentage difference between the -$0.20 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.23. Sabre is one of a large database of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they’ve reported.
SABR is one of just a large database of Computer and Technology stocks with positive ESPs. Another solid-looking stock is T-Mobile (TMUS).
T-Mobile, which is readying to report earnings on July 27, 2023, sits at a Zacks Rank #2 (Buy) right now. It’s Most Accurate Estimate is currently $1.78 a share, and TMUS is one day out from its next earnings report.
T-Mobile’s Earnings ESP figure currently stands at +3.94% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.71.
SABR and TMUS’ positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
Sabre Corporation (SABR): Free Stock Analysis Report
T-Mobile US, Inc. (TMUS): Free Stock Analysis Report
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This article originally appeared on Zacks
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