Two factors often determine stock prices in the long run: earnings and interest rates. Investors can’t control the latter, but they can focus on a company’s earnings results every quarter.
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.
Now that we know how important earnings and earnings surprises are, it’s time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% 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 Constellation Brands?
The final step today is to look at a stock that meets our ESP qualifications. Constellation Brands (STZ) earns a #3 (Hold) 27 days from its next quarterly earnings release on October 5, 2023, and its Most Accurate Estimate comes in at $3.42 a share.
STZ has an Earnings ESP figure of +1.85%, which, as explained above, is calculated by taking the percentage difference between the $3.42 Most Accurate Estimate and the Zacks Consensus Estimate of $3.36. Constellation Brands 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.
STZ is just one of a large group of Consumer Staples stocks with a positive ESP figure. Clorox (CLX) is another qualifying stock you may want to consider.
Slated to report earnings on November 7, 2023, Clorox holds a #3 (Hold) ranking on the Zacks Rank, and it’s Most Accurate Estimate is $1.40 a share 60 days from its next quarterly update.
Clorox’s Earnings ESP figure currently stands at +3.02% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.36.
Because both stocks hold a positive Earnings ESP, STZ and CLX could potentially post earnings beats in their next reports.
Constellation Brands Inc (STZ): Free Stock Analysis Report
This article originally appeared on Zacks
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