Earnings are arguably the most important single number on a company’s quarterly financial report. Wall Street clearly dives into all of the other metrics and management’s input, but the EPS figure helps cut through all the noise.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.

Hunting for ‘earnings whispers’ or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn’t make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

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.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

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 #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 TJX?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. TJX (TJX) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.77 a share 26 days away from its upcoming earnings release on August 16, 2023.

By taking the percentage difference between the $0.77 Most Accurate Estimate and the $0.76 Zacks Consensus Estimate, TJX has an Earnings ESP of +1.85%. Investors should also know that TJX is one of a large group 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.

TJX is part of a big group of Retail and Wholesale stocks that boast a positive ESP, and investors may want to take a look at Lowe’s (LOW) as well.

Lowe’s is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on August 22, 2023. LOW’s Most Accurate Estimate sits at $4.49 a share 32 days from its next earnings release.

Lowe’s Earnings ESP figure currently stands at +0.1% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.49.

TJX and LOW’s positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.

Find Stocks to Buy or Sell Before They’re Reported

Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they’re reported for profitable earnings season trading.

The TJX Companies, Inc. (TJX): Free Stock Analysis Report

Lowe’s Companies, Inc. (LOW): Free Stock Analysis Report

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