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.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

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, 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.

Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 28.3% annual returns on average, according to our 10 year backtest.

Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.

Should You Consider AutoZone?

The final step today is to look at a stock that meets our ESP qualifications. AutoZone (AZO) earns a #2 (Buy) six days from its next quarterly earnings release on September 19, 2023, and its Most Accurate Estimate comes in at $46.12 a share.

AutoZone’s Earnings ESP sits at +3.57%, which, as explained above, is calculated by taking the percentage difference between the $46.12 Most Accurate Estimate and the Zacks Consensus Estimate of $44.53. AZO is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they’ve reported.

AZO is just one of a large group of Retail and Wholesale stocks with a positive ESP figure. Domino’s Pizza (DPZ) is another qualifying stock you may want to consider.

Slated to report earnings on October 12, 2023, Domino’s Pizza holds a #1 (Strong Buy) ranking on the Zacks Rank, and it’s Most Accurate Estimate is $3.54 a share 29 days from its next quarterly update.

For Domino’s Pizza, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $3.29 is +7.54%.

Because both stocks hold a positive Earnings ESP, AZO and DPZ could potentially post earnings beats in their next reports.
AutoZone, Inc. (AZO): Free Stock Analysis Report

Domino’s Pizza Inc (DPZ): Free Stock Analysis Report

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This article originally appeared on Zacks

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