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.

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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.

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.

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 Morgan Stanley?

Now that we understand what the ESP is and how beneficial it can be, let’s dive into a stock that currently fits the bill. Morgan Stanley (MS) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $1.41 a share, just 21 days from its upcoming earnings release on October 18, 2023.

MS has an Earnings ESP figure of +0.84%, which, as explained above, is calculated by taking the percentage difference between the $1.41 Most Accurate Estimate and the Zacks Consensus Estimate of $1.40. Morgan Stanley 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.

MS is just one of a large group of Finance stocks with a positive ESP figure. Brandywine Realty Trust (BDN) is another qualifying stock you may want to consider.

Brandywine Realty Trust is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on October 24, 2023. BDN’s Most Accurate Estimate sits at $0.29 a share 27 days from its next earnings release.

Brandywine Realty Trust’s Earnings ESP figure currently stands at +0.35% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.28.

Because both stocks hold a positive Earnings ESP, MS and BDN could potentially post earnings beats in their next reports.
Morgan Stanley (MS): Free Stock Analysis Report

Brandywine Realty Trust (BDN): Free Stock Analysis Report

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