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.
The earnings figure itself is key, 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 even higher.
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 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 look at a qualifying stock. Cadence Design Systems (CDNS) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at $1.50 a share 28 days away from its upcoming earnings release on April 28, 2025.
Cadence Design Systems' Earnings ESP sits at 0.52%, which, as explained above, is calculated by taking the percentage difference between the $1.50 Most Accurate Estimate and the Zacks Consensus Estimate of $1.49.
CDNS is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at Okta (OKTA) as well.
Okta is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on June 4, 2025. OKTA's Most Accurate Estimate sits at $0.77 a share 65 days from its next earnings release.
For Okta, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.76 is 0.54%.
CDNS and OKTA's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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. Check it out here >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cadence Design Systems, Inc. (CDNS) : Free Stock Analysis Report
Okta, Inc. (OKTA) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.