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.
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 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 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. GSK (GSK) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at $1.17 a share 29 days away from its upcoming earnings release on April 30, 2025.
GSK has an Earnings ESP figure of 10.59%, which, as explained above, is calculated by taking the percentage difference between the $1.17 Most Accurate Estimate and the Zacks Consensus Estimate of $1.06.
GSK is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Guardant Health (GH).
Guardant Health is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 8, 2025. GH's Most Accurate Estimate sits at -$0.55 a share 37 days from its next earnings release.
The Zacks Consensus Estimate for Guardant Health is -$0.57, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of 3.23%.
GSK and GH'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 >>
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This article originally published on Zacks Investment Research (zacks.com).
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