Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
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.
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.
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 Halliburton?
The final step today is to look at a stock that meets our ESP qualifications. Halliburton (HAL) earns a #3 (Hold) 29 days from its next quarterly earnings release on April 25, 2023, and its Most Accurate Estimate comes in at $0.69 a share.
HAL has an Earnings ESP figure of +2.68%, which, as explained above, is calculated by taking the percentage difference between the $0.69 Most Accurate Estimate and the Zacks Consensus Estimate of $0.67. Halliburton 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.
HAL is just one of a large group of Oils and Energy stocks with a positive ESP figure. SolarEdge Technologies (SEDG) is another qualifying stock you may want to consider.
SolarEdge Technologies is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 1, 2023. SEDG’s Most Accurate Estimate sits at $2.04 a share 35 days from its next earnings release.
The Zacks Consensus Estimate for SolarEdge Technologies is $1.95, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +4.46%.
Because both stocks hold a positive Earnings ESP, HAL and SEDG could potentially post earnings beats in their next reports.
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. Check it out here >>
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Halliburton Company (HAL) : Free Stock Analysis Report
SolarEdge Technologies, Inc. (SEDG) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
