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.
Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.
2 Stocks to Add to Your Watchlist
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.
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. Lululemon (LULU) earns a Zacks Rank #2 right now and its Most Accurate Estimate sits at $2.05 a share, just 14 days from its upcoming earnings release on December 8, 2022.
By taking the percentage difference between the $2.05 Most Accurate Estimate and the $1.95 Zacks Consensus Estimate, Lululemon has an Earnings ESP of 4.91%.
LULU is just one of a large group of Consumer Discretionary stocks with a positive ESP figure. Peloton (PTON) is another qualifying stock you may want to consider.
Slated to report earnings on February 14, 2023, Peloton holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is -$0.64 a share 82 days from its next quarterly update.
Peloton's Earnings ESP figure currently stands at 0.99% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of -$0.65.
LULU and PTON's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
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 >>
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