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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.
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.
2 Stocks to Add to Your Watchlist
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. Copa Holdings (CPA) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at $3.95 a share 22 days away from its upcoming earnings release on February 5, 2025.
By taking the percentage difference between the $3.95 Most Accurate Estimate and the $3.87 Zacks Consensus Estimate, Copa Holdings has an Earnings ESP of 1.95%.
CPA is just one of a large group of Transportation stocks with a positive ESP figure. Southwest Airlines (LUV) is another qualifying stock you may want to consider.
Southwest Airlines, which is readying to report earnings on January 30, 2025, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $0.45 a share, and LUV is 16 days out from its next earnings report.
The Zacks Consensus Estimate for Southwest Airlines is $0.43, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of 5.35%.
CPA and LUV'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 >>