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Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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.
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. Baker Hughes (BKR) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at $0.64 a share three days away from its upcoming earnings release on January 30, 2025.
BKR has an Earnings ESP figure of 2.07%, which, as explained above, is calculated by taking the percentage difference between the $0.64 Most Accurate Estimate and the Zacks Consensus Estimate of $0.63.
BKR is one of just a large database of Oils-Energy stocks with positive ESPs. Another solid-looking stock is Energy Transfer LP (ET).
Slated to report earnings on February 11, 2025, Energy Transfer LP holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.39 a share 15 days from its next quarterly update.
The Zacks Consensus Estimate for Energy Transfer LP is $0.36, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of 9.09%.
BKR and ET'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 >>
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