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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.
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 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. MercadoLibre (MELI) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at $7.85 a share one day away from its upcoming earnings release on May 1, 2025.
By taking the percentage difference between the $7.85 Most Accurate Estimate and the $7.67 Zacks Consensus Estimate, MercadoLibre has an Earnings ESP of 2.3%.
MELI is one of just a large database of Retail-Wholesale stocks with positive ESPs. Another solid-looking stock is Alibaba (BABA).
Alibaba is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on May 13, 2025. BABA's Most Accurate Estimate sits at $2.09 a share 13 days from its next earnings release.
The Zacks Consensus Estimate for Alibaba is $1.48, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of 41.7%.
Because both stocks hold a positive Earnings ESP, MELI and BABA 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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