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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.
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. Southwest Airlines (LUV) holds a Zacks Rank #2 at the moment and its Most Accurate Estimate comes in at -$0.15 a share 30 days away from its upcoming earnings release on April 24, 2025.
By taking the percentage difference between the -$0.15 Most Accurate Estimate and the -$0.17 Zacks Consensus Estimate, Southwest Airlines has an Earnings ESP of 10.29%.
LUV is part of a big group of Transportation stocks that boast a positive ESP, and investors may want to take a look at Copa Holdings (CPA) as well.
Copa Holdings, which is readying to report earnings on May 21, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $3.96 a share, and CPA is 57 days out from its next earnings report.
For Copa Holdings, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $3.78 is 4.71%.
Because both stocks hold a positive Earnings ESP, LUV and CPA 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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