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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 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 final step today is to look at a stock that meets our ESP qualifications. Wells Fargo (WFC) earns a Zacks Rank #2 30 days from its next quarterly earnings release on January 10, 2025, and its Most Accurate Estimate comes in at $1.35 a share.
Wells Fargo's Earnings ESP sits at 2.1%, which, as explained above, is calculated by taking the percentage difference between the $1.35 Most Accurate Estimate and the Zacks Consensus Estimate of $1.32.
WFC is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at FS KKR Capital (FSK) as well.
FS KKR Capital is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 24, 2025. FSK's Most Accurate Estimate sits at $0.68 a share 75 days from its next earnings release.
The Zacks Consensus Estimate for FS KKR Capital is $0.67, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of 2.1%.
WFC and FSK'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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