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 Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks 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. Trane Technologies (TT) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at $1.34 a share one day away from its upcoming earnings release on May 3, 2023.
Trane Technologies' Earnings ESP sits at 0.92%, which, as explained above, is calculated by taking the percentage difference between the $1.34 Most Accurate Estimate and the Zacks Consensus Estimate of $1.33.
TT is one of just a large database of Business Services stocks with positive ESPs. Another solid-looking stock is Visa (V).
Slated to report earnings on July 25, 2023, Visa holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.11 a share 84 days from its next quarterly update.
For Visa, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.10 is 0.21%.
TT and V'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 >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report