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.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these 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. Eli Lilly (LLY) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at $2.95 a share 30 days away from its upcoming earnings release on November 2, 2023.
Eli Lilly's Earnings ESP sits at 2.43%, which, as explained above, is calculated by taking the percentage difference between the $2.95 Most Accurate Estimate and the Zacks Consensus Estimate of $2.88.
LLY is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Zoetis (ZTS).
Zoetis is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on November 2, 2023. ZTS' Most Accurate Estimate sits at $1.36 a share 30 days from its next earnings release.
The Zacks Consensus Estimate for Zoetis is $1.36, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of 0.09%.
LLY and ZTS' positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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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