Using the Zacks Earnings ESP Tool
Quarterly financial reports are crucial for investors, offering insights into a company's performance and future prospects. Among the various metrics, earnings hold significant weight. While the actual earnings figure is important, exceeding or falling short of expectations (earnings surprise) can be equally impactful.
Investors often seek "earnings whispers" or companies likely to beat estimates. The Zacks Earnings ESP tool provides a valuable resource for this purpose.
## How the Zacks Earnings ESP Tool Works
analysts closer to the report date likely have more up-to-date information.
The ESP compares the Most Accurate Estimate (most recent) with the overall Zacks Consensus Estimate. The percentage difference between these two figures generates the ESP. Additionally, the tool incorporates the Zacks Rank, further enhancing its ability to identify stocks poised for earnings surprises and potential price increases.
## Historical Performance and Potential Returns
Studies have shown that stocks with a positive earnings ESP and a Zacks Rank #3 (Hold) or higher have a 70% chance of exceeding earnings expectations. Moreover, these stocks have historically generated an average annual return of approximately 28%.
TransDigm Group and Leidos
TransDigm Group (TDG) currently holds a Zacks Rank #3 (Hold) and boasts a Most Accurate Estimate of $7.46 per share, 29 days before its upcoming earnings release on May 14, 2024. Compared to the Zacks Consensus Estimate of $7.36, TDG has an Earnings ESP of +1.25%.
Leidos (LDOS) is another promising candidate with a Zacks Rank #2 (Buy) and an upcoming earnings release on April 30, 2024. Its Most Accurate Estimate sits at $1.66 per share, 15 days before the report. Compared to the Zacks Consensus Estimate of $1.65, LDOS has an Earnings ESP of +0.38%.
The positive ESP metrics for both TDG and LDOS suggest a potential for positive earnings surprises.
## Conclusion
The Zacks Earnings ESP tool is a valuable resource for investors seeking to identify stocks with the potential to beat earnings estimates and experience price increases. By combining the ESP with the Zacks Rank, investors can gain a more comprehensive understanding of a company's earnings outlook and make informed investment decisions.