Two factors often determine share prices over the long term: earnings and interest rates. Investors can’t control the latter, but they can focus on a company’s earnings results each quarter.
The winning number itself is key, of course, but a hit or miss in the bottom line can sometimes be just as important, if not more so. Therefore, investors should consider paying special attention to these earnings surprises, as a big hit can help a stock rise and vice versa.
Chasing “earnings whispers,” or companies poised to beat their quarterly earnings estimates, is a fairly common practice. But that doesn’t make it easy. One way that has proven itself is to use the Zacks Earnings ESP tool.
The Zacks Earnings ESP, explained
More formally known as the expected surprise forecast, the Zacks Earnings ESP aims to track the latest revisions to analyst estimates ahead of a company’s report. The idea is relatively intuitive as a more recent projection may be based on more complete information.
With this in mind, the expected surprise prediction compares the most accurate estimate (the most recent) to the entire Zacks consensus estimate. The percentage difference gives the ESP value. The system also leverages our core Zacks rank to provide a stronger system for identifying stocks that could beat their next quarterly earnings estimate and potentially see the stock price rise.
When we combined a Zacks Rank #3 (Hold) or better and a positive earnings ESP, stocks provided positive surprises 70% of the time. Perhaps most importantly, using these parameters has contributed to an average annual return of 28.3% according to our 10-year backtest.
Stocks ranked #3 (Hold), or 60% of all stocks covered by the Zacks rank, are expected to perform in line with the broader market. Stocks ranked #2 (Buy) and #1 (Strong Buy) and the top 15% and top 5% of stocks, respectively, should outperform the market; Strong buy stocks should outperform any other rank.
Should you consider Vishay Intertechnology?
The final step today is to look at a stock that meets our ESP qualifications. Vishay Intertechnology (VSH – free report) is ranked #3 (Hold), two days after the next quarterly results are released on November 2, 2022, and its most accurate estimate is $0.92 per share.
Vishay Intertechnology earnings ESP is +8.88%, which, as explained above, is calculated as the percentage difference between the most accurate estimate of $0.92 and Zacks’ consensus estimate of $0.85. VSH is also part of a large group of stocks that exhibit positive ESP. Make sure to use our earnings ESP filter to uncover the best stocks to buy or sell before they are reported.
VSH is just one of many computer and technology stocks with a positive ESP score. Shopify (SHOP – free report) is another qualifying stock you might want to consider.
Shopify is a Zacks stock ranked #3 (Hold) and preparing to report earnings on February 15, 2023. SHOP’s most accurate estimate is -$0.01 per share 107 days after the next earnings release.
For Shopify, the percentage difference between its most accurate estimate and its Zacks consensus estimate of -$0.03 is +82.94%.
With both stocks showing positive earnings ESP, VSH and SHOP could potentially post earnings hits in their next reports.
Find stocks to buy or sell before they’re reported
Use the Zacks Earnings ESP filter to buy or sell stocks with the highest probability of surprising positively or negatively before they are reported to trade for profitable earnings. Check it out here >>