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.
Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.
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. CVS Health (CVS) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at $1.71 a share 27 days away from its upcoming earnings release on May 1, 2025.
CVS Health's Earnings ESP sits at 6%, which, as explained above, is calculated by taking the percentage difference between the $1.71 Most Accurate Estimate and the Zacks Consensus Estimate of $1.62.
CVS is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Incyte (INCY).
Incyte, which is readying to report earnings on April 29, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $1.14 a share, and INCY is 25 days out from its next earnings report.
The Zacks Consensus Estimate for Incyte is $1.05, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of 9.01%.
CVS and INCY's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
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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CVS Health Corporation (CVS) : Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).
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