Benzinga - by Zacks, Benzinga Contributor.
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.
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.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. 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.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.
Should You Consider AGNC Investment?
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 quickly look at a qualifying stock. AGNC Investment (NASDAQ: AGNC) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.56 a share 27 days away from its upcoming earnings release on July 22, 2024.
AGNC has an Earnings ESP figure of +5.66%, which, as explained above, is calculated by taking the percentage difference between the $0.56 Most Accurate Estimate and the Zacks Consensus Estimate of $0.53. AGNC Investment is one of a large database of stocks with positive ESPs.
AGNC is just one of a large group of Finance stocks with a positive ESP figure. Healthpeak (NYSE: DOC) is another qualifying stock you may want to consider.
Healthpeak is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on July 25, 2024. DOC's Most Accurate Estimate sits at $0.44 a share 30 days from its next earnings release.
For Healthpeak, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.44 is +1.15%.
Because both stocks hold a positive Earnings ESP, AGNC and DOC could potentially post earnings beats in their next reports.
To read this article on Zacks.com click here.