Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.
The earnings figure itself is key, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb even higher.
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. Splunk (SPLK) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at -$0.15 a share eight days away from its upcoming earnings release on May 24, 2023.
Splunk's Earnings ESP sits at 12.16%, which, as explained above, is calculated by taking the percentage difference between the -$0.15 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.17.
SPLK is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at Agilent Technologies (A) as well.
Agilent Technologies is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 23, 2023. A's Most Accurate Estimate sits at $1.27 a share seven days from its next earnings release.
For Agilent Technologies, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.27 is 0.4%.
SPLK and A's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
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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