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.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
2 Stocks to Add to Your Watchlist
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. The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction.
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. KB Home (KBH) holds a Zacks Rank #1 at the moment and its Most Accurate Estimate comes in at $1.30 a share 26 days away from its upcoming earnings release on June 28, 2023.
KB Home's Earnings ESP sits at 9.37%, which, as explained above, is calculated by taking the percentage difference between the $1.30 Most Accurate Estimate and the Zacks Consensus Estimate of $1.19.
KBH is one of just a large database of Construction stocks with positive ESPs. Another solid-looking stock is Toll Brothers (TOL).
Slated to report earnings on August 22, 2023, Toll Brothers holds a #1 (Strong Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.86 a share 81 days from its next quarterly update.
For Toll Brothers, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.64 is 8.08%.
KBH and TOL'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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