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.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.
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.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
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. SPX Technologies (SPXC) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $1.88 a share three days away from its upcoming earnings release on July 30, 2026.
SPXC has an Earnings ESP figure of +1.35%, which, as explained above, is calculated by taking the percentage difference between the $1.88 Most Accurate Estimate and the Zacks Consensus Estimate of $1.85. SPX Technologies is one of a large database of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
SPXC is just one of a large group of Construction stocks with a positive ESP figure. Johnson Controls (JCI) is another qualifying stock you may want to consider.
Slated to report earnings on July 29, 2026, Johnson Controls holds a #2 (Buy) ranking on the Zacks Rank, and its Most Accurate Estimate is $1.34 a share two days from its next quarterly update.
Johnson Controls' Earnings ESP figure currently stands at +1.85% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.32.
Because both stocks hold a positive Earnings ESP, SPXC and JCI could potentially post earnings beats in their next reports.
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 >>
Before you invest in SPX Technologies, Inc. (SPXC), want to know the best stocks to buy for the next 30 days? Check out Zacks Investment Research for our free report on the 7 best stocks to buy.
Zacks Investment Research has been committed to providing investors with tools and independent research since 1978. For more than a quarter century, the Zacks Rank stock-rating system has more than doubled the S&P 500 with an average gain of +24.08% per year. (These returns cover a period from January 1, 1988 through May 6, 2024.)
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Originally published on zacks.com, part of the BLOX Digital Content Exchange.
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