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.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
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.
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 Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, or the top 15% and top 5% of stocks, respectively, should outperform the market. Strong Buy stocks should outperform 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. Royalty Pharma (RPRX) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.28 a share two days away from its upcoming earnings release on August 5, 2026.
RPRX has an Earnings ESP figure of +0.53%, which, as explained above, is calculated by taking the percentage difference between the $1.28 Most Accurate Estimate and the Zacks Consensus Estimate of $1.27. Royalty Pharma 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.
RPRX is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at Amgen (AMGN) as well.
Slated to report earnings on August 4, 2026, Amgen holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $5.61 a share one day from its next quarterly update.
Amgen's Earnings ESP figure currently stands at +0.11% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $5.60.
RPRX and AMGN's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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 Royalty Pharma PLC (RPRX), 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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