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.
The earnings figure itself is key, of course, 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 and vice versa.
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 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.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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.
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Toronto-Dominion Bank (TD) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.75 a share, just 13 days from its upcoming earnings release on August 27, 2026.
By taking the percentage difference between the $1.75 Most Accurate Estimate and the $1.73 Zacks Consensus Estimate, Toronto-Dominion Bank has an Earnings ESP of +0.68%. Investors should also know that TD is one of a large group 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.
TD is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at MetLife (MET) as well.
MetLife is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on November 4, 2026. MET's Most Accurate Estimate sits at $2.59 a share 82 days from its next earnings release.
The Zacks Consensus Estimate for MetLife is $2.55, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.39%.
TD and MET's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
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 Toronto Dominion Bank (The) (TD), 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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