How Investors Can Grab Better Returns for Medical Using the Zacks ESP Screener

Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.

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.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

The Zacks Earnings ESP, Explained

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.

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 system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.

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.

Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.

Should You Consider GlaxoSmithKline?

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. GlaxoSmithKline (GSK) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.82 a share, just 30 days from its upcoming earnings release on October 27, 2021.

GlaxoSmithKline's Earnings ESP sits at 2.52%, which, as explained above, is calculated by taking the percentage difference between the $0.82 Most Accurate Estimate and the Zacks Consensus Estimate of $0.80. GSK is also part of a large group of stocks that boast a positive ESP. All of these qualifying stocks can be filtered by ESP, Zacks Rank, % Surprise (Last Qtr.), and Reporting date.

Don't forget to head to the Earnings ESP Home Page. There, you'll find lots more earnings-related investing strategies to help build a winning portfolio.

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 >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
GlaxoSmithKline plc (GSK) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.