Why Investors Should Eye Retail and Wholesale Stocks with Positive Earnings ESP

Company earnings are a critical indicator of financial health, and they play a pivotal role during quarterly financial reports. Investors and analysts alike pay close attention to the EPS (Earnings Per Share), as it helps to distill the essence of a company’s performance amidst the various metrics and managerial commentary presented.

Both life and the stock market thrive on expectations. When a company surpasses what is anticipated, it is often rewarded; conversely, missing the mark can attract negative repercussions. Hence, investors are constantly on the lookout for stocks that might provide positive earnings surprises, which could lead to higher returns.

One such practice is identifying 'earnings whispers' — stocks that are set to beat their quarterly earnings estimates. While this strategy is somewhat common, it’s not necessarily easy to execute. However, a proven method to assist in this endeavor is utilizing the Zacks Earnings ESP (Expected Surprise Prediction) tool.

The Zacks Earnings ESP, Explained

The Zacks Earnings ESP is designed to predict which stocks are likely to surpass analyst expectations. It calculates the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, expressed as a percentage, which gives us the Earnings ESP figure.

Combining a positive Earnings ESP with a strong Zacks Rank (Hold or better) has been associated with a positive earnings surprise 70% of the time. Furthermore, this strategy has yielded annual returns of about 28% on average, according to a 10-year backtest.

A Zacks Rank of #3 (Hold) suggests a stock will perform on par with the market, but stocks with a Zacks Rank of #2 (Buy) or #1 (Strong Buy) are anticipated to outperform the market. Notably, stocks carrying a #1 ranking are expected to surpass other ranks significantly.

A Closer Look at Deckers and Home Depot

With a Zacks Rank #2 (Buy) and an upcoming earnings release, Deckers (DECK) is a company that has caught attention with its positive Earnings ESP. The Most Accurate Estimate for Deckers suggests an EPS of $11.59 a share, and with an Earnings ESP of +4.88%, the figures indicate potential earnings that could exceed analyst predictions.

Similarly, Home Depot (HD) with a Zacks Rank #3 (Hold) also shows a promising Earnings ESP of +4.91%. This is based on its Most Accurate Estimate, which sits higher than the Zacks Consensus Estimate, suggesting that it too has a good chance of surpassing earnings expectations on its next report.

Both Deckers and Home Depot are part of a broader group of Retail and Wholesale stocks with positive ESPs, making them attractive options for investors seeking to capitalize on potential earnings surprises.

Maximizing Earnings Season Profits

Investors aiming to optimize their earnings season gains should consider stocks with the highest probability of exceeding or falling short of market expectations. Utilizing tools like the Zacks Earnings ESP Filter can help in identifying such stocks, allowing for more strategic trading decisions before earnings reports are released.

investing, analysis, earnings