Identifying Potent Retail and Wholesale Stocks with Projected Earnings Surprises

Understanding a company's performance through its quarterly financial reports is crucial for investors, as it sheds light on past achievements and potential future prospects. Among the various indicators, earnings stand out as a pivotal measure. The impact of earnings on share prices is well noted, particularly when actual results surpass expectations, leading to what is known as earnings surprises. Recognizing the significance of these surprises offers an opportunity for investors to capitalize and potentially enhance their financial returns.

Unlocking Earnings Surprises with Zacks Earnings ESP

The Zacks Earnings ESP (Expected Surprise Prediction) tool is designed to uncover potential earnings surprises by monitoring recent analyst revisions. The logic is that an analyst's updated earnings estimate suggests they have acquired new, potentially more accurate information. The tool compares the latest and most precise estimate to the broader Zacks Consensus Estimate to calculate the Expected Surprise Prediction (ESP) percentage. This figure, when used in conjunction with the Zacks Rank, creates a robust system for identifying stocks that may outperform their quarterly earnings projections.

Employing a positive earnings ESP along with a Zacks Rank of #3 (Hold) or better has resulted in a 70% chance of a positive earnings surprise. This approach has delivered impressive average annual returns of 28.3% over a decade of backtesting.

A Hold ranking indicates an anticipated performance on par with the market, applicable to 60% of stocks. However, stocks with a Buy or Strong Buy ranking, representing the top 15% and 5% of stocks respectively, are predicted to outperform the market significantly.

Stock Examples with Positive Earnings ESP

Illustrating this approach, AutoZone (AZO), with a Buy ranking, shows a promising set up for an earnings surprise. Ahead of its next earnings report, the company's Most Accurate Estimate is at $36.04 per share, surpassing the Zacks Consensus Estimate of $35.75, leading to a favorable ESP of +0.81%. AutoZone is not alone in this; many other Retail and Wholesale stocks also exhibit positive ESPs.

Another example is Match Group (MTCH), which holds a Hold ranking and is on track to announce its earnings. Its Most Accurate Estimate leads to an ESP of +0.38%, potentially setting it up for an earnings beat as well.

To effectively harness these insights for profitable investing, one should consider using a tool like the Zacks Earnings ESP Filter. This aims to identify stocks with a high chance of either exceeding or falling short of earnings expectations before their reports are released, offering a strategic advantage in earnings season trading.

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