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Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.

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.

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.

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.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% 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 Royal Caribbean?

The final step today is to look at a stock that meets our ESP qualifications. Royal Caribbean (RCL) earns a #3 (Hold) two days from its next quarterly earnings release on April 25, 2024, and its Most Accurate Estimate comes in at $1.37 a share.

RCL has an Earnings ESP figure of +5.3%, which, as explained above, is calculated by taking the percentage difference between the $1.37 Most Accurate Estimate and the Zacks Consensus Estimate of $1.30. Royal Caribbean 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.

RCL is just one of a large group of Consumer Discretionary stocks with a positive ESP figure. Crocs (CROX) is another qualifying stock you may want to consider.

Slated to report earnings on May 7, 2024, Crocs holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $2.33 a share 14 days from its next quarterly update.

Crocs' Earnings ESP figure currently stands at +4.42% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.23.

Because both stocks hold a positive Earnings ESP, RCL and CROX could potentially post earnings beats in their next reports.

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 >>

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.