Wall Street closely watches a company’s earnings report to learn as much as possible about its recent performance and what to expect for the future. Of course, one number often stands out above the rest: earnings.
We know that earnings results are critical, but a company’s performance versus bottom line expectations can be even more important when it comes to stock prices, especially in the short term. This means that investors may want to take advantage of these earnings surprises.
Chasing “earnings whispers,” or companies poised to beat their quarterly earnings estimates, is a fairly common practice. But that doesn’t make it easy. One way that has proven itself is to use the Zacks Earnings ESP tool.
The Zacks Earnings ESP, explained
More formally known as the expected surprise forecast, the Zacks Earnings ESP aims to track the latest revisions to analyst estimates ahead of a company’s report. The idea is relatively intuitive as a more recent projection may be based on more complete information.
The essence of the ESP model is to compare the most accurate estimate to Zacks’ consensus estimate, with the resulting percentage difference between the two being the prediction of the expected surprise. The Zacks rank is also factored into the ESP metric to better find companies that seem poised to beat their next consensus estimate, which will hopefully help lift the stock price.
Matching an ESP with positive earnings alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Additionally, using these parameters, investors have averaged 28.3% annual returns according to our 10-year backtest.
Stocks ranked 3rd (Hold), meaning most stocks have 60% coverage, are expected to perform in line with the broader market. But stocks that fall in the #2 (Buy) and #1 (Strong Buy) rankings, or in the top 15% and top 5% of stocks, respectively, should outperform the market. Strong buy stocks should outperform any other rank.
Should you consider Dollar General?
The final step today is to look at a stock that meets our ESP qualifications. Dollar General (DG) earns 3rd place (Hold) 28 days after the next quarterly earnings release on December 1, 2022, and its most accurate guess is $2.60 per share.
Dollar General’s earnings ESP is +2.35%, which, as explained above, is calculated as the percentage difference between the most accurate estimate of $2.60 and Zacks’ consensus estimate of $2.54. DG is also among a large group of stocks that have positive ESP. Make sure to use our earnings ESP filter to uncover the best stocks to buy or sell before they are reported.
DG is just one of many retail and wholesale stocks with a positive ESP score. Foot Locker (FL) is another qualifying stock you might want to consider.
Foot Locker, poised to report earnings on November 18, 2022, is currently at a Zacks Rank #3 (Hold). The most accurate estimate is currently $1.16 per share and FL is 15 days from its next earnings report.
For Foot Locker, the percentage difference between its most accurate estimate and its Zacks consensus estimate of $1.10 is +5.42%.
With both stocks showing positive earnings ESP, DG and FL could potentially post gains in their next reports.
Find stocks to buy or sell before they’re reported
Use the Zacks Earnings ESP filter to buy or sell stocks with the highest probability of surprising positively or negatively before they are reported to trade for profitable earnings. Check it out here >>
From thousands of stocks, 5 Zacks experts have each selected their favorite, which will skyrocket by +100% or more in the coming months. From these 5, Research Director Sheraz Mian selects one that has the most explosive perk of all.
It’s a little-known chemical company that’s up 65% year over year, but it’s still dirt cheap. With continued demand, rising earnings estimates for 2022 and $1.5 billion in share buybacks, retail investors could jump in at any time.
This company could match or outperform other recent Zacks stocks set to double, such as Boston Beer Company, up +143.0% in just over 9 months, and NVIDIA, up +175.0% in a year, 9% boomed.
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Dollar General Corporation (DG): Free Stock Research Report
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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.