Why Investors Need to Take Advantage of These 2 Retail and Wholesale Stocks Now

Zacks Investment Research promotes its Earnings ESP (Expected Surprise Prediction) tool as a method to identify stocks likely to beat quarterly earnings estimates, citing a historical 70% success rate for positive surprises and 28% average annual returns over a 10-year backtest when combined with a Zacks Rank #3 or stronger. The system compares the most recent analyst estimate to the consensus, with a positive ESP signaling a high probability of an earnings beat. Retail and wholesale stocks Kroger (KR) and Abercrombie & Fitch (ANF) are highlighted as current examples with positive ESPs, suggesting strong potential for exceeding expectations in their upcoming financial reports.

Analysis

The analysis identifies Kroger (KR) and Abercrombie & Fitch (ANF) as retail stocks with a heightened probability of delivering a positive earnings surprise, based on the Zacks Earnings ESP (Expected Surprise Prediction) model. This quantitative framework, which reportedly has a 70% historical success rate in predicting earnings beats when combined with a strong Zacks Rank, leverages the most recent analyst estimate revisions as a key indicator. Kroger holds a Zacks Rank #2 (Buy) and a positive ESP of +2.00%, with its Most Accurate Estimate of $1.02 per share exceeding the consensus of $1.00 ahead of its September 11 report. Similarly, Abercrombie & Fitch, with a Zacks Rank #3 (Hold), exhibits a positive ESP of +2.62%, as its Most Accurate Estimate of $2.33 surpasses the $2.27 consensus for its August 27 report. The positive ESPs for both firms indicate that the most informed analysts are raising their expectations, suggesting a potential upside catalyst for both stocks upon their quarterly announcements.

Key Decisions for Investors

• Investors could consider establishing positions in Kroger (KR) and Abercrombie & Fitch (ANF) ahead of their upcoming earnings reports to capitalize on the high probability of an earnings beat indicated by their positive ESP figures.
• Given Kroger's stronger Zacks Rank #2 (Buy) versus Abercrombie's #3 (Hold), KR may offer greater potential for market outperformance, while ANF is projected to perform more in-line with the market, even with a positive surprise.
• This is an event-driven strategy focused on the earnings announcement, so investors should closely monitor the stocks around their respective reporting dates of August 27 for ANF and September 11 for KR.
• The presented methodology can be used as a broader screening tool to identify other potential earnings-beat candidates across portfolios, particularly those with a positive ESP and a Zacks Rank of #3 or better.