Want Better Returns? Don't Ignore These 2 Finance Stocks Set to Beat Earnings

Zacks promotes its Earnings ESP (Expected Surprise Prediction) tool as a method to identify potential earnings surprises, which are significant drivers of stock performance. The tool compares the most accurate analyst estimate against the consensus, and when combined with a Zacks Rank of #3 (Hold) or stronger, it has historically predicted positive earnings beats 70% of the time, yielding an average 28% annual return over a 10-year backtest. This methodology suggests opportunities in stocks like Arch Capital Group (ACGL) and CME Group (CME), which currently exhibit positive ESPs and a Zacks Rank #3, indicating potential for upcoming earnings beats.

Analysis

The provided text outlines the Zacks Earnings ESP (Expected Surprise Prediction) methodology, a quantitative screening tool designed to identify stocks with a high probability of beating earnings estimates. The core principle is that recent upward revisions by analysts, captured by the 'Most Accurate Estimate', are leading indicators of a potential positive surprise. The methodology's efficacy is supported by a 10-year backtest showing that stocks with a positive ESP and a Zacks Rank of #3 (Hold) or better delivered a positive earnings surprise 70% of the time, yielding an average annual return of approximately 28%. The article highlights two current examples: Arch Capital Group (ACGL), with a +2.64% ESP ahead of its July 30 earnings, and CME Group (CME), with a +1.5% ESP before its July 24 report. Both stocks currently hold a Zacks Rank #3, fitting the model's criteria for a potential beat. The overall 'strongly positive' sentiment of the article is directed at the tool's potential, while the neutral per-ticker sentiment for ACGL and CME suggests they are presented as timely illustrations of the methodology rather than as high-conviction fundamental recommendations.

Key Decisions for Investors

• Investors could consider incorporating the Earnings ESP metric as a quantitative screen to identify potential short-term trading opportunities ahead of earnings announcements, particularly for names with a positive ESP and a Zacks Rank of #3 or higher.
• For traders with positions in Arch Capital Group (ACGL) or CME Group (CME), their positive ESP figures serve as a bullish quantitative signal heading into their late-July earnings, though this should be weighed against their neutral #3 (Hold) rank which implies in-line market performance.
• Given the promotional nature of the article and the reliance on back-tested data, this strategy should be viewed as one component of a broader investment process, and its historical 28% average annual return should not be interpreted as a guarantee of future results.