Want Better Returns? Don't Ignore These 2 Retail and Wholesale Stocks Set to Beat Earnings

The article introduces the Zacks Earnings ESP (Expected Surprise Prediction) tool, designed to identify companies likely to exceed quarterly earnings estimates by comparing the 'Most Accurate Estimate' to the 'Zacks Consensus Estimate.' Historically, combining a positive ESP with a Zacks Rank #3 (Hold) or better has predicted positive earnings surprises 70% of the time and generated 28.3% average annual returns over a 10-year backtest. Current examples like Expedia (EXPE) with a +1.45% ESP and Amazon (AMZN) with a +4.58% ESP are highlighted as potentially poised for positive earnings beats, offering a systematic approach for investors seeking alpha during earnings season.

Analysis

The provided research highlights the Zacks Earnings ESP (Expected Surprise Prediction) as a quantitative tool for identifying potential earnings beats. This methodology, which compares the most recent analyst forecasts ('Most Accurate Estimate') to the broader consensus, has shown a 70% success rate in predicting positive surprises when combined with a Zacks Rank of #3 (Hold) or better, according to a 10-year backtest that yielded 28.3% average annual returns. The model identifies two current opportunities: Expedia (EXPE) and Amazon (AMZN). Expedia holds a Zacks Rank #1 (Strong Buy) with an Earnings ESP of +1.45%, derived from a Most Accurate Estimate of $3.23 versus a consensus of $3.18 ahead of its August 8 report. Similarly, Amazon, with a Zacks Rank #2 (Buy), exhibits a more significant ESP of +4.58%, based on a Most Accurate Estimate of $1.08 against a consensus of $1.03 for its August 1 report. According to this specific framework, both companies are showing quantitative signals that suggest they are poised to exceed their upcoming quarterly earnings estimates.

Key Decisions for Investors

• Investors could consider utilizing the described Earnings ESP metric as a quantitative factor in their pre-earnings analysis, particularly for identifying tactical, event-driven opportunities given the model's reported historical efficacy.
• For those with an appetite for earnings-related volatility, the positive ESPs and strong Zacks Ranks for both Expedia (+1.45% ESP) and Amazon (+4.58% ESP) present a basis for considering tactical long positions ahead of their respective reporting dates.
• It is critical to recognize that this is a probabilistic model; while historical backtests are strong, a positive earnings surprise is not guaranteed, nor is a positive stock price reaction, necessitating prudent risk management and position sizing.