How to Find Strong Business Services Stocks Slated for Positive Earnings Surprises

The article introduces the Zacks Earnings ESP (Expected Surprise Prediction) tool, designed to identify stocks likely to beat earnings estimates by comparing the Most Accurate Estimate (latest analyst revision) against the Zacks Consensus Estimate. When combined with a Zacks Rank of #3 (Hold) or better, this system has historically predicted positive earnings surprises 70% of the time and generated average annual returns of 28.3% over a 10-year backtest, offering investors a method to potentially capitalize on pre-earnings movements and short-term stock price appreciation.

Analysis

The provided research note outlines the Zacks Earnings Expected Surprise Prediction (ESP) model, a quantitative tool designed to identify stocks poised to beat earnings expectations. The model's core premise is that the most recent analyst estimate revisions provide a more accurate forecast than the broader consensus. According to a 10-year backtest cited in the article, combining a positive Earnings ESP with a Zacks Rank of #3 (Hold) or better has historically predicted a positive earnings surprise 70% of the time, generating an average annual return of 28.3%. The analysis highlights two specific applications of this model: SPX Technologies (SPXC) and Booz Allen Hamilton (BAH). SPXC holds a Zacks Rank #2 (Buy) and exhibits a positive ESP of +1.59%, based on a Most Accurate Estimate of $1.28 versus a consensus of $1.26 ahead of its August 1 report. Similarly, BAH carries a #2 (Buy) rank and a positive ESP of +1.95%, with a Most Accurate Estimate of $1.55 against a consensus of $1.52 for its July 26 report. These metrics, per the article's framework, signal a heightened probability that both companies will report positive earnings surprises.

Key Decisions for Investors

• Investors with a higher risk tolerance for short-term, event-driven strategies could consider establishing long positions in SPX Technologies (SPXC) and Booz Allen Hamilton (BAH) ahead of their upcoming earnings releases, given their positive ESP figures and #2 (Buy) Zacks Ranks.
• Beyond these specific tickers, portfolio managers should consider utilizing the Zacks Earnings ESP filter as a screening tool to systematically identify other potential earnings surprise candidates within their coverage universe.
• While the 70% historical success rate of the model is compelling, it implies a 30% failure rate, so any positions based on this strategy should be sized appropriately to manage the inherent risks of earnings season volatility.