These 2 Finance Stocks Could Beat Earnings: Why They Should Be on Your Radar

Zacks' Earnings ESP (Expected Surprise Prediction) tool is presented as a method for identifying potential earnings surprises by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, leveraging recent analyst revisions. Historically, combining a Zacks Rank #3 (Hold) or better with a positive ESP has predicted positive earnings surprises 70% of the time, generating average annual returns of 28.3% over a 10-year backtest. This analytical approach suggests companies like AGNC Investment and Healthpeak, currently exhibiting positive ESPs, may post earnings beats.

Analysis

The Zacks Earnings Expected Surprise Prediction (ESP) model is highlighted as a quantitative tool for identifying companies likely to surpass earnings estimates. The methodology focuses on the most recent analyst revisions, calculating the percentage difference between the 'Most Accurate Estimate' and the 'Zacks Consensus Estimate'. According to the provided 10-year backtest, a strategy combining a positive ESP with a Zacks Rank of #3 (Hold) or better has historically predicted a positive earnings surprise 70% of the time, yielding average annual returns of 28.3%. Two specific equities are identified using this screen. AGNC Investment (AGNC), with a Zacks Rank #3 (Hold), exhibits a significant positive ESP of +5.66% ahead of its July 22, 2024 earnings report, based on a Most Accurate Estimate of $0.56 versus a consensus of $0.53. Similarly, Healthpeak (DOC), also a Rank #3 (Hold), shows a positive ESP of +1.15% for its July 25, 2024 report. Based on this quantitative framework, both AGNC and DOC are flagged as candidates poised to potentially deliver an earnings beat.

Key Decisions for Investors

• Investors could consider AGNC Investment as a tactical play for a potential earnings beat, given its strong positive Earnings ESP of +5.66% and the historical 70% success rate of the underlying model.
• While both AGNC and Healthpeak (DOC) are flagged, the signal for AGNC appears stronger, suggesting it may be a higher-conviction candidate for those looking to position ahead of earnings based solely on this metric.
• Traders employing earnings-focused strategies should note that both companies carry a Zacks Rank #3 (Hold), implying an expectation of in-line market performance, which should be weighed against the potential catalyst of an earnings surprise.
• Consider utilizing the Zacks ESP filter as a screening tool to identify other potential earnings surprise candidates, as its historical backtested performance of 28.3% average annual returns suggests it can be an effective component of an alpha-generating strategy.