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

The article details the Zacks Earnings ESP (Expected Surprise Prediction) tool, which aims to identify potential earnings surprises by comparing the Most Accurate Estimate to the Zacks Consensus Estimate. Historically, stocks with a Zacks Rank #3 (Hold) or better and a positive Earnings ESP have delivered positive surprises 70% of the time, yielding average annual returns of 28.3% over a 10-year backtest. Current examples, such as Pebblebrook Hotel (PEB) and Annaly Capital Management (NLY), are highlighted as having positive ESPs, suggesting potential earnings beats in their upcoming reports.

Analysis

The Zacks Earnings ESP (Expected Surprise Prediction) model is presented as a quantitative tool for identifying stocks likely to beat earnings expectations, predicated on the most recent analyst revisions being more accurate than the broader consensus. The methodology's historical effectiveness is highlighted by a 10-year backtest showing that stocks with a positive ESP and a Zacks Rank of #3 (Hold) or better produced a positive earnings surprise 70% of the time, generating an average annual return of 28.3%. Two specific finance sector stocks are flagged ahead of their July 24, 2024 earnings reports. Pebblebrook Hotel (PEB), with a Zacks Rank #3 (Hold), exhibits a significant positive Earnings ESP of +4.65%, based on a Most Accurate Estimate of $0.63 versus a consensus of $0.60. Similarly, Annaly Capital Management (NLY), holding a stronger Zacks Rank #2 (Buy), has a positive ESP of +2.29% ($0.67 Most Accurate Estimate vs. $0.66 consensus). The combination of these factors suggests that, according to this model, both companies are positioned for a potential earnings beat, with NLY's 'Buy' rating implying a stronger underlying outlook for market outperformance.

Key Decisions for Investors

• Investors could consider tactical, short-term long positions in PEB and NLY ahead of their July 24 earnings reports to capitalize on the potential for a positive surprise, as indicated by their respective positive Earnings ESP figures.
• For those choosing between the two, Annaly Capital (NLY) presents a more conventional bullish signal with its Zacks Rank #2 (Buy) complementing its positive ESP, whereas Pebblebrook Hotel (PEB) offers a more nuanced opportunity, as its high +4.65% ESP contrasts with a neutral #3 (Hold) rank, suggesting a stronger potential for surprising to the upside against baseline expectations.
• Prudent risk management is advised, as this strategy is based on a proprietary indicator and a probabilistic outcome; the trade's success is contingent on a binary earnings event, and the cited 70% historical success rate implies a non-trivial probability of failure.