These 2 Retail and Wholesale Stocks Could Beat Earnings: Why They Should Be on Your Radar

The article highlights 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 stronger, this system has historically predicted positive earnings surprises 70% of the time, yielding an average annual return of 28% over a 10-year backtest. Examples include Brinker International (EAT) with a +6.5% ESP and a #1 Strong Buy Rank, and Wingstop (WING) with a +1.24% ESP and a #2 Buy Rank, both indicating a high probability of exceeding analyst expectations in their upcoming reports.

Analysis

The Zacks Earnings ESP (Expected Surprise Prediction) system identifies potential earnings beats by comparing the Most Accurate Estimate (recent analyst revision) against the Zacks Consensus Estimate. This methodology, when combined with a Zacks Rank of #3 (Hold) or stronger, has historically predicted positive bottom-line surprises 70% of the time, demonstrating significant predictive power. A 10-year backtest revealed an an average annual return of approximately 28% for stocks identified by this system.

Brinker International (EAT) currently holds a Zacks Rank #1 (Strong Buy) and an ESP of +6.5%, derived from a Most Accurate Estimate of $1.71 versus a $1.61 consensus for its August 14, 2024, earnings. Similarly, Wingstop (WING), with a Zacks Rank #2 (Buy), shows an ESP of +1.24% ($0.82 Most Accurate vs. $0.81 Consensus) ahead of its July 31, 2024, report. These positive ESP figures suggest a high probability of both companies exceeding analyst expectations.

The system leverages the principle that recent analyst revisions often incorporate new, more accurate information, providing a forward-looking indicator for earnings performance. The Zacks Rank further refines this, with #1 (Strong Buy) and #2 (Buy) rated stocks expected to outperform the broader market. This analytical framework offers institutional investors a systematic approach to identify potential alpha generation opportunities around earnings events.

Key Decisions for Investors

• Investors should consider integrating the Zacks Earnings ESP and Zacks Rank methodology into their pre-earnings analysis to identify potential positive surprises.
• Monitor Brinker International (EAT) and Wingstop (WING) closely ahead of their respective earnings reports, given their strong Zacks Ranks and positive ESPs indicating a high probability of beating estimates.
• Evaluate the broader retail and wholesale sector for other stocks exhibiting positive ESPs, as this analytical framework has demonstrated historical efficacy in identifying outperforming opportunities.