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

Zacks promotes its Earnings ESP (Expected Surprise Prediction) — the percentage difference between the Most Accurate Estimate and the Zacks Consensus — and reports that a positive ESP paired with a Zacks Rank #3 (Hold) or better produced positive earnings surprises 70% of the time and 28.3% average annual returns in a 10‑year backtest. It highlights Ollie's Bargain Outlet (OLLI, Zacks Rank #3) with a Most Accurate Estimate of $0.80 versus a $0.78 consensus (ESP +2.38%) ahead of its Aug. 29, 2024 report, and Constellation Brands (STZ, Zacks Rank #3) at $4.14 versus $4.13 (ESP +0.19%) ahead of its Oct. 3, 2024 report. The article recommends using the ESP filter to identify names with elevated odds of beating estimates for tactical earnings‑season trades.

Analysis

Market Structure: Positive Earnings ESP readings (OLLI +2.38%, STZ +0.19%) signal asymmetric near-term upside risk for individual equities rather than a sector-wide rerating; history-backed ~70% beat rate for Zacks Rank ≤3 implies short-term directional flows into smaller-cap, news-driven names like OLLI and defensive allocations to STZ. Expect 1–3 week pre‑earnings bid for OLLI shares/IV and modest rotation into staples if beats come with repeatable guidance; broad retail ETFs may underperform if earnings dispersion increases.

Risk Assessment: Tail risks include a large guidance cut (>5% revenue or margin miss) or supply-chain shock that turns a small ESP advantage into a >15% drawdown for OLLI; for STZ, regulatory tax changes or excise increases are low-probability but high-impact. Time horizons: immediate (days) — IV and flow; short-term (weeks) — post-earnings reversion; long-term (quarters) — realized comps and margin trends. Hidden dependency: analyst estimate movement can be self-fulfilling; a single institutional revision ahead of report can flip ESP and trigger stops.

Trade Implications: Favor small, event-sized positions sized 1–3% of portfolio into OLLI pre-earnings and harvest premium on STZ via covered calls; expect IV to rise 20–60% into prints for OLLI, making defined-cost option structures preferable. Use pair trades (long OLLI vs short XRT) to isolate company-specific upside and hedge sector risk; set explicit triggers (beat >+2.5% EPS or organic same-store sales >+3%) to add.

Contrarian Angles: Consensus underweights that Zacks ESP is signal-noise — OLLI’s +2.38% is small and could be priced quickly; if market overreacts to a modest beat, mean reversion within 2–6 weeks is likely. Historical parallels: small-cap retail beats in tight-margin businesses often deliver 10–30% one‑week pops then retrace ~25% of the move within a month; plan exits accordingly and avoid large outright short positions into earnings.

Key Decisions for Investors

• Establish a 2–3% long position in OLLI 5–10 trading days before its next reported quarter (expect IV pickup). Target a 15–25% upside within 1–3 months on an EPS beat >+2.5% and cut position on a confirmed EPS miss or guidance reduction >5% (hard stop −10%).
• Purchase a defined‑risk OLLI 30–45 day call debit spread sized to 0.5–1% portfolio exposure (buy ATM, sell +10% OTM) to capture upside while capping premium; close on earnings-to-post‑earnings IV crush or if underlying rallies >25% intraday.
• Establish a 1–2% core long in STZ and implement a 30–60 day buy‑write (sell 3–6% OTM calls) to harvest yield while retaining upside; unwind if forward guidance changes >±5% or if tax/regulatory headlines emerge.
• Execute a hedged pair trade: long OLLI 1.5–2% vs short XRT 0.75–1% (equal-dollar) to isolate company-specific beat potential while limiting sector exposure; monitor 0–60 day window and close within 1 month post-earnings or on spread widening >8%.