Why Investors Need to Take Advantage of These 2 Oils and Energy Stocks Now

Zacks highlights its Earnings ESP (Expected Surprise Prediction) tool as a method to identify stocks likely to exceed quarterly earnings expectations, comparing the most accurate analyst estimate to the consensus. Historically, combining a Zacks Rank of #3 or better with a positive ESP has resulted in a 70% positive surprise rate and an average annual return of 28.3% over a 10-year backtest. Currently, Enphase Energy (ENPH), with a Zacks Rank #1 and +6.37% ESP, and Williams Companies (WMB), with a Zacks Rank #3 and +5.00% ESP, are presented as candidates with potential for upcoming earnings beats.

Analysis

The provided research note highlights a quantitative strategy, the Zacks Earnings Expected Surprise Prediction (ESP), designed to identify stocks poised to exceed quarterly earnings expectations. The model's methodology centers on the premise that the most recent analyst estimates are more informed; it calculates the ESP by finding the percentage difference between the 'Most Accurate Estimate' and the broader 'Zacks Consensus Estimate.' Historically, a positive ESP combined with a Zacks Rank of #3 (Hold) or better has reportedly led to a positive earnings surprise 70% of the time, with a 10-year backtested average annual return of 28.3%. The analysis applies this framework to two energy sector stocks. Enphase Energy (ENPH) is presented as a prime candidate, holding a Zacks #1 'Strong Buy' rank and a positive ESP of +6.37%, based on a Most Accurate Estimate of $0.64 versus a consensus of $0.60 ahead of its October 28 earnings. Williams Companies (WMB) is also identified as a potential outperformer with a positive ESP of +5.00% ($0.54 vs. $0.51 consensus), though its Zacks #3 'Hold' rank suggests an expectation of in-line market performance preceding its November 5 report.

Key Decisions for Investors

• Investors with a bullish outlook on the energy sector might consider Enphase Energy (ENPH) for a potential short-term trade ahead of its October earnings, given its 'Strong Buy' rating and a significant +6.37% Earnings ESP, which signals a high probability of a positive surprise according to the model.
• For Williams Companies (WMB), the positive +5.00% ESP indicates a potential for an earnings beat, but its 'Hold' rating suggests a more neutral stance; this could be viewed as a less aggressive play or a candidate for a pairs trade against a company with a negative ESP.
• The primary thesis rests on the historical performance of the Zacks ESP model, and investors should recognize that past backtested returns are not a guarantee of future results and that the model's 70% success rate implies a notable 30% failure rate.
• Traders and portfolio managers could use the mentioned Earnings ESP filter as a systematic screening tool to identify other potential earnings-driven opportunities or risks across their portfolio as reporting season approaches.