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

The article highlights the critical role of earnings surprises in driving stock performance, introducing Zacks' proprietary Earnings ESP (Expected Surprise Prediction) as a predictive tool. This system, which compares the Most Accurate Estimate to the Zacks Consensus, has demonstrated significant efficacy: when combined with a Zacks Rank #3 (Hold) or better, it has historically predicted positive earnings surprises 70% of the time, yielding average annual returns of 28.3% over a 10-year backtest. Notably, medical stocks Incyte (INCY) and McKesson (MCK) are currently identified with positive ESPs, suggesting a high probability of exceeding analyst expectations in their respective upcoming earnings reports.

Analysis

The provided information centers on the Zacks Earnings ESP (Expected Surprise Prediction) model, a quantitative tool designed to identify companies likely to surpass earnings estimates. The model's historical performance is significant, indicating that stocks with a Zacks Rank of #3 (Hold) or better, combined with a positive ESP, delivered a positive earnings surprise 70% of the time, generating an average annual return of 28.3% in a 10-year backtest. Currently, this model flags two specific medical sector stocks: Incyte (INCY) and McKesson (MCK). Incyte, with a #3 (Hold) rank, shows a positive ESP of +1.85%, based on its Most Accurate Estimate of $1.41 per share versus the Zacks Consensus Estimate of $1.38 ahead of its July 29, 2025 earnings report. Similarly, McKesson, also ranked #3 (Hold), has a positive ESP of +0.33%, with its Most Accurate Estimate at $8.28 against a consensus of $8.25 for its August 6, 2025 report. The positive ESP figures for both companies suggest that recent analyst revisions are trending higher than the broader consensus, indicating a statistically significant probability that both INCY and MCK will report earnings above current market expectations.

Key Decisions for Investors

• Investors with positions in Incyte (INCY) and McKesson (MCK) should anticipate potential upside volatility leading into and following their respective Q3 earnings reports, given the positive Earnings ESP signals.
• For event-driven strategies, establishing or increasing exposure to INCY and MCK ahead of their earnings dates could be a viable short-term trade, based on the model's reported 70% historical accuracy in predicting positive surprises.
• Despite the bullish earnings indicator, both stocks carry a #3 (Hold) rating, suggesting their long-term performance is expected to be in-line with the market, so any position should be sized with the understanding that the catalyst is primarily the near-term earnings event rather than a fundamental upgrade.