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

Zacks Investment Research highlights the importance of earnings surprises and introduces its Earnings ESP (Expected Surprise Prediction) filter, which identifies stocks likely to beat earnings expectations by focusing on recent analyst revisions and the Zacks Rank. A backtest showed that combining a Zacks Rank #3 (Hold) or better with a positive Earnings ESP produced positive surprises 70% of the time and 28.3% annual returns on average. The report identifies Smucker (SJM) and RH as examples of stocks with positive ESPs, suggesting potential earnings beats in their upcoming reports.

Analysis

The research highlights Zacks' proprietary Earnings ESP (Expected Surprise Prediction) methodology, designed to identify companies likely to surpass quarterly earnings expectations. This system primarily scrutinizes the most recent analyst revisions, positing that analysts adjusting estimates close to an earnings release likely possess more accurate, updated information. The ESP is calculated as the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Crucially, when this positive ESP is combined with a Zacks Rank of #3 (Hold) or better, historical backtesting over a 10-year period indicates a 70% probability of a positive earnings surprise, purportedly yielding average annual returns of 28.3%. The article provides current examples: Smucker (SJM), with a Zacks Rank #3 and an Earnings ESP of +0.74% (Most Accurate Estimate $2.26 vs. Consensus $2.25) ahead of its June 10, 2025 earnings, and RH, also a Zacks Rank #3, with an ESP of +9.8% (Most Accurate Estimate -$0.08 vs. Consensus -$0.09) before its June 12, 2025 report. Both SJM and RH exhibit moderately positive sentiment scores (0.6), aligning with the article's overall bullish tone regarding their potential to outperform earnings expectations based on this quantitative screen.

Key Decisions for Investors

• Investors seeking to capitalize on earnings announcement-driven volatility may consider incorporating the Zacks Earnings ESP filter into their stock selection process, given its historical efficacy in predicting positive surprises.
• For Smucker (SJM) and RH, their positive Earnings ESP figures suggest a higher likelihood of beating consensus estimates in their imminent quarterly reports; however, their Zacks Rank #3 (Hold) status implies these are generally expected to perform in line with the broader market, warranting a balanced view.
• While the backtested 28.3% average annual return for the ESP strategy is notable, this historical performance should be viewed as one data point among many, and such signals are best used in conjunction with comprehensive due diligence and risk management practices, rather than as a standalone trading trigger.