How to Find Strong Finance Stocks Slated for Positive Earnings Surprises

The article details the Zacks Earnings ESP (Expected Surprise Prediction) tool, designed to identify potential earnings surprises by comparing the most recent analyst estimate against the broader consensus. Historically, combining a positive ESP with a Zacks Rank of #3 (Hold) or better has led to positive earnings surprises 70% of the time and generated average annual returns of 28.3% over a 10-year backtest. CME Group (CME) and Ares Management (ARES) are highlighted as current examples exhibiting positive ESPs, suggesting a high probability of exceeding their upcoming quarterly earnings estimates.

Analysis

The Zacks Earnings Expected Surprise Prediction (ESP) model identifies stocks with a high probability of beating earnings estimates by focusing on recent analyst revisions. The model's core premise is that the Most Accurate Estimate, being the most recent, is a better predictor than the broader consensus. According to a 10-year backtest provided in the report, combining a positive ESP with a Zacks Rank of #3 (Hold) or better has historically resulted in a positive earnings surprise 70% of the time, generating average annual returns of 28.3%. Currently, CME Group (CME) and Ares Management (ARES) are highlighted as meeting these criteria. CME, with a Zacks Rank #3, exhibits an ESP of +1.81% based on its Most Accurate Estimate of $2.54 versus a consensus of $2.49 ahead of its July 24 report. Similarly, Ares Management (ARES), also a Rank #3, shows a positive ESP of +0.34% with a Most Accurate Estimate of $0.99 against a consensus of $0.98 for its August 6 report. These specific quantitative signals suggest that recent analyst sentiment for both financial firms has turned more positive, positioning them for a potential earnings beat.

Key Decisions for Investors

• Given the positive ESP signals for CME Group (+1.81%) and Ares Management (+0.34%), investors looking for event-driven opportunities may consider these stocks for potential upside around their upcoming earnings announcements.
• The provided methodology, which claims a 70% success rate for predicting positive surprises, suggests a statistically favorable setup for a short-term trade, particularly for CME given its more significant ESP figure.
• Investors should balance the positive surprise indicator against the neutral Zacks Rank #3 (Hold) for both companies, which implies an expectation of in-line market performance, suggesting the opportunity may be catalyst-specific rather than a signal for long-term fundamental outperformance.