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

Zacks has developed an 'Earnings ESP' (Expected Surprise Prediction) tool designed to identify stocks likely to beat quarterly earnings estimates by comparing the most accurate analyst projection to the Zacks Consensus Estimate. This methodology, when combined with a Zacks Rank of #3 (Hold) or better and a positive ESP, has historically predicted positive earnings surprises 70% of the time, yielding an average annual return of 28.3% over a 10-year backtest. The article highlights Coca-Cola (KO) and PepsiCo (PEP) as current examples with positive ESPs, suggesting a higher probability of outperforming analyst expectations in their upcoming reports.

Analysis

The Zacks Earnings Expected Surprise Prediction (ESP) model is presented as a quantitative tool for identifying stocks with a high probability of beating earnings estimates, leveraging discrepancies between the most recent analyst projections and the consensus. The methodology's historical performance claims are significant: a combination of a positive ESP and a Zacks Rank of #3 (Hold) or better has reportedly resulted in a positive earnings surprise 70% of the time, generating an average annual return of 28.3% over a 10-year backtest. The analysis highlights two specific consumer staples stocks. Coca-Cola (KO) presents a near-term, actionable signal with a Zacks Rank #2 (Buy), a positive ESP of +0.69% (based on a Most Accurate Estimate of $0.75 versus a consensus of $0.74), and an earnings release just 14 days away. In contrast, PepsiCo (PEP) also shows a positive ESP of +0.63% but carries a less aggressive Zacks Rank #3 (Hold) and a much longer forecast horizon, with its next earnings report 128 days out, making its signal less timely and more susceptible to revision.

Key Decisions for Investors

• Investors with a short-term, event-driven mandate may consider Coca-Cola (KO) for a potential pre-earnings trade, given its #2 (Buy) rank, positive ESP, and the imminent October 23 report which acts as a near-term catalyst.
• For PepsiCo (PEP), the positive ESP signal is a point of interest but lacks immediate actionability due to the 128-day timeframe until its report; it is prudent to monitor for changes in analyst estimates and Zacks Rank closer to the February 2025 earnings date before committing capital.
• The presented strategy, while boasting a strong backtested return of 28.3% annually, should be viewed as a specific quantitative screen for identifying potential earnings surprises rather than a standalone investment thesis; its efficacy depends on the continued predictive power of the ESP model.