Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.

The Zacks Earnings ESP, Explained

The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.

Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.

Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.

Should You Consider Microchip Technology?

The final step today is to look at a stock that meets our ESP qualifications. Microchip Technology (MCHP) earns a #2 (Buy) three days from its next quarterly earnings release on August 6, 2026, and its Most Accurate Estimate comes in at $0.71 a share.

MCHP has an Earnings ESP figure of +2.16%, which, as explained above, is calculated by taking the percentage difference between the $0.71 Most Accurate Estimate and the Zacks Consensus Estimate of $0.7. Microchip Technology is one of a large database of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

MCHP is one of just a large database of Computer and Technology stocks with positive ESPs. Another solid-looking stock is Celestica (CLS).

Celestica, which is readying to report earnings on October 26, 2026, sits at a Zacks Rank #1 (Strong Buy) right now. Its Most Accurate Estimate is currently $2.91 a share, and CLS is 84 days out from its next earnings report.

For Celestica, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.85 is +2.40%.

MCHP and CLS' positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.

Find Stocks to Buy or Sell Before They're Reported

Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>

Should You Invest in Microchip Technology Incorporated (MCHP)?

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Microchip Technology Incorporated (MCHP): Free Stock Analysis Report

 

Celestica, Inc. (CLS): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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