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.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.

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.

With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.

Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 28.3% annual returns on average, according to our 10 year backtest.

Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.

Should You Consider Western Digital?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Western Digital (WDC) holds a #1 (Strong Buy) at the moment and its Most Accurate Estimate comes in at $3.46 a share five days away from its upcoming earnings release on August 5, 2026.

WDC has an Earnings ESP figure of +3.22%, which, as explained above, is calculated by taking the percentage difference between the $3.46 Most Accurate Estimate and the Zacks Consensus Estimate of $3.35. Western Digital 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.

WDC is one of just a large database of Computer and Technology stocks with positive ESPs. Another solid-looking stock is Leidos (LDOS).

Leidos, which is readying to report earnings on August 4, 2026, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $2.92 a share, and LDOS is four days out from its next earnings report.

Leidos' Earnings ESP figure currently stands at +0.55% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.90.

WDC and LDOS' 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 Western Digital Corporation (WDC)?

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Zacks Investment Research has been committed to providing investors with tools and independent research since 1978. For more than a quarter century, the Zacks Rank stock-rating system has more than doubled the S&P 500 with an average gain of +24.08% per year. (These returns cover a period from January 1, 1988 through May 6, 2024.)

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Western Digital Corporation (WDC): Free Stock Analysis Report

 

Leidos Holdings, Inc. (LDOS): Free Stock Analysis Report

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

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