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How Investors Can Grab Better Returns for Utilities Using the Zacks ESP Screener

The Zacks Earnings ESP is a great way to find potential earnings surprises. Why investors should take advantage now.

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This story originally appeared on Zacks

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.

- Zacks

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive 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 is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.

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.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.

Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 Southern Co.

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Southern Co. (SO) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.23 a share, just 30 days from its upcoming earnings release on November 4, 2021.

Southern Co.'s Earnings ESP sits at 1.65%, which, as explained above, is calculated by taking the percentage difference between the $1.23 Most Accurate Estimate and the Zacks Consensus Estimate of $1.21. SO is also part of a large group of stocks that boast a positive ESP. All of these qualifying stocks can be filtered by ESP, Zacks Rank, % Surprise (Last Qtr.), and Reporting date.

Using the Zacks Earnings ESP to your advantage is just the start. Make sure to check out the Earnings ESP Home Page for even more earnings-related tips and tricks to design a winning investment portfolio.

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 >>



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