Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.

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.

2 Stocks to Add to Your Watchlist

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. The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction.

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. American Airlines (AAL) earns a Zacks Rank #3 right now and its Most Accurate Estimate sits at $0.62 a share, just 30 days from its upcoming earnings release on January 23, 2025.

By taking the percentage difference between the $0.62 Most Accurate Estimate and the $0.57 Zacks Consensus Estimate, American Airlines has an Earnings ESP of 8.6%.

AAL is part of a big group of Transportation stocks that boast a positive ESP, and investors may want to take a look at Southwest Airlines (LUV) as well.

Southwest Airlines is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on January 30, 2025. LUV's Most Accurate Estimate sits at $0.41 a share 37 days from its next earnings release.

For Southwest Airlines, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.40 is 2.89%.

AAL and LUV's 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 >>

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