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This 1 IT & Tech Stock Could Beat Earnings: Why It Should Be On Your Radar

JTwo factors often determine stock prices over the long term: earnings and interest rates. Investors can’t control the latter, but they can focus on a company’s results each quarter.

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

Hunting for “earnings whispers” or companies willing to beat their quarterly earnings estimates is fairly common practice. But that doesn’t make things any easier. One proven way is to use the Zacks Earnings ESP tool.

The ESP of Zacks Earnings, Explained

The Zacks Expected Surprise Forecast, or ESP, works by locking in the most recent analyst earnings revisions, as they may be more accurate than estimates weeks or even months before the actual release date. The thinking is quite simple: analysts who provide earnings estimates closer to the report are likely to have more information.

Now that we understand the basic idea, let’s look at how expected surprise prediction works. The ESP is calculated by comparing the more accurate estimate to the Zacks consensus estimate, with the percentage difference between the two giving us the Zacks ESP figure.

In fact, when we combine a Zacks Rank #3 (Hold) or better and a positive earnings ESP, stocks produce a positive surprise 70% of the time. Perhaps more importantly, using these metrics produced average annual returns of 28.3%, according to our 10-year backtest.

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

Should You Consider Arista Networks?

The final step today is to review a stock that meets our ESP qualifications. Arista Networks (ANET) earns a #3 (Hold) 12 days after the release of its next quarterly results on February 14, 2022, and its most accurate estimate is $0.75 per share.

Taking the percentage difference between the most accurate estimate of $0.75 and the Zacks consensus estimate of $0.74, Arista Networks has an earnings ESP of 0.95%. Investors should also be aware that ANET is just one of the large stock groups with positive ESPs. All of these eligible stocks can be filtered by ESP, Zacks Rank, % surprise (last quarter) and report date.

Using ESP Zacks Earnings to your advantage is just the beginning. Be sure to check out the Earnings ESP homepage for even more income-related tips and tricks for designing a winning investment portfolio.

Find stocks to buy or sell before they are flagged

Use the Zacks Earnings ESP filter to surface stocks with the highest probability of positive or negative surprises to buy or sell before they are reported for profitable trades during earnings season. Check it out here >>

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Arista Networks, Inc. (ANET): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.