Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.

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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information. 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 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 look at a qualifying stock. Lockheed Martin (LMT) holds a Zacks Rank #3 at the moment and its Most Accurate Estimate comes in at $6.56 a share five days away from its upcoming earnings release on October 22, 2024.

LMT has an Earnings ESP figure of 1.29%, which, as explained above, is calculated by taking the percentage difference between the $6.56 Most Accurate Estimate and the Zacks Consensus Estimate of $6.47.

LMT is just one of a large group of Aerospace stocks with a positive ESP figure. Northrop Grumman (NOC) is another qualifying stock you may want to consider.

Northrop Grumman, which is readying to report earnings on October 24, 2024, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $6.13 a share, and NOC is seven days out from its next earnings report.

Northrop Grumman's Earnings ESP figure currently stands at 1.12% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $6.06.

LMT and NOC's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.

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 >>