Want Better Returns? Don't Ignore These 2 Consumer Staples Stocks Set to Beat Earnings

Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.

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.

Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

The Zacks Earnings ESP, Explained

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.

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.

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.

Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.

Should You Consider General Mills?

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. General Mills GIS holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1 a share 27 days away from its upcoming earnings release on June 26, 2024.

GIS has an Earnings ESP figure of +0.56%, which, as explained above, is calculated by taking the percentage difference between the $1 Most Accurate Estimate and the Zacks Consensus Estimate of $0.99. General Mills is one of a large database of stocks with positive ESPs.

GIS is just one of a large group of Consumer Staples stocks with a positive ESP figure. Kenvue KVUE is another qualifying stock you may want to consider.

Kenvue, which is readying to report earnings on July 18, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $0.30 a share, and KVUE is 49 days out from its next earnings report.

Kenvue's Earnings ESP figure currently stands at +0.71% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.30.

GIS and KVUE's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.

To read this article on Zacks.com click here.