Two Retail and Wholesale Stocks to Watch for Earnings Surprises

Earnings play a crucial role in evaluating a company's financial health, serving as a key figure on quarterly reports. While many factors contribute to a company's overall performance, the earnings per share (EPS) number is particularly significant as it tends to capture attention and set the tone for market reactions.

Understanding how a company performs against earnings estimates is essential for investors, especially given its potential impact on stock prices in the short term. Thus, investors are encouraged to look for opportunities that could lead to earnings surprises, which often result in favorable stock movements.

Understanding the Zacks Earnings ESP Tool

The Zacks Earnings ESP (Expected Surprise Prediction) tool is a valuable resource for investors looking to capitalize on earnings surprises. This tool hones in on the latest analyst earnings revisions, which are often more accurate than earlier estimates made weeks or months in advance of earnings releases.

The logic behind the ESP is straightforward: analysts who provide earnings estimates closer to the actual release date are generally expected to have more up-to-date and relevant information. The ESP compares the Most Accurate Estimate (the latest estimate) with the overall Zacks Consensus Estimate, and the difference between these two figures results in the EPS percentage.

Combining a positive earnings ESP with a Zacks Rank of #3 (Hold) or better enhances the likelihood of a positive earnings surprise. Historical data shows that when this combination is present, stocks achieve earnings surprises roughly 70% of the time. Additionally, this strategy has yielded average annual returns of around 28%, based on a ten-year backtest.

Most stocks fall into the #3 (Hold) category—approximately 60%—indicating they are expected to perform in line with the broader market. Stocks rated #2 (Buy) or #1 (Strong Buy) have a higher chance of outperforming the market, especially those ranked as Strong Buy, which tend to excel more than any other category.

Potential Earnings Beaters: Cava Group and Texas Roadhouse

One stock that aligns with the criteria for a positive earnings surprise is Cava Group (CAVA - Free Report). With a Zacks Rank of #2 (Buy) and an upcoming earnings release on November 5, 2024, the Most Accurate Estimate for CAVA stands at $0.13 per share.

This results in a robust Earnings ESP figure of +19.74%, derived from the difference between the Most Accurate Estimate of $0.13 and the Zacks Consensus Estimate of $0.11. Cava Group is part of a broader list of retail and wholesale stocks that present promising earnings surprises. Investors are encouraged to utilize the Earnings ESP Filter to discover similar stocks with strong potential.

Another notable contender is Texas Roadhouse (TXRH - Free Report), which is preparing to announce its earnings on October 24, 2024. It also holds a Zacks Rank of #2 (Buy). Currently, its Most Accurate Estimate sits at $1.34, with the Zacks Consensus Estimate being $1.32. This results in a positive ESP of +1.42%.

Given both CAVA and TXRH display strong Earnings ESP figures, they could very well report earnings that exceed expectations in their forthcoming earnings announcements.

Maximize Your Earnings Season Trading

For investors looking to enhance their portfolio by identifying stocks with the potential for earnings surprises, the Zacks Earnings ESP Filter is an excellent tool. It enables users to find stocks that are most likely to experience positive or negative surprises before earnings reports are released, supporting profitable trading during earnings season.

Earnings, Stocks, Investing