Unlocking Earnings Surprises in the Utilities Sector: A Strategic Guide to Using Zacks Earnings ESP for High-Probability Gains

The utilities sector, often perceived as a bastion of stability, has long been a refuge for income-focused investors. Yet, beneath its predictable veneer lies a dynamic interplay of regulatory shifts, renewable energy transitions, and operational efficiencies that can generate unexpected value. For investors seeking to capitalize on these dynamics, the Zacks Earnings ESP (Expected Surprise Prediction) model offers a data-driven framework to identify utility stocks poised for earnings surprises. By dissecting the predictive power of this model through the lens of Brookfield Renewable Partners (BEP) and Xcel Energy (XEL), we uncover how strategic use of such tools can unlock high-probability gains in a sector often overlooked for its growth potential.

The Zacks Earnings ESP Model: A Quantitative Lens for Earnings Surprises

The Zacks Earnings ESP model is a proprietary tool designed to forecast the likelihood of a company beating or missing its earnings per share (EPS) estimates. It calculates the percentage difference between the Most Accurate Estimate-derived from the most recent analyst revisions-and the Zacks Consensus Estimate. A positive ESP signals a higher probability of an earnings beat, while a negative ESP suggests a likely miss. According to Zacks' educational resources, stocks with a positive ESP and a Zacks Rank of #3 (Hold) or better have historically beaten expectations 70% of the time, with an average annual return of 28.3% over a 10-year backtest. This robust track record positions the model as a valuable tool for investors seeking to anticipate earnings-driven stock price movements.

Case Study 1: Brookfield Renewable Partners (BEP)

Brookfield Renewable Partners, a leader in renewable energy infrastructure, exemplifies the model's utility in identifying high-probability earnings surprises. As of December 2025, BEP holds an Earnings ESP of +14.89%, calculated by comparing its Most Accurate Estimate of -$0.30 per share to the Zacks Consensus Estimate of -$0.35. This significant positive ESP, coupled with a Zacks Rank of #2 (Buy), suggests a strong likelihood of outperformance. Historical data further validates this optimism: in Q3 2025, BEP reported an EPS of -$0.23, far exceeding the consensus estimate of -$0.45, a 48.89% surprise that drove a 12.3% stock price rally in the subsequent month.

BEP's performance underscores the model's ability to capture operational resilience in the face of macroeconomic headwinds. Despite a challenging energy transition environment, Brookfield's diversified portfolio of hydroelectric, wind, and solar assets has insulated it from sector-specific volatility. The Zacks model's predictive power here is amplified by the company's improving analyst sentiment: full-year earnings estimates have risen by 4.2% over the past 90 days, reflecting growing confidence in its long-term value proposition.

Case Study 2: Xcel Energy (XEL)

Xcel Energy, a major player in regulated utility services, presents another compelling case for the Zacks model's application. With an Earnings ESP of +1.34% and a Zacks Rank of #3 (Hold), XEL is positioned to outperform its Q2 2025 consensus estimate of $0.97 per share. Historical performance corroborates this outlook: in Q2 2024, XEL delivered an EPS of $0.88, surpassing the $0.80 estimate by 10%. While its long-term EPS growth rate of 8.90% suggests sustained earnings expansion, the company's recent track record of beating estimates only once in four quarters highlights the importance of real-time analyst revisions in refining expectations.

XEL's strategic focus on decarbonization and grid modernization aligns with regulatory tailwinds, particularly in states like Minnesota and Colorado, where its operations are concentrated. The Zacks model's ability to distill these macro-level trends into actionable insights-such as the +6.12% ESP for Q2 2025-demonstrates its utility in navigating the sector's regulatory complexity.

Long-Term Validity and Sector-Specific Considerations

While the Zacks model excels in short- to medium-term predictions, its long-term (5+ years) accuracy for utility stocks remains a subject of debate. Academic studies on the model's predictive power are scarce, but industry data suggests its effectiveness in the utilities sector. For instance, a 10-year backtest of the model's methodology-combining positive ESP scores with favorable Zacks Ranks-reveals an average annual return of 28.3%, outperforming the broader market. This is particularly relevant for utilities, where earnings surprises often stem from regulatory approvals, capital expenditure cycles, or renewable energy incentives rather than cyclical demand fluctuations.

However, the model's limitations must be acknowledged. Negative ESP scores are less reliable in predicting misses, and long-term outcomes depend on broader market conditions and company-specific fundamentals. For example, BEP's 52-week stock price range of $19.29 to $32.72 (as of December 2025) reflects volatility tied to its exposure to variable renewable energy margins according to Macrotrends data. Investors must therefore use the Zacks model in conjunction with qualitative analysis of regulatory environments and capital allocation strategies.

Strategic Implications for Investors

The Zacks Earnings ESP model offers a disciplined approach to identifying undervalued utility stocks with high-probability earnings surprises. For Brookfield Renewable Partners and Xcel Energy, the model's predictive power is evident in their recent outperformance and alignment with sector trends. However, success hinges on integrating quantitative signals with a nuanced understanding of regulatory and operational dynamics.

Investors should prioritize stocks with positive ESP scores and Zacks Ranks of #2 or #3, as these combinations historically yield the highest success rates. Additionally, monitoring analyst revisions-particularly for companies with volatile earnings streams like BEP-can refine expectations and mitigate downside risk. For XEL, the model's utility is amplified by its exposure to decarbonization mandates, which create predictable revenue streams and reduce earnings volatility.

Conclusion

In an era where traditional utility stocks are increasingly scrutinized for their growth potential, the Zacks Earnings ESP model provides a data-driven framework to uncover hidden value. By leveraging this tool, investors can navigate the sector's regulatory complexities and capitalize on earnings surprises that drive stock price appreciation. As Brookfield Renewable Partners and Xcel Energy demonstrate, the key to unlocking high-probability gains lies in combining quantitative rigor with a deep understanding of the forces shaping the utilities landscape.