Bank of America expects earnings beats from these companies.
First-quarter earnings season is just around the corner, and seasoned investors know a big earnings beat can have a positive influence on stock price. The global health crisis triggered an 11.2% drop in S&P 500 company earnings in 2020, according to Factset. However, analysts expect a sharp economic rebound to drive 25.9% earnings growth in 2021. The Bank of America Alpha Surprise model is a screen for stocks to buy based on potential earnings upside relative to consensus Wall Street estimates. Here are eight stocks to buy that could beat earnings expectations in the coming months.
NRG Energy (ticker: NRG)
NRG Energy is a U.S. power generation company that owns and operates 27 gigawatts of conventional and renewable power generation capacity. Analyst Julien Dumoulin-Smith says NRG shares have an opportunity for earnings multiple expansion as the company progresses with its transformation plan, which includes cost cutting and capital returns. In March, NRG estimated the winter storm that struck Texas in February would have a $750 million impact on the company’s bottom line. NRG has a 1.0 alpha surprise score, the best score possible. Bank of America has a “buy” rating and a $45 price target for NRG stock.
T-Mobile US (TMUS)
Following its 2020 acquisition of Sprint, T-Mobile is the third-largest U.S. wireless carrier. Analyst David Barden says T-Mobile believes it will beat Verizon Communications (VZ) and AT&T (T) in deploying the first “real” 5G network. He says T-Mobile has the best free cash flow-per-share growth outlook of the big three U.S. carriers over the next five years. T-Mobile has guided for $65 billion in cumulative FCF through 2025. The company also has a 1.0 alpha surprise score. Bank of America has a “buy” rating and a $155 price target for TMUS stock.
The Allstate Corp. (ALL)
Allstate is a top U.S. personal lines property-casualty insurance company. In February, Allstate reported fourth-quarter earnings per share of $5.87, far surpassing Wall Street estimates of $3.85. However, analyst Joshua Shanker says the stock dropped following the report because Allstate’s total auto policy count dropped 0.4% in the quarter, its second consecutive quarter of declines. Fortunately, Shanker says Allstate’s stock has historically outperformed during periods in which its policy numbers have declined. Allstate has a 1.25 alpha surprise score. Bank of America has a “buy” rating and a $141 price target for ALL stock.
Bristol-Myers Squibb (BMY)
Bristol-Myers Squibb is a global pharmaceutical company that specializes in oncology, immunology and cardiovascular therapeutics. The company recently received first-time Food and Drug Administration approval for Abecma in treating later-line 4L+ multiple myeloma — its second cell therapy approval so far this year. Analyst Geoff Meacham says the market doesn’t seem to fully appreciate that the company has eight new or upcoming product launches that will have greater than $20 billion in combined sales potential, including $1.4 billion in 2021. Bristol-Myers has a 1.25 alpha surprise score. Bank of America has a “buy” rating and an $80 price target for BMY stock.
CMS Energy Corp. (CMS)
Michigan-based CMS Energy is one of the largest combined electric and natural gas utilities in the U.S. Dumoulin-Smith projects a long-term EPS compound annual growth rate of 7.1%, which he says is above the midpoint of management’s guidance and among the highest earnings growth rates of all the regulated utility stocks he covers. CMS also pays a 2.9% dividend, and Dumoulin-Smith predicts roughly 6% annual dividend growth over the next five years. CMS Energy has a 1.25 alpha surprise score. Bank of America has a “buy” rating and a $65 price target for CMS stock.
Marathon Petroleum Corp. (MPC)
Marathon Petroleum is one of the largest U.S. independent oil refiners. Analyst Doug Leggate says the positive impact of the vaccine rollouts and the global economic recovery is bullish for oil stocks across the board. However, Marathon’s recent $16.5 billion sale of its Speedway assets is a unique bullish catalyst and makes Marathon Leggate’s top industry stock pick. Marathon could use the proceeds for buybacks that could theoretically reduce the company’s outstanding shares by 50%. Marathon has a 1.25 alpha surprise score. Bank of America has a “buy” rating and a $70 price target for MPC stock.
NextEra Energy (NEE)
NextEra Energy is one of the largest U.S. electric utilities and the world’s largest wind and solar power generator. In February, the company reported a fourth-quarter earnings beat and sizable additions to its renewable energy backlog. NextEra now expects to add between 23 gigawatts and 30 gigawatts of renewable capacity over the next four years. Dumoulin-Smith projects double-digit earnings growth in both 2021 and 2022 and renewable energy headlines could also drive earnings multiple expansion. NextEra has a 1.25 alpha surprise score. Bank of America has a “buy” rating and a $93 price target for NEE stock.
Vertex Pharmaceuticals (VRTX)
Vertex Pharmaceuticals is a pharmaceutical company focused on treating cystic fibrosis. Meacham says Vertex’s near-term growth outlook is impressive, particularly compared to biopharma peers. He forecasts 20.6% revenue growth and 21.6% earnings growth in 2021. However, Vertex shares are down 15% in the past year and the stock trades at just 16.3 times forward earnings. Meacham says investors are concerned about Vertex’s ability to maintain its growth in the long term. Vertex has a 1.25 alpha surprise score. Bank of America has a “buy” rating and a $275 price target for NEE stock.
Eight stocks poised for earnings beats:
— NRG Energy (NRG)
— T-Mobile US (TMUS)
— The Allstate Corp. (ALL)
— Bristol-Myers Squibb (BMY)
— CMS Energy Corp. (CMS)
— Marathon Petroleum Corp. (MPC)
— NextEra Energy (NEE)
— Vertex Pharmaceuticals (VRTX)
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