Profit expectations are growing for these stocks

Wall Street analysts are raising earnings estimates for a number of stocks that have seen share price declines, leaving more attractive valuations heading into second-quarter earnings season.

Nicole Inui, head of Americas equity strategy at HSBC Global Investment Research, said expectations for the quarter were high but concentrated in sectors where earnings visibility was relatively strong. He sees opportunities beyond AI trading, including companies that could benefit from tariff rebates and FIFA World Cup-related spending.

Consensus estimates require: S&P 500 EPS will increase by 22% compared to the previous year, the strongest growth since the post-pandemic period.

Historically, companies that beat earnings estimates have seen only modest stock gains, while those that miss have tended to decline more sharply. Still, Inui isn’t too worried, as most of the quarter’s expected earnings growth is predicted to come from energy, semiconductor and technology hardware suppliers, where earnings are more predictable.

Its analysis shows that outside of those areas, earnings are expected to grow by about 5%, well below the roughly 24% seen in the first quarter.

Energy and technology leader

According to FactSet data used by HSBC, energy and information technologies are expected to post EPS growth of 122% and 61%, respectively.

May 7 (Amazon, Alphabet, Microsoft, Tesla, Nvidia, Meta Platforms and Apple) as a group are expected to post earnings growth of around 30%, while earnings before interest and taxes are likely to grow by around 34%, continuing to support the AI ​​spending narrative.

The healthcare sector is the only sector expected to report weak earnings, led by pharmaceutical companies, although Inui sees opportunities given low expectations.

Artificial intelligence and technology gains will continue to be the focus of the market and will continue to present possible surprises.

Sectors such as consumer staples stocks, industry and automobiles may receive support from tariff rebates. FIFA World Cup-related spending may have supported consumer-friendly sectors such as beverage and travel businesses.

HSBC conducted a scan that identified 24 stocks where “earnings were revised higher, but valuations appeared discounted and share prices fell.”

These were among the stocks that rose to the top.

For netflixForward earnings estimates have risen 12% over the past three months, while shares have fallen 21%. HSBC said Netflix had lost 40% of its value in the last 12 months, leaving Netflix’s valuation at the lowest of its historical range.

Shares of Netflix have fallen nearly 42% in the past year as the streaming platform issued lackluster forward guidance in April and struggled with uncertainty tied to its unrealized acquisition offer. Warner Bros. Discovery and the departure of co-founder and former executive chairman Reed Hastings.

Wall Street Magazine It was also reported last week that the dominant streaming platform is discussing adding live television channels to its offerings and is exploring bundling its product with other streaming services. Netflix is ​​scheduled to report second-quarter results on Thursday after market.

T-Mobile There seems to be a similar disconnect. HSBC said its forward-looking earnings per share estimates have risen nearly 9% over the past three months, while the stock has fallen nearly 12% at the same time, leaving HSBC’s relative valuation once again at the bottom of its historical range.

Estimates rose after the wireless carrier reported a strong first quarter, adding 217,000 net postpaid accounts. 6% increase from 205,000 a year ago. In April, T-Mobile also announced two strategic fiber partnerships to strengthen its broadband portfolio and expand fiber access across the Northeast, reporting postpaid average revenue per account (ARPA) of $151.93, up nearly 4% from $146.22 the year before.

T-Mobile is scheduled to report second-quarter earnings on July 23.

— With additional reporting from CNBC’s Liz Napolitano