Benzinga - by Zacks, Benzinga Contributor.
We are in the middle of the first-quarter earnings season. This week is the second busiest of this reporting cycle, as nearly 1,300 companies are slated to report their quarterly financial numbers. Earnings results are so far better than expected.
Among the corporate giants lined up to report this week, quite a few returned more than the market's benchmark — the S&P 500 Index — in the last quarter. Investment in such stocks with a favorable Zacks Rank and a good chance of beating on earnings should drive their stock prices in the near term.
Q1 Earnings Results So Far As of Apr 26, 229 companies on the S&P 500 Index reported their financial numbers. Total earnings for these index members are up 2.8% from the same period last year on 3.3% higher revenues, with 78.2% beating EPS estimates and 59.8% beating revenue estimates.
At present, total earnings of the S&P 500 Index in first-quarter 2024 are expected to be up 3.8% on 3.7% higher revenues. This follows the 6.8% earnings growth on 4% higher revenues in fourth-quarter 2023 and 3.8% earnings growth on 2.2% higher revenues in third-quarter 2023.
Our Top Picks We have narrowed our search to five large-cap stocks (market capital > $10 billion) that are set to beat on earnings today after the closing bell. These stocks provided higher returns than the S&P 500 in the first quarter.
Each of these stocks carries either a Zacks Rank #2 (Buy) or 3 (Hold) and has a positive Earnings ESP.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after their earnings release. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
The chart below shows the price performance of our five picks in the last quarter.
Image Source: Zacks Investment Research
Advanced Micro Devices Inc. (NASDAQ: AMD) is benefiting from portfolio strength and an expanding partner base. In cloud, server CPU revenues increased year over year and sequentially as North American hyperscalers expanded fourth Gen EPYC Processor deployments to power their internal workloads and public instances.
Exiting 2023, AMD had more than 800 EPYC CPU-based public cloud instances available. AMD is benefiting from the strong adoption of EPYC CPUs for inferencing workloads for smaller models like Llama 7B, as well as the power head nodes in large training and inference clusters. AMD expects gross margin to expand in 2024.
Zacks Rank #2 Advanced Micro Devices has an Earnings ESP of +28.33%. It has an expected earnings growth rate of 29.8% for the current year. AMD recorded earnings surprises in the last four reported quarters, with an average beat of 3%.
LPL Financial Holdings Inc. (NASDAQ: LPLA) continues to benefit from efforts to increase client base. LPLA's advisory revenues (constituting 41.1% of total revenues in 2023) have been increasing over the past several years. Advisory revenues witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 18.2%.
Further, LPLA's recruiting efforts, strategic acquisitions (Allen & Company and FRGIS, minority stake in Independent Advisor Alliance and planned deal to buy Atria Wealth Solutions) and solid advisor productivity are expected to keep supporting it. The launch of a no-transaction-fee exchange-traded fund (AMEX:ETF) network will also boost the value of LPLA's advisory platform. We project advisory revenues to witness a CAGR of 13% by 2026.
Zacks Rank #3 LPL Financial Holdings has an Earnings ESP of +0.71%. LPLA recorded earnings surprises in the last four reported quarters, with an average beat of 3.7%.
Republic Services Inc. (NYSE: RSG) is benefiting from ongoing trends like increasing environmental concerns and rapid industrialization. RSG has been focused on expanding its recycling volume through improved material handling processes and programs.
RSG is also focused on increasing its operational efficiency and reducing fleet operating costs by shifting to compressed natural gas collection vehicles. RSG puts consistent efforts into rewarding its shareholders through dividend payments and share repurchases.
Zacks Rank #3 Republic Services has an Earnings ESP of +0.51%. It has an expected earnings growth rate of 7.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days. RSG recorded earnings surprises in the last four reported quarters, with an average beat of 8.8%.
Diamondback Energy Inc. (NASDAQ: FANG) focuses on growth through a combination of acquisitions and active drilling in the lucrative Permian Basin spread over west Texas and New Mexico. While many companies employ a similar strategy, a few have been as successful as FANG.
FANG has consistently posted some of the strongest operational and financial results among independent producers. With an attractive production profile, favorable industry trends and low breakeven economics, the margin of safety on investment is very high. Further, FANG is focused on the generation of free cash flow and wealth creation.
Zacks Rank #3 Diamondback Energy has an Earnings ESP of +1.61%. It has an expected earnings growth rate of 4.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the last seven days. FANG recorded earnings surprises in two out of the last four reported quarters, with an average beat of 0.7%.
ONEOK Inc. (NYSE: OKE) is well-poised to gain from increasing volumes in its pipelines and fee-based commitments as production volumes are rising. OKE's expansion efforts and pipeline additions are expected to strengthen its position in the high-production region and aid future earnings. OKE's organic initiatives and diverse customer base act as tailwinds. OKE has enough financial flexibility to meet its near-term debt obligations.
Zacks Rank #3 ONEOK has an Earnings ESP of +0.70%. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days. OKE recorded earnings surprises in three out of the last four reported quarters, with an average beat of 3.9%.
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