Investors, beware! The earnings landscape appears increasingly tumultuous, with Wall Street trimming its growth forecasts for the third quarter like a gardener pruning an overgrown hedge. For several months now, analysts have been subtly downgrading their expectations. A recent report from FactSet reveals that S&P 500 companies are now anticipated to report a mere 4.2% increase in earnings compared to a year prior, a stark decrease from the 7.8% projection made on June 30. Yet, this isn’t entirely out of the ordinary—historically, the weeks leading up to third-quarter earnings announcements often witness a decline in forecasts.
Currently, nearly 10% of S&P 500 firms have already divulged their results, and a hearty 79% of those have surpassed analysts’ earnings estimates, as noted by FactSet. However, there remains a shadow of potential disappointment looming over the market. To pinpoint these candidates for underperformance, CNBC Pro sifted through FactSet data, identifying stocks set to report next week that have experienced a significant reduction in their earnings expectations—by at least 10% over the past three and six months.
Take, for instance, Valero Energy, which is seeing investor sentiment plummet ahead of its impending quarterly results on October 24. Analysts have slashed their earnings forecasts for Valero by an astonishing 80.3% over the last three months and by 85% over the last six. Despite this drastic downgrade, a surprising 60% of Wall Street analysts still have a favorable view of the stock. Among them is Morgan Stanley’s Joe Laetsch, who maintains an overweight rating and a price target of $165, suggesting a tantalizing 22.5% upside from its current standing. Laetsch touted Valero’s advantageous position within the tightened refining sector, arguing that its robust asset management will enable the company to generate considerable free cash flow as the refining cycle progresses.
Additionally, Enphase Energy has made the cut on this screener too. Analysts have chopped their earnings estimates for the firm by nearly 39% and 35.5% over the past three and six months, respectively. Close to half of the analysts still endorse the stock as a buy, but RBC Capital Markets’ Christopher Dendrinos veered into more cautious territory this Tuesday, downgrading Enphase from outperform to sector perform and slashing the price target by $25 to $100—an indication that there’s still an 8.6% potential rebound in the works for this beleaguered stock. Dendrinos pointed out his concerns regarding sluggish growth projections for Enphase in the following year, particularly as demand in the residential solar market slows down. Moreover, the rise of third-party ownership (TPO) models in the U.S. might hinder Enphase’s growth, as it struggles to compete in a segment dominated by its rivals.
As Enphase prepares to report on October 22, its shares have already suffered a 30% decline year-to-date, leaving investors anxious about what lies ahead. Meanwhile, the ever-watchful eye is on Tesla, which will unveil its earnings on October 23 post-market close. This electric vehicle juggernaut faces a daunting challenge: overcoming disappointing third-quarter delivery numbers and a rather lackluster launch of its much-anticipated robotaxi concept. Analysts have reduced their earnings estimates for Tesla by 24.1% in the past three months and a staggering 30.8% over the last six months. Currently, just 34.5% of analysts classify the automaker as a buy. Wells Fargo is on the pessimistic end of the spectrum, reiterating an underweight rating this Tuesday, cautioning that Tesla is poised to miss its third-quarter targets. Hold onto your seats; the earnings rollercoaster is just starting to ascend!
