Earnings season for the first quarter of 2016 is now underway. With so many analysts and research shops calling for the worst earnings trends being seen since 2009, some investors are thinking that perhaps the bar has been set very low for companies. Some investors even think the bar has been set so low on official analyst earnings estimates that there will be a very positive reporting season. The one caveat: just don’t compare these earnings beats to a year ago, in most cases.
Bank of America Merrill Lynch has a list of stocks that it thinks should be bought ahead of earnings for this earnings season. There are of course many risks to jumping in ahead of earnings, particularly if some of the turning trends just are not as rosy as Merrill Lynch expects.
The investment bank’s conversations with investors lead it to continue to be focused on stocks that are steadier in an uncertain macroeconomic environment.
Wednesday’s morning notes included five such companies that the firm recommends for customers to buy ahead of earnings season. On each, 24/7 Wall St. has included some brief notes from the Merrill Lynch report, as well as relative price targets to the consensus and recent trading history.
Automatic Data Processing Inc. (NASDAQ: ADP) is rated at Buy. The payrolls and financial services provider for human resources is said to be benefiting from labor trends remaining solid, and customer retention is a focus. The firm’s recent meetings with ADP management increased its confidence that customer retention trends are improving.
Merrill Lynch raised its price objective by $5 to $100, above the $86.46 consensus analyst price target and the 52-week trading range of $64.29 to $90.99.
ADP shares were last seen trading up 16 cents to $90.40 on Thursday. Its dividend yield is close to 2.4%, with a $41 billion market cap.
Among the companies said to be likely to beat earnings and to raise guidance when it reports is Cognizant Technology Solutions Corp. (NASDAQ: CTSH). Merrill Lynch said that two factors likely drove conservative initial 2016 guidance. The first was concerns about delayed discretionary projects at global banks, which may have since eased off a bit. The second was pending mergers among health insurers, and while that remains in place the firm sees a relatively broad client diversification.