With the second-quarter earnings season in full swing this week, many investors are looking for companies that can beat posted Wall Street expectations. The market has rallied big off the March lows, and also for now appears to be range-bound, so finding stock ideas with the potential to come in above estimates is very timely.
In a new research report, Jefferies analysts highlight 10 companies they think have a solid chance of posting second-quarter results that exceed current consensus estimates. They also name three companies they think could fall short, which could be considered short-sale candidates for more aggressive investors.
The report noted this:
We highlight thirteen stocks where Jefferies US analyst team has a view that is wide of consensus. With representation from 12 publishing analysts, we highlight 10 names with potential upside around the second quarter earnings season and 3 names with potential downside. Based on channel checks, takeaways from expert calls and conversations with industry contacts, our analysis suggests the upcoming earnings report may be a potential catalyst for outsized share movement.
Here we focused on the five stocks for which the Jefferies numbers were the highest compared with the consensus forecasts.
This is the absolute leader in online shopping and is a Jefferies top stock pick. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers. It has one of the most valuable brands in the world.
The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.
The analysts noted this:
We expect earnings per share of $1.81, which compares to consensus at $1.51. Based on several proprietary data points and conversations with industry contacts, we anticipate a better second quarter with supportive commentary around third quarter and beyond. While we are ~11% above the second quarter consensus operating income, we are still 27% below the high end of guidance despite Amazons historical track-record of beats as we recognize greater uncertainty on costs due to the pandemic.
Jefferies has a massive $3,800 price objective for the technology giant. The consensus figure across Wall Street is $3012.76. Wednesday’s last Amazon.com stock trade came in at $3,0233.53.
Digital Realty Trust
This top data center stock is a solid play on the huge cloud and streaming content revolution, and many on Wall Street are bullish on the industry. Digital Realty Trust Inc. (NYSE: DLR) supports the data center and colocation strategies of more than 600 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia.
Digital Realty’s clients include domestic and international companies of all sizes, ranging from financial services and cloud and information technology services to manufacturing, energy, gaming, life sciences and consumer products. The company rates highest with portfolio managers, as 8.39% of the market cap of the company is in institutional hands.
Here is what Jefferies said regarding the upcoming earnings:
We expect funds from operations per share of $1.52 which compares to consensus of $1.47. Our initial Q2 datacenter leasing data suggests volume ahead of impressive first levels and rivals record second quarter 2018 levels. Leasing was heavily concentrated in Northern Virginia, which could indicate that a few large hyper-scale leases drove demand and may have been isolated to one or two Washington DC REITs. With the largest market share in Northern Virginia, by far, Digital Realty is best positioned.
Holders of Digital Realty Trust stock receive a respectable 2.85% distribution. The Jefferies price objective of $186 compares to a $150.55 consensus figure and Wednesday’s closing price of $157.20.