Wall Street is gearing up for the busiest week of earnings season. Several stock market heavyweights are lining up to release their second-quarter prints, and analysts are taking note.
The stocks mentioned in this article have just been deemed as Buys ahead of their earnings releases by analysts who consistently get it right. TipRanks analyst forecasting service attempts to pinpoint the best-performing analysts on Wall Street. These are the pros with the highest success rate and average return per rating, factoring in the number of recommendations published by each analyst.
Here are five stocks that top Wall Street analysts say are buys going into earnings:
Apple
As Apple prepares to take the stage and report its fiscal third-quarter results on July 27, Monness analyst Brian White is anticipating an impressive performance from the tech giant. To this end, the five-star analyst reiterated a Buy rating and $180 price target (24% upside potential) on July 20.
“During this crisis, we believe Apple has enhanced its value proposition in the eyes of the world by introducing new innovations, supporting a more digital lifestyle, and attracting new consumers to Planet Apple,” White said.
The analyst argues that Apple will most likely “approach” his third-quarter revenue estimate of $80.33 billion, which would reflect a 35% year-over-year gain. He also thinks that the company can “at least meet” his $1.16 earnings per share forecast. Meanwhile, the rest of the Street is calling for revenue of $72.94 billion and EPS of $1, which are “overly conservative,” in White’s opinion.
When it comes to iPhone revenue, White expects it to remain in growth territory for the third consecutive quarter, increasing 48% year-over-year to $39.14 billion. However, this would be a drop from the 66% growth recorded in the previous quarter.
It should also be noted that last month, the House Judiciary Committee’s Antitrust Subcommittee passed six “Big Tech bills” that will go before the full House. Specifically, White points to the “Ending Platform Monopolies Act” and “American Choice and Innovation Online Act” as being relevant to Apple. In addition, 37 attorney generals have filed a multi-state lawsuit against Google, with the focus landing on the Google Play store.
“We believe the power of the App Store and Apple’s preinstalled proprietary app strategy are key antitrust issues for the company. Despite our expectation of greater scrutiny around Apple, we continue to believe the company remains that ‘shining city upon a hill’ in the Big Tech world,” White explained.
In terms of guidance, for the fourth quarter, White estimates sales of $87.31 billion and EPS of $1.28, both significantly higher than the Street’s expectations.
Ranked #50 on TipRanks’ list of best-performing analysts, White boasts a 78% success rate and 29.1% average return per rating.
Alphabet
Also reporting earnings on July 27 is Alphabet, and Bank of America Securities analyst Justin Post is expecting “another upside quarter” as the “economy kicks into gear.”
As such, the analyst kept his Buy rating and $2,755 price target as is. This target puts the upside potential at 8%.
Remaining “positive” on the stock, Post thinks that revenue for the quarter will land in line with the Street’s estimate, while he forecasts EPS of $20.15, above the $19.21 consensus estimate. Based on the analyst’s channel checks, he believes that search ad continued to bounce back.
He also expects search revenue growth to be in line with or above the consensus estimate at 49%, which represents a 19-point quarter-over-quarter acceleration on a 19-point easier comp. When it comes to YouTube ad revenue, Post believes it will continue to ramp up.
Post added, “Alphabet warned on increasing investments and accelerating pace of hiring on Q4 earnings call, but was seemingly more benign on expenses on the Q1 call. We expect quarter-over-quarter expense growth to be in focus, and for Q2 we expect $15.9 billion in opex, up $1.1 billion vs Q1.”
Looking at the cloud segment, Post argues “Google Cloud growth vs AWS/Azure will be important for sentiment as we see Cloud as driving the most new value creation among all of Google’s non-ad segments.”
Going forward, Post commented, “We continue to rate Google as our top FAANG pick given exposure to cyclical recovery and easier 2H comps vs DR social advertising companies (we also see upside potential to Q3 GOOGL estimates). Key risk for the stock is that Q2 is an ‘as good as it gets quarter’ and management warns on tougher comps year-over-year margin trends to be less positive in Q3. While we expect management to try to manage 2H expectations, since Sundar Pichai has taken over as CEO, Alphabet has had more focus on maintaining positive investor sentiment, in our view.”
With a 76% success rate and 29.6% average return per rating, Post earns a top 30 position on TipRanks’ list.
Starbucks
According to Oppenheimer’s Brian Bittner, “Starbucks holds a superior set-up that keeps us upbeat,” prompting the analyst to bump up the price target to $140 (17% upside potential) ahead of its July 27 earnings release. In addition, he maintained a Buy rating on the stock.
“Bottom line: our updated analysis identifies further upside to Street’s financial forecasts through 2022. Major traction from self-help strategies, measurable gains in U.S. mobility data and a deep-dive analysis of consensus underpin our view that sales are positioned to outperform,” Bittner noted.
Bittner sees a path for Starbucks to surpass analysts’ expectations for sales/unit (AUV) through fiscal 2022. What’s more, March same-store sales jumped 11% higher than 2019 levels. The Street assumes that AUVs were only 8.8% higher for Q3 2021.
“We believe this tilts conservatively as consumer mobility increases (80%-plus correlation), benefits accrue from low-volume closures, digital gains are unlocked and market share drivers accelerate,” Bittner said.
It should be noted that in the previous quarter, management increased fiscal 2021 EPS guidance by $0.15, even with “1H21 beating internal forecasts by $0.23,” Bittner points out.
Expounding on this, the analyst stated, “This highlights conservatism embedded in 2H21, particularly as business drivers have arguably strengthened since last earnings call. For F22, Street sits at bottom-end of SBUX’s 20%-plus EPS view. Interestingly, our work implies 2022 forecasts only assume mid-30% contribution margin flow-through vs, normalized 45-50%.”
Long term, Bittner believes that the coffee company will average 15% earnings growth between fiscal 2022 and fiscal 2024, “trailing only CMG among big-cap restaurant stocks that carry over $10 billion-plus market caps.” For 2030, Starbucks is targeting 55,000 units, implying roughly 6% unit growth CAGR. “This highlights an algorithm above global restaurant peers and underscores our confidence in the unique longevity of SBUX’s co-owned growth model,” the analyst said.
Currently, Bittner is tracking a 68% success rate and 11.6% average return per rating.
Mitek Systems
Given June quarter updates from the big banks, the backdrop for Mobile Deposit was once again positive as the move to digital banking continued during the last year, says Northland Capital analyst Mike Grondahl.
This bodes well for Mitek Systems, a software company that offers digital verification and mobile capture, going into earnings, in Grondahl’s opinion.
The analyst does note, though, that “the Mobile Deposit revenue model will lag due to banks/resellers having existing transaction blocks that need to get used first and then reorder.”
Explaining his bullish thesis, Grondahl said, “We believe MITK will report July 29th and revenues should be at least inline after a solid March quarter which had robust Mobile ID growth and Mobile check deposit growth probably bounces back a little. It will also be good to get update on new Check Fraud detection product. It will also be good to get update on new Check Fraud detection product.”
With this in mind, the five-star analyst reiterated a Buy rating and a price target of $21.50, suggesting that shares could gain 12% in the year ahead.
Looking at specific banks, JPMorgan revealed that in the past year, mobile banking users have increased by 10% from 39 million to 42.9 million. Meanwhile, Bank of America reported a 5% gain and pointed out that 85% of deposits are through mobile or an ATM, versus a branch location. At Wells Fargo, the increase in mobile banking users landed at 6% year-over-year.
Most noteworthy, though, for Grondahl is that “digital now makes up nearly 50% of all consumer sales at BAC as customers increasingly use online and mobile options.”
In addition, based on Q2 2021 data, Bank of America noted that users logged into BAC’s mobile/digital banking 2.57 billion times during the quarter.
Grondahl scores the #109 spot on TipRanks’ list thanks to his 61% success rate and 30.1% average return per rating.
If you ask Jefferies analyst Brent Thill, Facebook is a FAANG stock that he “would own.” In line with his optimistic approach, the top analyst left his Buy rating unchanged. Lifting the price target to $400, the upside potential comes in at 16%.
“FB stock has outperformed the NASDAQ COMP, but the valuation multiple remains highly compelling at just 22x FY22 EPS (25% discount to the COMP),” Thill said.
When it comes to the Street’s estimates for second-quarter revenue, Thill argues that they are “too conservative.” To back up this claim, he points out that ad demand from previously depressed sectors like travel, movies and retail has surpassed previous expectations. Additionally, the firm’s ad checks demonstrate that “the iOS14 privacy headwinds have not materially impacted budgets.”
On top of this, the current consensus estimates suggest only 6% quarter-over-quarter revenue growth, compared to the historical second-quarter average of 14%.
“We believe Street estimates were conservative in order to account for the potentially negative impact of the iOS14 privacy change, which according to our expert checks, have not materially weakened FB’s ad business. The combination of stronger than expected ad demand from depressed ad verticals like travel and a relatively minimal impact from the iOS14 change should drive 50%-plus year-over-year ex-FX ad revenue growth (vs. the Street’s 45%-plus),” Thill noted.
In the first quarter, management told investors that revenue growth could slow in the second half of 2021. Bearing this in mind, Thill estimates that third-quarter revenue growth will land at 29%-plus, with fourth-quarter revenue growth coming in at 20%-plus.
“We believe management is likely to maintain its view that tough 2H comps (due to accelerated adoption of online advertising/e-Commerce and stimulus checks) will drive a material deceleration in Q3 and Q4. While conservatism is warranted, we believe the return of depressed ad verticals like travel and retail will also have positive impact on 2H growth. In addition, we expect no change to the FY21 expense guide of $70-73 billion,” Thill said.
Achieving a 76% success rate and 27.5% average return per rating, Thill is ranked #27 out of over 7,000 analysts tracked by TipRanks.