Investors are advised to monitor companies that may not meet earnings expectations and could experience a decline in share prices. Wall Street has been revising its third-quarter growth estimates downward for some time. According to a recent report from FactSet, earnings for companies in the S&P 500 are expected to grow by 4.2% compared to the same quarter last year, a decrease from the 7.8% forecast on June 30. This trend is not unusual, as third-quarter growth estimates often diminish in the months leading up to earnings reports. Approximately 10% of S&P 500 companies have already released their results, with over 79% surpassing earnings predictions, as reported by FactSet. However, there are still several companies that may fall short of expectations.
To identify potential underperformers, CNBC Pro utilized FactSet to screen S&P 500 stocks that are set to report earnings in the coming week. These stocks have had their earnings estimates reduced by at least 10% over the past three and six months. Investor sentiment regarding Valero Energy has notably declined ahead of its quarterly earnings announcement on October 24. Analysts have decreased estimates for the company’s earnings per share by 80.3% over the past three months and 85% over the past six months. Despite this, the stock remains favored by 60% of Wall Street analysts. Morgan Stanley analyst Joe Laetsch is among those with an overweight rating and has a price target of $165 on Valero, indicating a potential 22.5% upside. Valero’s stock has increased by about 4% this year. Laetsch remarked in a Tuesday note that Valero is “well-positioned in the currently tight refining environment with its outsized downstream exposure relative to peers,” and its well-managed asset base is expected to continue driving substantial free cash flow as the refining cycle progresses.
Enphase Energy also appeared on the screener, as earnings per share estimates for this stock have been reduced by nearly 39% and 35.5% over the past three and six months, respectively. Less than half of analysts rate the stock as a buy. RBC Capital Markets analyst Christopher Dendrinos recently downgraded the stock from outperform to sector perform and lowered his price target by $25 to $100, suggesting an 8.6% potential gain. Dendrinos’ revised outlook reflects concerns that Enphase will face slower growth next year due to weak demand in the residential solar market. The ongoing adoption of third-party ownership (TPO) systems in the U.S. may also affect Enphase’s demand growth, as the company holds a smaller market share in TPO systems compared to competitors. In a TPO model, installers retain ownership of the energy system while homeowners make monthly payments for either the panels or electricity, according to Enphase. The company’s shares, which are due to report on October 22, have fallen 30% year-to-date.
Tesla is scheduled to release earnings on October 23 after the market closes. The company faces significant challenges before its stock can realize substantial growth, following disappointing third-quarter delivery figures and lackluster reception of its recent robotaxi unveiling. Analysts have decreased their earnings per share estimates for Tesla by 24.1% over the past three months and 30.8% over the past six months. Presently, 34.5% of analysts recommend buying the automaker’s stock. Wells Fargo maintains a bearish stance on Tesla, reiterating an underweight rating on Tuesday and expressing the expectation that the company will not meet third-quarter estimates.
