'Big beat ahead'—Bank of America sees better-than-feared earnings and these stocks leading the way

Published Wed, Jul 8 20208:10 AM EDTUpdated Wed, Jul 8 202010:09 AM EDT

(This story is for CNBC Pro subscribers only.) The second-quarter earnings reporting season is about to begin and Bank of America has higher hopes for U.S. business results than the rest of Wall Street. The firm said there is a "big beat ahead," forecasting overall S & P 500 earnings will come in 8% higher than the consensus of analysts' expectations. A fifth of S & P 500 companies report earnings next week with the consensus estimating earnings of $23.20 per share for the second quarter, a 44% decline year over year. Bank of America is forecasting EPS of $25. To be sure, the bank's estimate is still a 39% decline for earnings since last year. "Estimates for 2Q have been slashed ~40% over the last three months — the highest pre-season EPS cut since '08. This, as well as a host of other factors, support a big 2Q beat," Bank of America equity and quant strategist Savita Subramanian told clients. The consensus on Wall Street — including Bank of America — is that second quarter earnings will be the trough of earnings decline from the coronavirus crisis. Firms are expecting earnings declines of 25% in the third quarter and 14% in the fourth quarter. But Bank of America believes the second quarter won't shake out as badly as Wall Street thinks. Strong results from early reports, like FedEx last week , give Bank of America confidence earnings could surprise to the upside. The firm said stronger-than-expected consumption trends, an uptick in oil prices and a weaker dollar also bode well for better-than-expected results. While earnings beats would be a good sign for the overall economy in its recovery from the Covid-19 pandemic, Bank of America said earnings season is a good time to be a stock picker. "For short-term investors, stock differentiation is heightened during earnings season, particularly the busiest reporting days," said Subramanian. To help find the best opportunities, Bank of America screened for the S & P 500 stocks under its coverage that are most likely to beat expectations. All the listed stocks have Bank of America estimates for earnings and sales above consensus, with the "Z-score" representing the number of standard deviations that its analysts estimate is above consensus. All the listed stocks beat on earnings and sales last season and have a buy rating from Bank of America. Bank of America also screened for stock stocks it expects to miss estimates. Names like Nordstrom, Royal Caribbean Cruises, Caterpillar and CenterPoint Energy show up on that list. — with reporting from CNBC's Michael Bloom.

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(This story is for CNBC Pro subscribers only.)

The second-quarter earnings reporting season is about to begin and Bank of America has higher hopes for U.S. business results than the rest of Wall Street.

The firm said there is a "big beat ahead," forecasting overall S&P 500 earnings will come in 8% higher than the consensus of analysts' expectations.

A fifth of S&P 500 companies report earnings next week with the consensus estimating earnings of $23.20 per share for the second quarter, a 44% decline year over year. Bank of America is forecasting EPS of $25. To be sure, the bank's estimate is still a 39% decline for earnings since last year.