These stocks are ready to rally as the earnings recovery kicks in, analysts say

Published Sat, May 8 20218:37 AM EDT

Wall Street analysts named some of their favorite stocks as the end of earnings reporting season nears. These companies not only persevered during the pandemic but should outperform as the economy reopens, analysts say. Companies are in the midst of a strong reporting season with S & P 500 earnings improving by 26% year over year on average, marking the largest growth on record dating back to 2002, according to Refinitiv. CNBC Pro combed through some of the top Wall Street research to find stocks to buy as the recovery continues. They include: Hasbro , SkyWest , Dow, Starbucks and Adient. SkyWest "Bet on the regional sector winner," Raymond James analyst Savanthi Syth said of the Utah-based airline. SkyWest reported first quarter earnings recently where it missed on earnings per share and revenue, but not to worry, the firm said. "SkyWest surprised with a much faster block hour recovery outlook, returning to 2019 levels by 4Q21 vs. our prior view of 2H22 at the earliest," she wrote. Block hour is the time it takes from the boarding door close till it opens when the plane arrives. In addition, the company's balance sheet and capital structure are "relatively untarnished," leaving SkyWest well positioned for the reopening, Syth wrote. "We continue to believe SKYW is a lower risk way to play an eventual domestic business demand recovery and/or suburbanization given its largely domestic focus, feeding large cities and/or hub connections," she said. In addition, the firm expects the airline to return to profitability in the second half of the year. "Nevertheless, the update increases conviction in our 2023 earnings recovery outlook," she wrote. Shares are up almost 23% this year. Hasbro Shares of Hasbro are only up 6% this year but the company could be a key beneficiary of the reopening, according to Stifel analyst Drew Crum. The toy manufacturer's reported quarterly results in late April that were mostly mixed beating on earnings per share but missing on revenue . In a follow-up note after the earnings report, Crum noted that Hasbro has been hit particularly hard as stores and theaters were shuttered and television shows delayed due to the coronavirus. Still, the firm said clients should stick with the stock especially as consumers begin to spend again. "This included a decent start for the core toy & game biz with solid point of sale growth, partially offset by a weaker performance for entertainment," he wrote of the first quarter report. However, Crum predicted shares were likely to head higher as the first quarter was likely a low point in the earnings cycle. "Our Buy rating on HAS reflects our (growing) optimism for an earnings recovery scenario in 2021-'22, coupled with reasonable relative valuations," he said. The firm said as the pandemic passes shareholders should take advantage of the buying opportunity. "Management's commentary suggests business fundamentals are set to improve here, which aligns with our view that Hasbro is a 're-opening' beneficiary, given its exposure to entertainment," Crum wrote. Adient "Power of self-help drives sharp beat," Credit Suisse analyst Dan Levy said of the automotive seat maker after it reported earnings earlier this week. Adient topped revenue and earnings per share for the second quarter and there's more to come, Levy wrote. "The margin performance was impressive," he added. In particular, the firm was impressed by the company's execution considering the numerous obstacles it's stared down during the pandemic. "In the face of choppy end markets, including a foam shortage and higher commodity prices, ADNT nevertheless saw improved business performance more than offsetting the supply chain pressures," he wrote. The firm also noted that Adient has the potential to "exceed prior peak levels" of earnings and that it expects Adient to be a key player in the transition to electric vehicles. "We reaffirm our Outperform rating on ADNT, continuing to see a long opportunity ahead on self-help driven earnings recovery," Levy said. Shares of Adient finished the week up over 6%. Dow- KeyBanc, Overweight rating "The Company beat our earnings expectations in all reporting segments. EBITDA margins were also a strong point, coming in 40 bps stronger than expected. The results confirm our short-term thesis of inflection in engineered polymers within Mobility & Materials business, in our view. Overall, we view the quarter positively as DD continues to execute on earnings recovery from 2020 trough levels. The magnitude of the beat, and the raise in guidance would be a positive vs. buy-side expectations, in our view." Starbucks- BTIG, Buy rating "Starbucks posted a stellar quarter with EPS easily topping our Street-high estimate driven by better leverage on improving same-store sales. ... .We believe Starbucks could continue to top EPS expectations given the sales recovery in the U.S., near full recovery in China and margin benefits from the trade area transformation. ... .We believe that prior momentum is returning as coronavirus disruption fades and customer mobility returns, setting up a strong sales and earnings recovery outlook over the coming quarters. SkyWest- Raymond James, Strong buy rating "Bet on the Regional Sector Winner. SkyWest surprised with a much faster BH (block hour) recovery outlook, returning to 2019 levels by 4Q21 vs. our prior view of 2H22 at the earliest. .... .Nevertheless, the update increases conviction in our 2023 earnings recovery outlook. Additionally, SkyWest's balance sheet and capital structure remain relatively untarnished. ... .We continue to believe SKYW is a lower risk way to play an eventual domestic business demand recovery and/or suburbanization given its largely domestic focus, feeding large cities and/or hub connections." Hasbro- Stifel, Buy rating "Hasbro reported 1Q results that were mixed relative to expectations. This included a decent start for the core toy & game biz with solid POS growth, partially offset by a weaker performance for entertainment. With that said, management's commentary suggests business fundamentals are set to improve here, which aligns with our view that Hasbro is a 're-opening' beneficiary, given its exposure to entertainment. And now trading below a historical average on relative forward P/E, valuations are reasonable in our opinion, and hence we continue to rate the shares Buy." Adient- Credit Suisse, Outperform rating "Power of self-help drives sharp beat. ... .The margin performance was impressive. In the face of choppy end markets, including a foam shortage and higher commodity prices, ADNT nevertheless saw improved business performance more than offsetting the supply chain pressures. ... .We reaffirm our Outperform rating on ADNT, continuing to see a long opportunity ahead on self-help driven earnings recovery. With continued progress on earnings recovery, there is potential for earnings to exceed prior peak levels…"

A pedestrian wearing a protective mask walks in front of a temporarily closed Starbucks coffee shop in Brooklyn, New York, on Monday, April 27, 2020.

Gabby Jones | Bloomberg via Getty Images

Wall Street analysts named some of their favorite stocks as the end of earnings reporting season nears.

These companies not only persevered during the pandemic but should outperform as the economy reopens, analysts say.

Companies are in the midst of a strong reporting season with S&P 500 earnings improving by 26% year over year on average, marking the largest growth on record dating back to 2002, according to Refinitiv.

CNBC Pro combed through some of the top Wall Street research to find stocks to buy as the recovery continues.