The market has it wrong on these underperforming stocks with good earnings setups, Evercore ISI says

Published Mon, Apr 18 202211:49 AM EDTUpdated Mon, Apr 18 20221:47 PM EDT

As first-quarter reporting season ramps up this week, Evercore ISI highlighted companies undervalued by the market with a profit outlook that analysts are getting more and more optimistic about. Certain stocks are underperforming the market in 2022, but analysts are revising full-year estimates upward. These underrated names could be poised to rally if their profit matches analyst expectations, according to Evercore. "Companies with the strongest upwards revision and underperformance since the start of the year are best positioned to outperform on such a backdrop," Evercore's Julian Emanuel said in a note Sunday. In the first quarter, companies battled rising prices, the Federal Reserve's rate hikes and a war in Ukraine that has impacted global commodity supplies. Stocks have, for the most part, struggled given the environment. The S & P 500 is down more than 7% this year. Overall, analysts believe first-quarter earnings will gain about 5% for the quarter when all S & P 500 companies finish reporting, according to FactSet's analysis of actual results and future estimates. That would mark the lowest earnings growth rate for the index in more than a year. To find underperforming names with earnings potential, Evercore looked at Russell 1000 companies with market caps of at least $10 billion. The firm screened for names in the bottom 25% of index performers year to date, despite being in the top quartile for 2022 estimated earnings revisions and positive expected earnings. Take a look at five companies on Evercore's list. (Source: Evercore ISI. As of market close April 14, 2022.) Technology names feature prominently on Evercore's list of underrated stocks with higher revisions. Stocks in the sector have struggled as higher rates discount the value of future earnings, cramping the valuations of tech companies that trade on the promise of growth down the line. Nvidia is one stock Evercore sees outperforming after a lackluster start to the year. Shares of the semiconductor company are down 27.7%, but earnings expectations for Nvidia's full-year have been revised up 9.4% in 2022. Lowe's also appears on Evercore's list. The home improvement store has struggled as higher mortgage rates have cooled the housing market. Lowe's is down 22.1% in 2022, but analysts have revised the retailer's full-year earnings expectations up 4% this year. Zillow is another housing-related company that has struggled in the current environment, down 25% in 2022. However, analysts have upped their expectations for Zillow's 2022 earnings expectations by more than double. Advanced Micro Devices and SVB Financial Group are among the other underrated stocks Evercore highlighted. — CNBC's Michael Bloom contributed to this report.

Nvidia headquarters in Santa Clara, California, on Tuesday, Feb. 23, 2021.

David Paul Morris | Bloomberg | Getty Images

As first-quarter reporting season ramps up this week, Evercore ISI highlighted companies undervalued by the market with a profit outlook that analysts are getting more and more optimistic about.

NEXT PRO TALK

5 Days Remaining

Wed, June 1 2022 - 12:00pm

CNBC Pro Talks: Top internet stock analyst Mark Mahaney gives insight and investment ideas for this tumultuous market

More In Earnings Playbook

There are signs Costco can beat the bear trend as consumers flock to clubs due to soaring prices

Robert Hum

Here’s why this earnings season is signaling a summer travel boom

Samantha Subin

Earnings playbook: Your guide to next week's biggest reports, featuring AMD, Uber and others

Fred Imbert