Analysts are standing by these stocks with 'robust upside' ahead of Q3 earnings

Published Sat, Oct 15 20227:59 AM EDT

Earnings season is underway and Wall Street analysts are picking their favorite stocks to buy ahead of third quarter results. Despite a generally dour feeling among investors, analysts say there are still plenty of buying opportunities. CNBC Pro combed through top Wall Street research to find stocks to buy heading into earnings. They include Pfizer, TransUnion , Bunge , AES and AvidXchange . TransUnion The consumer credit reporting company is firing on all cylinders ahead of its earnings report later this month, investment firm Atlantic Equities says. "We continue to believe that TransUnion offers a compelling asymmetric risk/reward over the next several years," analyst Simon Clinch wrote. The firm says investors should buy into this year's more than 50% decline, arguing that downside scenarios are already priced in. "The thematic drivers behind TransUnion are consolidating around 3 core themes: US credit and risk; global non-credit consumer identity solutions; and International," he said. Clinch says his base case is bolstered by TransUnion's robust management, which has an excellent track record of growth, he added. In addition, "capital allocation optionality provides sources of earnings upside," according to the firm. While a macroeconomic deterioration could add risk, Clinch believes investors will be richly rewarded over time. Bunge Don't sleep on shares of Bunge, according JPMorgan analyst Thomas Palmer. The firm said in a recent note ahead of the canola oil processing company's earnings report later this month, that investor fears over deteriorating fundamentals in the ag industry are overdone. "We appreciate that investors might be hesitant to own a company whose EBIT is almost entirely tethered to ag products fundamentals when the industry is potentially in (gradual) cyclical decline," he wrote. But Palmer says the stock is just too attractive to ignore as it's likely that "margins (especially outside the US) could soon bounce back from a more challenging few months." Shares are down just 8% this year, but the firm believes Bunge could rally after the third-quarter report. It also offers "downside protection" at current levels. Palmer says he's expecting a constructive tone from management and that investors shouldn't miss an opportunity to buy a stock that's misaligned from its long-term earnings power potential. "When factoring in mid-cycle earnings plus contribution from capital deployment, we see the potential for upside in the share price," he added. AES Corporation Goldman Sachs analyst Insoo Kim is predicting "robust upside" for the energy and utility company. The firm said recently that AES is an an "underappreciated clean energy story" that will benefit from the recently passed Inflation Reduction Act. The result should be higher earnings power looking out to 2024 and 2025, according to Kim. "We see this allowing AES to grow near the upper end of its 7-9% EPS growth guidance through 2025, which represents one of the highest growth rates in our coverage universe," he said. The Inflation Reduction Act will also allow AES to increase its renewable energy output more quickly than expected. Additionally, Kim expects AES's clean energy projects to shift 70-80% towards the U.S. compared with roughly 50% currently. The stock is also well priced and investors should take advantage of the long-term opportunity, he wrote. "AES screens attractive versus clean energy peers on [a] beta-adjusted basis and a growth adjusted basis," he concluded. Shares are up 3.5% this month and the company will report earnings on November 3. AvidXchange- Baird, Outperform rating "We are introducing 2024E EPS (we assume positive adjusted EBITDA); we view the stock as good value and somewhat recession resistant. We like 20%+ revenue growth profile with strong earnings power and clean balance sheet. We could see EPS of ~$1 by 2030, and view the stock as undervalued given the growth and earnings potential. ... .We like the resilience and ~20% revenue growth rate, along with good incremental margin potential." Pfizer- Cantor Fitzgerald, Overweight rating "We have lowered our 3Q22 sales and EPS estimates and increased our 4Q22 sales and EPS estimates. The net of these changes lowered our full-year 2022 EPS estimate. ... .We have also extended our model from 2028E to 2035E and included sales from Biohaven in 2023E and beyond. This shows the earnings potential of Pfizer beyond the loss of exclusivity of key drugs through the end of the decade. We believe this is still underappreciated." AES Corporation- Goldman Sachs, Buy rating ""We reiterate our Buy rating on AES Corp as we continue to see upside to this under-appreciated clean energy story, and now expect improvement in earnings in 2024 & 2025 from the increase in renewable generation driven by the recently passed IRA. ... .We see this allowing AES to grow near the upper end of its 7-9% EPS growth guidance through 2025, which represents one of the highest growth rates in our coverage universe. ... .AES screens attractive versus clean energy peers on beta-adjusted basis and a growth adjusted basis." TransUnion- Atlantic Equities, Overweight rating "We continue to believe that TransUnion offers a compelling asymmetric risk/reward over the next several years. ... .The thematic drivers behind TransUnion are consolidating around 3 core themes: US credit and risk; global non-credit consumer identity solutions; and International. ... .Capital allocation optionality provides sources of earnings upside." Bunge- JPMorgan, Overweight rating "We appreciate that investors might be hesitant to own a company whose EBIT is almost entirely tethered to ag products fundamentals when the industry is potentially in (gradual) cyclical decline; but think crush and distribution margin could soon bounce back from a more challenging few months.. At current levels, we also see some downside protection. ... .When factoring in mid-cycle earnings plus contribution from capital deployment, we see the potential for upside in the share price."