Buy these stocks with overly conservative expectations ahead of earnings, Jefferies says

Published Mon, Apr 8 20242:50 PM EDTUpdated Mon, Apr 8 20243:00 PM EDT

First-quarter reporting season is kicking off later this week, and investors should also be attuned to companies boosting their forecasts as they report, Jefferies found. Indeed, these updates could bode well for those stocks. "First quarter reporting sees the highest magnitude of estimate revisions, often marking the period when expectations and YTD trends are most broadly misaligned," the firm noted in a Sunday report. "As a result, we believe there could be outsized opportunity with respect to stocks poised for shifts to full-year outlooks and subsequent estimate upgrades & downgrades." Jefferies shared 23 companies that have a history of larger-than-typical bumps or higher-than-normal conviction that should see upward estimate revisions once they report their results. The stocks all share several traits in common, the investment firm shared, including: Capital deployment New product launches A shift in macro factors for the industry or the company A stronger-than-expected start to 2024 for the company's industry or business Conservative initial guidance around fourth-quarter reporting season Progress on internal strategies to boost sales and margins Here are a few of the names that Jefferies identified as having potential for upward revisions: One name on the list was CyberArk , due to release its earnings next month. Shares of the identity management software company are up 18% so far this year. "CYBR reported strong 4Q results relative to peers, and we believe the co. appears capable of sustaining momentum in an inflecting macro environment," analyst Joseph Gallo wrote. He added that CyberArk's business setup in 2024 should be "very achievable" when considering the company's current relatively modest growth estimates. Jefferies also listed GE Aerospace as a company with upward revision potential. The company, formerly known as General Electric, completed the spinoff of its power business earlier this month. Shares of GE Aerospace have already soared 53% in 2024, but there could still be more room to rally, said analyst Sheila Kahyaoglu. The company is slated to report later this month. "Fresh out of its GE Vernova spin on 4/2, standalone Aero reports for the first time on 4/23, and we believe the beat-and-raise cycle can continue based on stronger Services growth, given the guide of mid-teens vs. peers at 20% and YTD GE/CFM departures tracking +10% vs. ~6% in the guide," she wrote. Real estate marketplace Zillow also made the cut. Shares are off nearly 19% this year. "Z's product innovations have culminated into an ecosystem of complimentary services that should enhance monetization capabilities and increase penetration of real estate transaction [total addressable market], resulting in meaningful upside to revenue over the long-term," wrote analyst John Colantuoni. "High incremental margins from a largely fixed cost base should result in even more impressive long-term EBITDA upside."