As earnings season progresses, the repercussions for companies that fail to meet expectations are becoming increasingly severe. CNBC Pro has pinpointed certain stocks that investors should approach with caution due to significant reductions in earnings estimates prior to their reports. Despite a majority of S & P 500-listed companies exceeding Wall Street’s expectations, it is crucial for investors to remain vigilant as rising interest rates impact corporate profits and consumer behavior.
Identification of Risky Stocks
More than 60% of S & P 500-listed companies have already disclosed their financial results, with over three-quarters surpassing analyst estimates. To eliminate potential risks, CNBC Pro conducted a search for companies reporting the following week that experienced substantial decreases in the average analyst earnings estimate over the last three months. The analysis also considered changes to estimates over a six-month period, as well as fluctuations in the average price target over the past three months.
One of the stocks raising concerns is NRG Energy, which has witnessed a 50% decrease in average earnings per share estimates by analysts compared to three months ago. Despite a strong performance, NRG has only marginally surpassed the average price target set by analysts, casting doubt on its future potential. The absence of a new chief executive further adds to the uncertainty surrounding the Texas-based company.
Match Group is another company facing challenges, with a more than 16% decline in average analyst earnings per share estimates over the past three months. The parent company of Tinder and Hinge has experienced a significant drop in its stock value in 2024, leading to a decrease of nearly 18% in the average analyst price target over the last six months. Despite the decline, analysts maintain a buy rating for Match Group.
For investors, it is essential to remain cautious when dealing with stocks that have experienced a sharp decline in earnings estimates. Factors such as changes in leadership, industry trends, and market conditions can significantly impact a company’s performance during earnings season. By conducting thorough research and closely monitoring financial data, investors can make informed decisions to mitigate risks and maximize returns.
As earnings season progresses, investors must exercise caution when considering stocks with downward revisions in earnings estimates. Companies like NRG Energy and Match Group serve as examples of the potential risks associated with failing to meet analyst expectations. By staying informed and remaining vigilant, investors can navigate through earnings season with greater confidence and avoid potential losses in their portfolios.