Earnings season plays: Profit expectations are growing for these stocks while their valuations get cheaper
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- HSBC ran a screen identifying 24 stocks where earnings estimates were revised higher while valuations looked discounted and share prices dropped, per Nicole Inui, the bank's head of Americas equity strategy.
- Netflix forward EPS estimates climbed 12% over the past three months while shares fell 21%, leaving the stock down nearly 42% over the past year amid underwhelming April guidance, the collapsed Warner Bros. Discovery bid, and Reed Hastings' departure from the board chairmanship.
- T-Mobile saw forward EPS estimates rise nearly 9% in three months as its stock dropped almost 12%, following Q1 results that included 217,000 postpaid net account additions and a $151.93 average revenue per account, up nearly 4% year-over-year.
- Consensus expects S&P 500 EPS to rise 22% year-over-year in Q2 — the strongest growth since the post-pandemic period — with energy (+122%) and information technology (+61%) leading sector gains, per FactSet data cited by HSBC.
- The Mag 7 (Amazon, Alphabet, Microsoft, Tesla, Nvidia, Meta, Apple) are expected to deliver roughly 30% earnings growth and 34% EBIT expansion, continuing to anchor the AI-spending narrative.
- Outside energy, semiconductors, and tech hardware, broader earnings growth is forecast at just 5%, well below Q1's roughly 24%, suggesting limited upside beyond the AI and commodity trade.
Why it matters: The disconnect between rising analyst estimates and falling share prices means investors are paying less for every dollar of expected Q2 earnings growth — Netflix down 42% despite 12% estimate upgrades, T-Mobile down 12% with 9% estimate gains. If Q2 prints validate the higher estimates, the names on HSBC's 24-stock screen carry the most direct upside; if estimates get cut, the same falling knives could cut deeper.
