Sometimes the Street focuses far too much on the trees and far too little on the forest.
For example, in 2022, investors and analysts fixated on Netflix’s (NASDAQ:NFLX) membership loss. They ignored the company’s dominance of the streaming space. Additionally, they overlooked its ability to increase its profits going forward by introducing ads. As a result, NFLX’s bottom line last year beat many analysts’ initial average 2023 expectations by a wide margin.
Similarly, in 2019, the Street viewed General Electric only through the lens of its sizable debt load. Consequently, it failed to realize that the firm had multiple, valuable, growing businesses. The GE stock was dramatically undervalued, and the debt load was high but not overwhelming. As a result, analysts were far too pessimistic about the company and its long-term earnings outlook.
Now, let’s discuss three other stocks that may indeed crush earnings estimates.
BlackBerry (BB)
BlackBerry’s (NYSE:BB) new CEO John Giamatteo has shown a propensity for providing very conservative guidance. For example, in December, the firm provided Q4 revenue guidance of $150 million to $159 million. Then its Q4 top line wound up coming in at $173 million.
Therefore, the company’s Q1 guidance for a loss per share, excluding certain items, of 4 cents to 6 cents, versus its Q1 adjusted EPS of 3 cents, will probably wind up being way too low. And since the Street’s average estimate currently calls for a loss per share of 4 cents, I think that BB will be able to blow by that number.
Also, making me optimistic about the company’s ability to beat earnings estimates is the fact that its Internet of Things (IoT) unit is thriving. Specifically, the business’s top line jumped 25% last quarter versus the same period a year earlier to $66 million. And, the “royalty backlog” of the unit’s QNX operating system climbed 27% year-over-year (YOY) to an impressive record of about $815 million.
American Superconductor (AMSC)
American Superconductor (NASDAQ:AMSC) is well-positioned to benefit from two important developments this year.
First, its largest wind-energy customer, Inox Wind in February announced that it had obtained what it said was “by far the single largest wind project order” for a wind energy company in India’s history. Under the deal, the firm will provide a huge 1.5 gigawatts of wind turbines to a utility in India, CESC.
Since AMSC provides components for Inox’s 3.3 megawatt turbines, it should benefit meaningfully from Inox’s deal.
Secondly, as I pointed out in a previous article, “AMSC has many customers that operate semiconductor plants, and the number of such factories is surging.” Additionally, AMSC’s offerings “regulate the flow of electricity,” while chip companies are utilizing large amounts of electricity to facilitate AI.
Therefore, it may soon become clear that the Street’s average estimate of 8.5% earnings growth for AMSC in 2025 is far too low.
IBM (IBM)
Investment bank Evercore recently added IBM (NYSE:IBM) to its “Tactical Outperform” list. The tech giant is slated to report its Q1 financial results on April 24. Evercore expects IBM’s Q1 earnings to come in ahead of Wall Street expectations.
Evercore anticipates that the company’s consulting business will continue to grow. Also, it predicts that Big Blue will start getting significant benefits from its AI offerings this year. Finally, the bank expects the firm to get a lift from price increases on its software. And, it predicts that IBM will reiterate its guidance for $12 billion of free cash flow this year.
Notably, Bank of America recently named IBM as one of 32 firms poised to benefit from “breakthroughs.” The bank likely believes that the firm is well-positioned to get a big boost from its AI offering. That technology is already being utilized by many large clients after being unveiled last year.
On the date of publication, Larry Ramer held long positions in BB and AMSC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
