As another earnings season picks up, Bank of America says investors may find upside opportunities in certain underowned stocks that could beat expectations. Several U.S. banks are releasing their first-quarter earnings on Friday, offering the first peek at performance since a series of bank failures in March. JPMorgan Chase , Wells Fargo , Citigroup , as well as regional name PNC Financial , are posting their quarterly results before the bell. The SPDR S & P Regional Banking ETF has tumbled 27.1% so far this year. Meanwhile, Refinitiv anticipates S & P 500 earnings to fall 5.2% year over year. With these conditions in mind, Bank of America named some underowned companies whose first-quarter earnings could give investors a positive surprise. The bank screened for S & P 500 stocks with a buy rating and higher per-share earnings estimates than the consensus — expressed by the z-score between the two values. Bank of America’s estimates for Marathon Petroleum are 0.3 standard deviations above the consensus value. The energy company’s shares have gained 11.6% so far in 2023. Shares could have an additional 17.6% upside from Wednesday’s closing price, according to a Refinitiv analyst survey. Marathon Petroleum is underweight by active funds, with a relative weight value of 0.2. Drug developer Merck could also outperform in its next earnings announcement, according to Bank of America. The stock is considered a defensive name with promising dividend growth, currently yielding 2.7%. On Thursday, Merck was upgraded by Citi, which said its drug pipeline was underappreciated by the market. More than 70% of analysts covering Merck are bullish on the stock, according to Refinitiv data. Shares are trading about 3.9% below its 12-month consensus price target of $118.96. Medical device maker Resmed also made the list, with a z-score of 0.8 and relative weight value of 0.1. The company’s stock has risen 8.8% in 2023, largely in-line with the S & P 500’s 7.9% increase. Refinitiv analysts estimate shares rallying an additional 13% in the next 12 months. Everest Re Group has a calculated z-score of 1.3, meaning that Bank of America’s estimates on the insurance company’s first-quarter earnings per share is 1.3 standard deviations higher than Wall Street’s estimates. The stock’s relative weight in fund holdings versus the broad market index is 0.1. Everest Re Group is scheduled to post its quarterly results on May 1. Shares are up 9.4% year to date. Another insurance company featured on the list is Arch Capital Group. Bank of America’s analysts covering the stock anticipate its first-quarter earnings per share to top the average Wall Street estimates by 1.2 standard deviations. The Bermuda-based insurance group’s relative weight in active fund holdings, versus the S & P 500, is 0.6. Shares have rallied 11.4% year to date and have further 9.5% upside, according to Refinitiv. —CNBC’s Michael Bloom contributed to this report.
