With the second-quarter earnings season in full swing this week, many investors are looking for companies that can beat posted Wall Street expectations. The market has rallied big off the March lows, and also for now appears to be range-bound, so finding stock ideas with the potential to come in above estimates is very timely.

In a new research report, Jefferies analysts highlight 10 companies they think have a solid chance of posting second-quarter results that exceed current consensus estimates. They also name three companies they think could fall short, which could be considered short-sale candidates for more aggressive investors.

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The report noted this:

We highlight thirteen stocks where Jefferies US analyst team has a view that is wide of consensus. With representation from 12 publishing analysts, we highlight 10 names with potential upside around the second quarter earnings season and 3 names with potential downside. Based on channel checks, takeaways from expert calls and conversations with industry contacts, our analysis suggests the upcoming earnings report may be a potential catalyst for outsized share movement.

Here we focused on the five stocks for which the Jefferies numbers were the highest compared with the consensus forecasts.

Amazon

This is the absolute leader in online shopping and is a Jefferies top stock pick. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers. It has one of the most valuable brands in the world.

The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.

The analysts noted this:

We expect earnings per share of $1.81, which compares to consensus at $1.51. Based on several proprietary data points and conversations with industry contacts, we anticipate a better second quarter with supportive commentary around third quarter and beyond. While we are ~11% above the second quarter consensus operating income, we are still 27% below the high end of guidance despite Amazons historical track-record of beats as we recognize greater uncertainty on costs due to the pandemic.

Jefferies has a massive $3,800 price objective for the technology giant. The consensus figure across Wall Street is $3012.76. Wednesday’s last Amazon.com stock trade came in at $3,0233.53.

Digital Realty Trust

This top data center stock is a solid play on the huge cloud and streaming content revolution, and many on Wall Street are bullish on the industry. Digital Realty Trust Inc. (NYSE: DLR) supports the data center and colocation strategies of more than 600 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia.

Digital Realty’s clients include domestic and international companies of all sizes, ranging from financial services and cloud and information technology services to manufacturing, energy, gaming, life sciences and consumer products. The company rates highest with portfolio managers, as 8.39% of the market cap of the company is in institutional hands.

Here is what Jefferies said regarding the upcoming earnings:

We expect funds from operations per share of $1.52 which compares to consensus of $1.47. Our initial Q2 datacenter leasing data suggests volume ahead of impressive first levels and rivals record second quarter 2018 levels. Leasing was heavily concentrated in Northern Virginia, which could indicate that a few large hyper-scale leases drove demand and may have been isolated to one or two Washington DC REITs. With the largest market share in Northern Virginia, by far, Digital Realty is best positioned.

Holders of Digital Realty Trust stock receive a respectable 2.85% distribution. The Jefferies price objective of $186 compares to a $150.55 consensus figure and Wednesday’s closing price of $157.20.

This top business services company is one that Jefferies expects to report very solid earnings. FleetCor Technologies Inc. (NYSE: FLT) provides fuel cards, commercial payment and data solutions, stored value solutions and workforce payment products and services. The company sells a range of customized fleet and lodging payment programs and offers card products to purchase fuel, lodging, food, toll, transportation and related products and services at participating locations.
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The company also offers telematics solutions that allow fleet operators to monitor the capacity utilization and movement of vehicles and drivers, vehicle maintenance services, prepaid fuel and food vouchers and cards, and workforce payment product related to public transportation and toll vouchers.

The report said:

While our $2.17 is just a tad ahead of consensus, we see a relatively clean set-up into the second quarter with improving top-line trends throughout the quarter, coupled with the stock’s notable lag since reporting first quarter (Fleetcor ~flat vs. SPX +11%).

The $300 Jefferies price target is higher than the $289.21 consensus target. FleetCor stock closed most recently at $264.76.

Procter & Gamble

The company offers a very dependable dividend, which was raised to $0.79 from $0.75 this spring. Procter & Gamble Co. (NYSE: PG) is one of the world’s largest consumer products companies, and it operates in five segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby & Family Care. Its many brands include Pampers, Tide, Bounty, Charmin, Gillette, Oral B, Crest, Olay, Pantene, Head & Shoulders, Ariel, Gain, Always, Tampax, Downy and Dawn. Some of these are among the most valuable brands in the world.

Procter & Gamble sells its products through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores, high-frequency stores and pharmacies. The company has been very innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends.

The analysts noted this about the consumer products giant:

We expect earnings per share of $1.04, which compares to consensus at $1.01. The key metric however for this June fiscal fourth quarter print is organic sales growth (OSG) where we see potential upside to our estimates for 4% OSG vs.~2% consensus/-2% to 2% guide. We expect continued strength in the flagship US market (+8%) on strong demand and retailer inventory replenishment, a strong rebound in China (+7%), favorable commodities, and productivity.

Shareholders receive a 2.47% dividend. Jefferies has set its price objective at $148. The consensus figure is $130.69, and Procter & Gamble stock closed at $128.31 on Wednesday.

Vertex Pharmaceuticals

This is an aggressive biotech idea for investors. Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) engages in discovering, developing, manufacturing and commercializing small molecule drugs for patients with serious diseases in specialty markets. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and hepatitis C.

The company markets Trikafta, Symdeko/Symkevi, Orkambi and Kalydeco to treat patients with CF who have specific mutations in their CF transmembrane conductance regulator gene. It is also developing VX-814, which is in Phase 2 clinical trial, and VX-864, which is in Phase 1 clinical trial for the treatment of alpha-1 antitrypsin deficiency; VX-147 for treating kidney diseases; and CTX001, which is in Phase 1/2 clinical trial for the treatment of beta-thalassemia and sickle cell diseases.

The analysts noted this:

We expect earnings-per-share of $2.23 which compares to consensus of $2.09. We believe Vertex will beat numbers on a continued strong CF launch and likely raise guidance due to conservative level set at first quarter and the recent EU pricing agreements, which now include England, and should have some modest contribution in the fourth quarter. The company should be least affected by COVID-19 (may not mean zero impact to sales) since its oral drugs are processed through traditional specialty pharmacies and do not require hospital visits.

The $340 price target at Jefferies is well above the $295.91 consensus target. Vertex Pharmaceuticals stock was last seen trading at $278.72.

And the Rest

The other five companies that the Jefferies analysts feel also can deliver results that are higher than the consensus: Fortune Brands Home and Security Inc. (NYSE: FBHS), On Semiconductor Corp. (NASDAQ: ON), Plains All-American Pipeline L.P. (NYSE: PAA), Ring Central Inc. (NYSE: RNG) and TE Connectivity Ltd. (NASDAQ: TEL).

The three potential short-sale ideas, which are those companies the analysts expect to miss consensus estimates, are Anthem Inc. (NYSE: ANTM), Parker-Hannifin Inc. (NYSE: PH) and Welltower Inc. (NYSE: WELL).

These are 13 total stocks that Jefferies feels could either beat expectations or fall short. Given the volatility that is creeping back into the market, these may be good trading and long term ideas, especially for investors with a short-term trading posture and a longer-term horizon.

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