The second-quarter 2023 earnings season is in full swing. Next week will be the first big one for this season with 987 companies slated to report their financial numbers. Market participants will try to analyze this reporting cycle against the backdrop of the Fed’s interest rate hike policies.

Therefore, this season, management guidance and the near-term business outlook will get more importance than the actual results. In addition to earnings and revenues, margins will get more attention from financial researchers.

Meanwhile, we have selected five S&P 500 stocks with a favorable Zacks Rank that are poised to beat second quarter earnings estimates next week. The combination of a possible earnings beat and a favorable Zacks Rank should drive their stocks in the near future.

S&P 500 in Q2 at a Glance

The market’s benchmark was impressive in the second quarter of 2023. After advancing 8.3% in the first quarter, the S&P 500 Index rallied 7% in the April-June period. In the first half of 2023, the broad-market index jumped 15.9%, marking its best first-half performance since 2019. In the second quarter, the S&P 500 exited the bear market territory and formed a new bull market.

The Fed’s decision to reduce the magnitude of interest rate hike following a steady decline of inflation rate resulted in a sharp rally in growth sectors like technology, communication services, and consumer discretionary.

Q2 Earnings Results at Initial Stage

As of Jul 19, 50 S&P 500 companies reported earnings results. Total earnings of these companies are up 4.4% year-over-year on 8.6% higher revenues. Of these 30 companies, 82% surpassed EPS estimates while 66% outpaced revenue estimates.

At present, our estimate has shown that the total earnings of the S&P 500 Index will likely drop 9.3% year-over-year on 0.5% lower revenues. The second-quarter earnings decline would follow the 3.4% decline in the first quarter and a 5.4% drop in fourth-quarter 2022.

Our Top Picks

We have narrowed our search to five S&P 500 companies that are set to declare second-quarter earnings results next week. Each of our picks sports a Zacks Rank #1 (Strong Buy) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after their earnings releases. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Cadence Design Systems Inc. CDNS offers products and tools that help customers design electronic products. Through the System Design Enablement strategy, CDNS offers software, hardware, services and reusable IC design blocks to electronic systems and semiconductor customers.

Cadence Design has an Earnings ESP of +0.67%. It has an expected earnings growth rate of 17.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 90 days.

CDNS recorded earnings surprises in the last four reported quarters, with an average beat of 7.3%. The company is set to release earnings results on Jul 24, after the closing bell.

PulteGroup Inc. PHM has been benefiting from robust land acquisition and operational strategic initiatives. PHM expects the land acquisition and development investment in 2023 to range from $3.5-$4 billion, up from the previously considered value of $3.3 billion.

This is attributed to strong buyer demand and an increase in its construction activities. Earnings estimates for 2023 have increased to $2.43 per share from $2.41 in the past 30 days, reflecting analysts’ optimism over PHM’s prospect.

PulteGroup has an Earnings ESP of +1.17%. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last seven days. PHM recorded earnings surprises in three out of the last four reported quarters, with an average beat of 15.6%. The company is set to release earnings results on Jul 25, before the opening bell.

Ford Motor Co. F is likely to benefit from a strong vehicle mix supported by F-series trucks and SUV models, combined with a robust electric vehicle lineup. We expect Ford’s global wholesale shipments from the Ford Blue unit to increase roughly 4% in 2023.

Ford’s ambitious rejig plan to split its EV business into a separate unit within the company will unlock growth opportunities. Ford’s target of producing over 2 million EVs by 2026-end (representing a 49% CAGR over 2023-2026) augurs well.

Ford has an Earnings ESP of +3.73%. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the last 30 days. Ford recorded earnings surprises in two out of the last four reported quarters, with an average beat of 24.4%. The company is set to release earnings results on Jul 27, after the closing bell.

PACCAR Inc. PCAR is one of the leading names in the trucking business with reputed brands like Kenworth, Peterbilt and DAF. The new DAF lineup comprising XF, XG and XD models augurs well.

Accelerated efforts toward electrification, connected vehicle services, advanced driver-assistance system options are set to bolster PCAR’s prospects. High truck utilization and increased average fleet age are positively impacting PCAR’s Parts segment.

PACCAR has an Earnings ESP of +1.32%. It has an expected earnings growth rate of 36.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days.

PCAR recorded earnings surprises in the last four reported quarters, with an average beat of 16.6%. The company is set to release earnings results on Jul 25, before the opening bell.

Tyler Technologies Inc. TYL is benefiting from higher recurring revenues, post-acquisition contributions of NIC and a constant rebound of market and sales activities at pre-COVID levels. The public sector’s ongoing transition from on-premise and outdated systems to scalable cloud-based systems is a positive.

The growing hybrid working trend is also driving demand for TYL’s connectivity and cloud services. Our estimates suggest a CAGR of 7.7% for Tyler’s top line from 2023 to 2025. A strong liquidity position is helping it pursue acquisitions. Key acquisitions are expected to drive growth.

Tyler Technologies has an Earnings ESP of +0.54%. It has an expected earnings growth rate of 1.1% for the current year. The Zacks Consensus Estimate for current-year earnings has remained the same in the last 90 days.

TYL recorded earnings surprises in three out of the last four reported quarters, with an average beat of 2.8%. The company is set to release earnings results on Jul 26, after the closing bell.

Ford Motor Company (F): Free Stock Analysis Report

PACCAR Inc. (PCAR): Free Stock Analysis Report

PulteGroup, Inc. (PHM): Free Stock Analysis Report

Cadence Design Systems, Inc. (CDNS): Free Stock Analysis Report

Tyler Technologies, Inc. (TYL): Free Stock Analysis Report

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