Bank of America Pinpoints Promising Stocks Ahead of Key Earnings Reports
Bank of America has identified several compelling investment opportunities just before companies release their latest earnings reports. The Wall Street giant believes a selection of stocks are poised for significant appreciation, highlighting their potential for investors. CNBC Pro has analyzed Bank of America’s research, unearthing five buy-recommended stocks that the bank considers must-haves for investors looking to capitalize on upcoming financial announcements. These stocks include DraftKings, Duolingo, Fox Corp., Yum China, and Bilibili. Each company presents a unique investment narrative, fueled by various factors ranging from robust advertising demand and aggressive market expansion to strong user growth and promising game releases.
Key Takeaways: Stocks Poised for Growth
- Fox Corp.: Poised for growth driven by robust political coverage and strong Super Bowl advertising demand.
- Duolingo: Maintains a positive outlook despite high expectations, driven by category leadership and strong user growth.
- Yum China: Navigating a challenging macroeconomic climate effectively through strategic promotions, expansion, and cost controls.
- Bilibili: Projects a strong beat in Q3 results with a positive Q4 outlook, fueled by successful game launches.
- DraftKings: Expected to reiterate its FY25 EBITDA guidance, showcasing positive underlying fundamentals and growth.
Fox Corp.: Riding the Wave of Political Coverage and Super Bowl Hype
Analyst Jessica Reif Ehrlich at Bank of America sees several positive catalysts for Fox Corp., primarily driven by the upcoming election season. **”Fox’s portfolio of sports and news has positioned the company well to weather the accelerating secular headwinds in the linear ecosystem relative to peers,”** she stated. This highlights the company’s strategic advantage in a changing media landscape. The robust growth in news and sports programming is positioning it to outperform the broader linear ecosystem, allowing them to better absorb the negative trends in the market. Beyond the election cycle, another significant catalyst is Fox’s broadcasting rights for the 2025 Super Bowl. **”Looking ahead to F3Q, indications are that Super Bowl demand is extremely strong and [advertising] inventory is almost sold out,”** Ehrlich noted, underscoring impressive advertising revenue potential. With shares already up over 41% year-to-date, Bank of America maintains a bullish outlook. **”We believe Fox is well-positioned in FY25 and should benefit from: an improving advertising backdrop and a healthy balance sheet,”** Ehrlich concluded, painting a picture of sustained future growth.
Duolingo: Continued Growth in the Language Learning Market
Despite a 29% year-to-date increase, Bank of America analyst Curtis Nagle believes Duolingo has significant further upside. While acknowledging elevated expectations that could introduce short-term volatility, Nagle remains optimistic. **”3Q setting up for another strong beat,”** he wrote, highlighting the company’s projected strong performance. Nagle emphasized the numerous strengths driving this positive outlook: **”category leadership, differentiated (gamified) offering, strong execution and sticky and rapidly growing user base.”** He further emphasized, **”With that said, Duolingo is one of the highest growth companies within Internet and we remain positive on the opportunity for continued earnings upside,”** thus conveying the long-term potential for the stock.
Yum China: Navigating Economic Challenges with Strategic Initiatives
Yum China, a prominent player in the Chinese restaurant market, faces its own set of challenges. Analyst Chen Luo highlighted that the company’s internal measures strategically position it to withstand a potentially turbulent macroeconomic environment in China. Yum China’s success is driven by a multi-pronged approach: **”a healthy dose of promotions in addition to store expansion, buybacks and cost controls.”** This proactive strategy signifies management’s commitment to navigating economic uncertainty while achieving growth. Luo acknowledged the intense competition but noted that the company is actively addressing it via aggressive measures. **”However, we observe that McDonald’s expansion in Shanghai (YUMC’s headquarters) might be behind the schedule in 2024, due to KFC’s aggressive expansion and fierce local competition in Shanghai,”** he added. Despite this competitive landscape, Bank of America still foresees significant opportunities for growth. The overall outlook is positive, and the analyst reiterated their confidence in Yum China’s approach: **”Our channel checks with industry consultants and market researchers reaffirm our view that YUMC’s self-help could help to better weather the storm with margin and [same-store sales growth] inflections.”**
Competitive Landscape and Strategic Advantages
While acknowledging the challenging economic landscape and fierce competition in the Chinese quick service restaurant sector, Yum China’s ability to use promotions to stimulate business alongside store expansion and cost controls positions it favorably. The company’s aggressive expansion in Shanghai suggests the confidence in its capacity to compete with market leaders such as McDonald’s.
Bilibili: Strong Growth Fueled by Successful Game Launches
For Bilibili, Bank of America anticipates a strong performance in Q3, projecting a potential positive outcome, even with impending announcements in mid-November. The analysts’ positive outlook, particularly regarding the promising game launches this quarter contributes to their bullish perspective. **”We expect Bilibili to report 3Q results in mid-Nov. and see a likely beat in results with a positive 4Q outlook,”** states the report. The success and growth in the gaming sector strongly supports this projected success. **”We see on-track key business trends, given 1) better game business growth amid the strong performance of new game – Sanmou… We see a better monetization outlook amid macro recovery and resumption of game approval licensing,”** providing further details on the driving force behind the positive forecast.
DraftKings: Maintaining a Positive Outlook with Strong Growth Projections
DraftKings is anticipated to report strong Q3 earnings on November 7th, with analysts expecting positive and stable performance. Bank of America’s bullish stance relies on their belief in a positive underlying operating environment and sustained and strong revenue projections. Bank of America projects **DraftKings to reiterate their FY25 EBITDA guide of $900M-1B and guide to mid-20%s revenue growth.** It’s important to reiterate the importance of positive fundamentals including strong revenue growth and operating profitability. According to the report, **”We rate DKNG a Buy given positive underlying fundamentals, above market revenue growth profile and inflection to positive Adj. EBITDA.”** This summary statement exemplifies investor confidence in the company’s sustained growth and strong prospects for profitability.
Conclusion: Navigating the Earnings Season with Informed Decisions
Bank of America’s analysis provides valuable insights for investors navigating the upcoming earnings season. The highlighted stocks, each with its unique drivers of growth and potential challenges, offer a diversified approach to investing in a complex global market and provide guidance for investors interested in exploring high-growth sectors and companies. It strongly emphasizes the importance of due diligence and careful consideration of individual risk tolerance alongside individual company-specific attributes before making any investment decisions. The information provided here serves as a starting point for further analysis and research in the context of a broader investment strategy rather than specific financial advice.
