Amid a solid earnings picture for the fourth quarter, many US-listed companies are beating their estimates. Combining the results of firms in the Morningstar US Market Index that have reported earnings with the analyst expectations for those still yet to publish, earnings are on track to grow 15.3% from the third quarter of 2024 – a sharp uptick from last quarter’s growth rate of 5.6% and the highest rate in over three years.
Quarterly Earnings Growth
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At the same time, nearly half of the US-listed stocks covered by Morningstar that reported earnings as of Feb. 20 beat FactSet consensus estimates by 5% or more. Even better for investors looking to put their money to work, analysts believe some of these stocks remain undervalued.
To highlight these opportunities, we ran a screen for undervalued stocks that crushed expectations for earnings and revenue for the quarter. More details on our screen and comments on the stocks from Morningstar analysts can be found later in this article.
5 Undervalued Earnings Crushers
- Ionis Pharmaceuticals IONS
- Scotts Miracle-Gro SMG
- GSK GSK
- Brunswick BC
- Hasbro HAS
How Do Fourth-Quarter Earnings Stack Up?
As of the time of writing, 73% of the 859 US-listed stocks covered by Morningstar analysts have reported earnings. Of those, 47% beat the FactSet mean estimates for their earnings by 5% or more—the same amount as last quarter. About 13% missed earnings estimates by 5% or more—a downtick compared to the 17% last quarter and the lowest rate in over a year. More companies also reported in line with expectations—41% versus 35% last quarter.
How We Did Our Stock Screen
While Morningstar analysts pay close attention to earnings, they focus on long-term results and valuations. One quarter doesn’t usually lead to a change in a stock’s fair value estimate unless new material information affects the assumptions behind that valuation. For example, new data on a drug could raise the probability of its approval, or pricing gains on a key product line could affect an analyst’s long-term thinking. Still, looking at quarterly earnings with valuations in mind can help long-term investors identify opportunities.
We screened for stocks that beat earnings expectations by 15% or more but remain undervalued. To help keep the focus on companies with truly strong results that did not beat expectations through accounting gimmicks or one-time factors, we also screened for revenue beats of 5% or higher. We filtered those results for stocks with economic moats, a Morningstar Rating of 4 or 5 stars, and a fair value discount of at least 15%.
Of the 629 US-listed stocks covered by Morningstar analysts that have reported earnings so far, only five companies met the criteria. We’ve highlighted what our analysts had to say about their earnings.
Ionis Pharmaceuticals
- Earnings Per Share: Loss of $0.66 versus the consensus estimate of $1.12
- Revenue: $227 million versus the consensus estimate of $135 million
- Morningstar Rating: ★★★★★
- Discount: 53%
“Ionis reported solid 2024 results highlighted by total revenue of $705 million and a portfolio that continues to make progress. Ionis is tracking our expectations, and we maintain our $69 fair value estimate. We view the shares as very undervalued, trading at an attractive entry point for long-term investors with a high degree of risk tolerance.
“In December 2024, Ionis received approval from the US Food and Drug Administration for Tryngolza. This is the first treatment approved for adults with familial chylomicronemia syndrome, or FCS, a rare genetic disorder that leads to dangerously high triglyceride levels. It has only been a couple of weeks since its launch, but the campaign seems to have good momentum, with management reporting positive feedback from patients, providers, and payers. Tryngolza’s list price is $595,000 annually for this very rare condition affecting about 3,000 patients in the US. We await sales figures in future quarters this year.”
—Rachel Elfman, equity analyst
Scotts Miracle-Gro
- Earnings Per Share: Loss of $0.89 versus the consensus estimate of $1.23
- Revenue: $417 million versus the consensus estimate of $392 million
- Morningstar Rating: ★★★★
- Discount: 37%
“Shares of Scotts Miracle-Gro were down 5% despite strong fiscal first-quarter results with positive adjusted EBITDA during the seasonally light quarter. The market reacted negatively to management maintaining guidance that assumes sales growth deceleration throughout the year.
“These short-term positive results indicate that the firm continues to recover from the post-pandemic bust that saw sales and profits sharply decline. The solid start to the year is in line with our thesis that Scotts is on track to generate a full recovery and long-term growth.”
—Seth Goldstein, strategist
GSK
- Earnings Per Share: Gain of $0.58 versus the consensus estimate of $0.49
- Revenue: $10.2 billion versus the consensus estimate of $9.5 billion
- Morningstar Rating: ★★★★★
- Discount: 36%
“Wide-moat GSK’s fourth-quarter earnings were in line with our expectations. The company also revised its expectation for risk-adjusted revenue in 2031 upward to GBP 40 billion, an increase of GBP 2 billion. Although it lowered its outlook for vaccines, including Arexvy, this was more than offset by new revenue contributions from the oncology drug Blenrep and various late-stage pipeline assets. Although this guidance is more optimistic than our own outlook, we continue to view the stock as undervalued and maintain our fair value estimates of GBX 2,200 per ordinary share and $58 per US ADR.
“Vaccine sales for the quarter declined 11% year on year at constant currency, which was in line with expectations given weak performance in Arexvy, which declined 69%. Oncology sales continued to show strong growth, increasing 72% year on year compared with the previous fourth quarter, driven by the early sales ramps of recently launched Jemperli and Ojjaara.”
—Jay Lee, senior equity analyst
Brunswick
- Earnings Per Share: Gain of $0.24 versus the consensus estimate of $0.17
- Revenue: $1.2 billion versus the consensus estimate of $1.0 billion
- Morningstar Rating: ★★★★
- Discount: 25%
“A fourth-quarter sales decline of 15% and adjusted operating margin compression of 600 basis points (to 4%) failed to excite. But Brunswick’s 2025 midpoint forecast for $5.4 billion in sales and $4.25 in EPS signal a bottom in demand nears, giving investors hope a marine turnaround is in the cards.
“The prognosis for flat unit demand at retail in 2025 implies that as the year proceeds, Brunswick is likely to see an enduring lift in shipments. In turn, this should surface in single-digit sales growth over the last three quarters of 2025, which should alleviate some cost absorption pressure.”
—Jaime Katz, senior equity analyst
Hasbro
- Earnings Per Share: Gain of $0.46 versus the consensus estimate of $0.34
- Revenue: $1.1 billion versus the consensus estimate of $1.0 billion
- Morningstar Rating: ★★★★
- Discount: 17%
“In tandem with fourth-quarter results that included a 3% pro forma sales decline and 10% adjusted operating margin, Hasbro laid out its medium-term plan, Playing to Win, which targets mid-single-digit sales growth and 50-100 basis points of operating margin expansion annually.
“At $1.1 billion, fourth-quarter sales were moderately better than our forecast, but operating margin handily outperformed, thanks to gross margin that expanded nearly 12 percentage points on product mix, less discounting, and improved supply chain efficiencies.”
—Jaime Katz
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
