Some companies reporting earnings next week could be major disappointments, according to Wolfe Research. About 90 S & P 500 companies, including eight Dow Jones Industrial Average members, are slated to post their latest quarterly figures. Headliners include four stocks out of the “Magnificent Seven” — including Meta Platforms — alongside others such as Intel , Boeing , Caterpillar and Starbucks . To be sure, some of those companies reporting could see major earnings blow-ups — making them potential short targets. Wolfe Research identified stocks that are in the bottom 20% in terms of earnings quality relative to their sector. The gauge accounts for different valuation and sentiment metrics and is scored on a zero-to-100 scale, the firm said. In other words, a low earnings quality score signals the potential for major disappointment and a steep post-earnings decline. The table below shows several potential underperformers that are slated to report earnings next week, according to Wolfe: One name on the list was Southwest Airlines , due to report earnings Jan. 30. The airline carrier has an earnings quality score of 16 and has added 7% in the last 12 months, lagging the S & P 500 in that time. Bank of America downgraded the stock to underperform from neutral. Analyst Andrew Didora said that shares were trading at the high end of their historical valuation ranges. “We downgrade the shares to Underperform from Neutral, as this valuation level does not adequately account for the industry changes that have occurred post-pandemic (shift to more premium, corporate, and international) and the cost/capex risk associated with LUV’s business model changes such as assigned and premium seating,” he wrote. Electric vehicle maker Tesla is another stock to avoid in terms of earnings quality, with a score of 19. The Magnificent Seven titan will report results on Jan. 29. Earlier this month, Bank of America downgraded the EV maker to neutral from buy. However, analyst John Murphy raised his price target on the stock to $490 from $400, corresponding to a potential upside of nearly 16%. “While this still implies upside, execution risk is high and TSLA is trading at a level that captures much of our base case LT potential from core autos, robotaxi, Optimus, and energy generation & storage,” he wrote. Tesla stock has surged 102% in the last 12 months. Other potential underperformers on Wolfe’s list that report earnings next week included Western Digital and AbbVie .
