Earnings Surprises: 3 Stocks That Outperformed Analyst Expectations

Stocks to buy

Earnings for the fourth and final quarter of 2023 continue to roll in. And, as is often the case, the results are a mixed bag.

While many companies, such as Tesla (NASDAQ:TSLA), are posting big misses, other companies are surprising to the upside, sending their share prices higher as a result. In recent days, several notable companies have announced much stronger-than-expected financial results. This causes investors to take notice and sends analysts scrambling to revise their stock ratings and price targets. According to FactSet, with only 10% of S&P 500 companies having reported their Q4 2023 results so far, 62% have announced profit and sales surprises.

More can be expected in the coming weeks. Let’s explore three such surprising stocks that are worthy of a double-take.

IBM (IBM)

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Shares of IBM (NYSE:IBM) are up 11%. It had its biggest one-day rise in years, after the technology giant posted fourth-quarter financial results that topped Wall Street estimates.

IBM announced earnings per share (EPS) of $3.87 versus the analyst-expected $3.78. Revenue totaled $17.38 billion versus $17.30 billion that had been forecast. Sales rose 4% from a year ago, and free cash flow for all of 2023 totaled $11.20 billion. In fact, management had guided toward $10.50 billion.

Additionally, IBM’s Q4 gross margin of 59.1% was the highest since 1999. The company said that its software revenue came in at $7.51 billion during Q4, up 3% from a year earlier. Consulting revenue grew 6% year over year (YOY) to $5.05 billion. Plus, IBM said its AI-related business was double the size it was in Q3 of last year. Looking ahead, IBM expects $12 billion in 2024 free cash flow and revenue growth in the mid-single digits. Also, IBM stock is now up 38% over the last 12 months.

American Airlines (AAL)

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Another nice earnings surprise came from American Airlines (NASDAQ:AAL). Its stock is up 8% after the company announced better-than-expected Q4 earnings and gave a bullish outlook for the year ahead.

The airline posted Q4 2023 EPS of 29 cents on revenue of $13.10 billion. Wall Street had expected a profit of 11 cents on sales of $13 billion. Load factor, a key measure of an airline’s passenger carrying capacity is utilized, was at 83.6% in Q4, besting forecasts of 82.9%.

In terms of guidance, AAL said it expects to report earnings of $2.25 to $3.25 a share for all of 2024. Analysts surveyed by FactSet had been calling for full-year earnings of $2.14 per share. American Airlines said that it is benefiting from continued strength in air travel coming out of the pandemic, including record bookings over the recent year-end holiday season. AAL stock is down 7% over the last 12 months. But now, it shows signs of a turnaround after the strong Q4 print.

ServiceNow (NOW)

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The stock of ServiceNow (NYSE:NOW) was doing well heading into earnings, and the company’s Q4 print did not disappoint. ServiceNow reported better-than-expected results fueled by rising demand for AI products.

The software company, which specializes in workflow-management, reported EPS of $3.11. That number topped analyst expectations of $2.78. Quarterly revenue was $2.437 billion, up 26% YOY and above Wall Street forecasts of $2.402 billion.

The company said that its latest earnings were given a big boost by the rollout of new AI software. ServiceNow said that it has launched 15 generative AI software products for its clients to use. As for guidance, ServiceNow expects subscription revenue ranging from $2.510 billion to $2.515 billion in the current first quarter of 2024. That is well ahead of the $2.461 billion expected by analysts. For all of this year, the company forecasts subscription revenues of $10.555 billion to $10.575 billion, up 22% YOY.

NOW stock has gained 72% in the last 12 months and is up 305% over five years.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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