Amid a strong earnings picture for the second quarter, many US-listed companies are beating 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 9.8% from the first quarter—the highest growth rate since the fourth quarter of 2021 and more than double last quarter’s growth rate of 4.7%.

At the same time, nearly half of the US-listed stocks covered by Morningstar that reported earnings as of Aug. 12 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

How do second-quarter earnings stack up?

As of the time of writing, 81% of the 881 US-listed stocks covered by Morningstar analysts have reported earnings. Of those, 49% beat the FactSet mean estimates for their earnings by 5% or more—a downtick compared with the 54% that beat their mean estimates by the same amount last quarter. About 15% missed earnings estimates by 5% or more—the same amount as last quarter.

Quarterly results

Fewer companies beat estimates by 10% or more—33%, versus 37% in the first quarter. About 16% surpassed expectations by 5%-10%, a slight decrease from the 17% in the first 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 10% or more but remain undervalued. To help keep the focus on companies 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 25%.

Of the 881 US-listed stocks covered by Morningstar analysts, only five companies met the criteria. We’ve highlighted what our analysts had to say below.

5 undervalued shares

Ionis Pharmaceuticals

  • Earnings per share: Loss of $0.45 versus the consensus estimate of $0.93
  • Revenue: $225.0 million versus the consensus estimate of $156.1 million
  • Morningstar Rating: 4 stars
  • Discount: 33%

“Narrow-moat Ionis reported second-quarter results that put the firm on track to meet our expectations for the year, and we’re raising our fair value estimate to $69 from $62 after incorporating the recent positive phase 2 data in neurodevelopmental disorder Angelman syndrome. We expect Ionis to see a more than $500 million net loss in 2024, as investments in clinical development and supporting new drug launches outweigh royalties from partner Biogen on SMA drug Spinraza as well as collaboration and milestone revenues. We think this positions Ionis well to meet the current guidance of more than $1.7 billion in cash remaining at the end of the year. We expect Ionis to turn to a profit in 2027 as several drugs should be well into their launches by this time, including polyneuropathy drug Wainua (now launching in the US with partner AstraZeneca), hereditary angioedema drug donidalorsen (to launch in 2025), and rare lipid disorder drug olezarsen (to launch in December and potentially add a broader hypertriglyceridemia indication in 2026).

“We think Angelman syndrome drug ION582 had impressive mid-stage data last month, and we’re encouraged by plans to move the drug forward into phase 3 early next year. This would be the leading wholly owned program in the Ionis neurology portfolio, with more than 100,000 patients in major markets affected by this disease. ION 582 saw positive phase 2 data, with improvements in communication, cognition, and motor function. We think sales could reach $1 billion at peak. Ionis has several additional neurology programs accumulating in the pipeline, including Alexander disease drug zilganersen (phase 3 data expected in 2025) and ALS drug ulefnersen (phase 3 data expected in 2026).”

—Karen Anderson, equity strategist

Sony

  • Earnings per share: Gain of $1.29 versus the consensus estimate of $1.07
  • Revenue: $20.5 billion versus the consensus estimate of $17.6 billion
  • Morningstar Rating: 5 stars
  • Discount: 31%

“Wide-moat Sony’s operating income for the June quarter was JPY 279 billion, up 10.3% from the previous year. This was slightly below our forecast of JPY 295 billion. Still, the shortfall was mainly due to the pictures segment, which is difficult to forecast on a quarterly basis due to its volatility, and other segments were mostly in line with our expectations. The company protected its profitability by tightly managing its inventory and benefiting from the growth in high-end products while demand for smartphones and TVs remained sluggish. We believe this resilience of Sony’s electronics business is a testament to the company’s strong management.

“Although the strengthening Japanese yen is likely to remain a risk factor for Sony, the sensitivity to operating income is not as great as in the past because Sony’s manufacturing facilities, except for image sensors and some digital cameras, are outsourced and well-diversified overseas. In addition, more than half of Sony’s operating income comes from its content-based businesses, such as games, streaming music, and movies, which are relatively insensitive to economic fluctuations. Sony’s share price has fallen about 20% in the past month, which we believe underestimates the company’s resilience to changes in the business environment.”

—Kazunori Ito, director of equity research

Roblox

  • Earnings per share: Loss of $0.32 versus the consensus estimate of $0.39
  • Revenue: $955.2 billion versus the consensus estimate of $897.1 billion
  • Morningstar Rating: 4 stars
  • Discount: 30%

“Narrow-moat Roblox delivered consistent results, as bookings grew 22% year over year, exceeding the high point of management’s guidance. Management said that changes made to the Roblox platform in the first quarter were positively received by users, driving a reacceleration in player engagement and the growth of daily active users. While we don’t believe Roblox will be able to increase the player base and usage at low 20% rates in the long term, usage metrics and profitability improvements this quarter have been a step in the right direction. We are increasing our fair value estimate to $53 from $50 given a slightly better outlook on growth in total bookings and the number of daily active users.

“Global daily active user, or DAU, growth accelerated to 21%, from 17.5% last quarter, reaching just shy of 80 million during the quarter. Improvements to creator monetization and content promotion have increased the variety of content reaching the top of the Roblox marketplace, broadening the platform’s appeal for new and current users. The return of platform-wide events and better content curation led to hours of engagement growing by 24%. Average hours per DAU were up 2.5% and increased in all major markets. Management believes these improvements will be mostly durable through the end of the year, which we think will strengthen the platform’s network effect.”

—Matthew Dolgin, senior equity analyst

Bristol-Myers Squibb

  • Earnings per share: Gain of $2.07 versus the consensus estimate of $1.62
  • Revenue: $12.2 billion versus the consensus estimate of $11.5 billion
  • Morningstar Rating: 4 stars
  • Discount: 26%

“Total sales increased operationally by 11%, but we expect this rate will move toward mid-single-digit declines annually over the next three years as generic pressure increases. While pressures are mounting against Bristol, several recently launched drugs are showing increasing strength, including immunology drug Zeposia, cancer drug Breyanzi, and rare disease drug Camzyos.

“Bristol faces several near-term catalysts that should remind the market of the firm’s ability to mitigate the heavy generic pressures. We expect subcutaneous approval of Opdivo in December, which should offer patients more convenient dosing and importantly extend patent protection out into the early 2030s. If Bristol is successful with its plan to convert at least 30%-40% of patients to subcutaneous Opdivo, there would be an upside to our fair value. Additionally, we are expecting a September approval for schizophrenia drug KarXT, which should develop into a major blockbuster based on excellent efficacy and a favorable side effect profile. Also, phase 2 data with Opdualag in lung cancer should be reported later in the year, and Bristol is already planning a phase 3 lung cancer study, signaling strong confidence.”

—Damien Conover, equity strategist

GSK

  • Earnings per share: Gain of $1.11 versus the consensus estimate of $0.98
  • Revenue: $10.1 billion versus the consensus estimate of $9.6 billion
  • Morningstar Rating: 4 stars
  • Discount: 25%

“Despite vaccine challenges, GSK reported second-quarter results slightly ahead of our expectations but not enough to impact our fair value estimate. We continue to view the stock as undervalued, with the market not fully appreciating GSK’s growth potential and overly concerned about Zantac litigation that looks manageable.

“However, headwinds to vaccine sales will likely weigh on shares in the near term. Shingles vaccine Shingrix declined 36% in the US, partly due to pharmacy reimbursement changes and inventory destocking, but as market saturation reached 37%, we believe Shingrix faces flatter US growth prospects. Also, the recently updated RSV vaccine guidance from the Advisory Committee on Immunization Practices will likely reduce uptake of GSK’s RSV vaccine Arexvy in the 60- to 74-year-old patient group, which seems to have partly led GSK to reduce its full-year total vaccine sales guidance by close to 5%. We expect longer-term Arexvy data will support increased utilization in this age group. Internationally, sales of Shingrix and Arexvy look poised for growth due to later launches outside of the US.”

—Damien Conover

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.