EU and US could reach trade deal this weekend - Reuters
On Friday, Goldman Sachs outlined a potentially lucrative investment strategy for the current earnings season, citing three main reasons. Analysts at the firm believe that call buying could yield unusually high profits due to a combination of factors including the ongoing pressure from put-buying, heightened nervousness ahead of earnings reports, and considerable upside to their analysts' price targets.
The analysts noted that despite the equity rally on Wednesday, put-buying in single stocks remains at extreme levels, a condition that often precedes relief rallies. Additionally, the implied moves for earnings days are at their highest since October 2008, indicating that investors are unusually anxious about upcoming earnings announcements. Furthermore, the average upside to Goldman Sachs analysts' price targets is at its second-highest level in 12 years, which historically aligns with significant earnings-season upside asymmetry.
Goldman Sachs has collaborated with its equity analysts over the past fortnight to single out 25 particularly out-of-consensus opportunities within its Americas coverage. The analysts anticipate that upward earnings revisions could propel stock prices for 16 companies, including Brookfield Asset Management (NYSE:BAM), Baxter International Inc. (NYSE:BAX), Altria Group Inc. (NYSE:MO), Twilio Inc. (NYSE:TWLO), and Woodward , Inc. (NASDAQ:WWD). According to InvestingPro data, Twilio currently trades at $85.73, showing a 40% gain over the past year despite recent volatility. The company's next earnings report is scheduled for May 13, with analysts maintaining a moderate buy consensus. Conversely, they forecast that downward earnings revisions could negatively impact stocks such as American Airlines Group Inc. (NASDAQ:AAL), Super Micro Computer, Inc. (NASDAQ:SMCI), and The Western Union Company (NYSE:WU). For Twilio specifically, InvestingPro analysis reveals strong financial health metrics, with a current ratio of 4.2 and more cash than debt on its balance sheet. While the company appears slightly undervalued based on InvestingPro's Fair Value analysis, investors should note that 11 analysts have recently revised their earnings expectations downward for the upcoming period. InvestingPro subscribers have access to over 10 additional key insights and a comprehensive Pro Research Report for TWLO, along with 1,400+ other stocks.
The report also highlights the role of individual investors, who have been net buyers of stocks and ETFs throughout the year, including the past week. Goldman Sachs posits that individual investors' decisions to buy equities are more influenced by their employment status than by their views on the equity market. The firm suggests that if trade policy uncertainty diminishes, a broader spectrum of investors might engage in equity buying. Conversely, if trade policy uncertainty escalates, the analysts expect that job losses would take time to unfold, potentially leading to a delayed reaction of individual investor selling. This delay, coupled with the current high level of fear reflected in derivative markets indicators such as the VIX, put-call skew, and implied moves, presents a window of several weeks when relief rallies could be more probable than rapid market declines.
Goldman Sachs concludes by stating that they will closely monitor for any signs of job losses, which could serve as an early warning for a shift in individual investor sentiment and selling behavior. For investors seeking deeper insights into companies like Twilio, InvestingPro offers comprehensive financial analysis, including metrics such as the company's impressive 51% gross profit margin and significant revenue growth of 31% CAGR over the past five years.
In other recent news, Twilio reported a notable 11% year-over-year increase in Q4 2024 revenue, reaching $1.19 billion, with communications revenue rising by 12% to $1.12 billion. The company achieved its first quarter of GAAP operating profitability, surpassing initial targets. Additionally, Twilio has partnered with Cedar to enhance healthcare billing communications using AI, aiming to streamline patient interactions and improve billing processes. Analyst firms have shown optimism about Twilio's growth prospects. Tigress Financial Partners raised their price target to $170, citing Twilio's AI-driven growth and innovative strategies. Piper Sandler maintained an Overweight rating, increasing their price target to $161, highlighting Twilio's unique CXaaS platform and potential for cross-selling. Morgan Stanley (NYSE:MS) also upgraded Twilio to Overweight, raising their target to $160, citing improvements in go-to-market strategies and AI developments. These recent developments reflect strong confidence in Twilio's strategic direction and financial outlook.
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