3 Mid-Cap Earnings Plays to Watch This Week

Key Points

• Since the start of the fourth quarter of 2022, the S&P 400 is up 21% versus 15% for the S&P 500.
• Last month, Wyndham management provided a bright outlook for the current year supported by resilient travel demand.
• EPS for Copa Holdings are expected to more than triple to $2.32 due to a sharp rebound in air travel demand and cargo volumes.
• Last month, Piper Sandler reiterated its Overweight rating on Shockwave Medical and gave it a $280 target.

With the U.S. economy teetering towards a recession, Wall Street’s estimates for corporate earnings have been trending lower. On the bright side, this could create more opportunities for traders to gain on positive earnings surprises.

For the mid-cap S&P 400 index, analysts are projecting 2023 aggregate EPS of around $183. As this forecast has continued to drop into the new year, the S&P 400 has rallied. This suggests that the benchmark’s 9% year-to-date advance is unjustified and mid-caps are overvalued. Maybe not.

The Street’s full year S&P 400 EPS estimate equates to a 2023 P/E ratio of less than 15x. Compare this to the 18x multiple in the large cap S&P 500 and mid-caps look mighty attractive. It’s likely a big part of why investors have favored mid-caps over large caps in recent months. Since the start of the fourth quarter of 2022, the S&P 400 is up 21% versus 15% for the S&P 500.

So in another busy week of earnings, mid-caps could continue to be the hot hand for traders and investors alike. 

While the blockbuster Kevin Durant trade stole headlines in the NBA, it was a different KD that starred in last week’s mid-cap space. IT service provider Kyndryl Holdings jumped 20% on better-than-expected quarterly results. Maximum and nVent Electric also made nice post-earnings moves.

Which mid-caps have big move potential this week? Keep an eye on these three earnings reports. 

Is Wyndham a Good Earnings Play? 

Wyndham Hotels & Resorts, Inc. NYSE: WH reports its Q4 performance before the market opens on February 16th. The world’s largest hotel franchise could get a boost from the rebound in business travel, bringing more conferences and events to popular hotel destinations. During the quarter, Wyndham expanded its ‘Meetings Collection’ to give it more than 160 places worldwide for event planners to book. 

Last month, management provided a bright outlook for the current year supported by resilient travel demand. The company plans to further expand its portfolio with a major focus on infrastructure clients. Since most of Wyndham’s business travelers are linked to infrastructure, new road, bridge and port projects tied to the government’s $1.2 trillion infrastructure bill are expected to drive growth. Meanwhile, an anticipated rise in global tourism points to healthy leisure travel demand.

When Wyndham reported Q3 results in November 2022, the stock booked an 8% weekly gain. Given the momentum in the business and a history of earnings beats, reserving shares ahead of earnings may again be a winning move. 

Will Copa Holdings Extend Its Earnings Beat Streak?

Copa Holdings SA NYSE: CPA also reports on the morning of February 16th. The Latin American airliner will bring a seven-quarter earnings beat streak into the report along with improving trends in passenger traffic. Copa Airlines recently announced that revenue passenger miles (RPM) was 6% above 2019 levels during the month of December, a positive sign for holiday travel. Along with RPM growth of 6% and 10% in November 2022 and October 2022 respectively, Copa Holdings looks poised to deliver another solid quarter.

Last quarter, EPS topped the consensus by more than 10%. Passenger revenues rose 13% year-over-year and were complemented by 80% growth in the cargo & mail business. 

For the fourth quarter, management guided to a healthy 22% operating margin that should benefit from moderating fuel costs. EPS are expected to triple to $2.32 due to a sharp rebound in air travel demand and cargo volumes. The stock price has leveled off in recent weeks, which could form the base for the next uptrend.

Will Shockwave Medical Report Another Strong Quarter?

Shockwave Medical, Inc. NASDAQ: SWAV will be the second S&P 400 medical device company to report Q4 numbers when it reports after the close on February 16th. Last week, life science specialist Bruker revealed that its Q4 earnings increased 25%, topping Street expectations. Bruker shares ran 6% over the next three days.

Unlike Bruker, which rallied ahead of its report, Shockwave Medical carries a rough three-month losing streak into its report. After climbing to a record high above $320 in October 2022, the stock is trading below $200. What makes the decline less worrisome though is that trading volume on the way down has been light. And with the volatile stock stabilizing the last few weeks, a better-than-expected report could ignite a significant rally.

A provider of cardiovascular disease products, Shockwave Medical is coming off a strong Q3 report that included a top and bottom line beat and expanding profitability. Regardless, profit-taking set in after management’s forward guidance fell short of high expectations. The market response was a bit of a head-scratcher.

Last month, Piper Sandler reiterated its Overweight rating on Shockwave Medical and gave it a $280 target. If the company can deliver the results it did last time, this stock could send shockwaves through mid-cap land.