Oppenheimer Sees Upside Surprise This Earnings Season

In a recent report, Oppenheimer analysts detailed their predictions for 4Q14 earnings season. The report was generally bullish, as analysts see lots of room for upside surprise. EPS estimate cuts Over the past three months, consensus earnings growth estimates have been cut to rates lower than even the weak 1Q14 quarter that was impacted by bad weather. Analysts believe that fears over the weak performance of the energy sector dragging down the rest of the market are overdone. Expectations for this earnings season are so low that they predict an average earnings beat of two to four percent. Health care leads the way Analysts anticipate that health care and info tech will lead earnings growth in 4Q14. They expect double-digit profit growth in both sectors this earnings season. Energy lags Energy and materials are the only two sectors that analysts predict will see negative earnings growth for the quarter. Not surprisingly, analysts predict the energy sector will be hit hardest, suffering an estimated 18 percent decline in earnings. Expanding margins Oppenheimer analysts are cautiously optimistic on the prospect for margin expansion for 4Q14. While they agree with the consensus that margin expansion could continue through 2016, they caution that the consensus expectations for the extent of the expansion could be too optimistic. Trading ideas Oppenheimer analysts believe that specialty retail, health care providers and services, and semis and semiconductor equipment are three sectors that are in position to deliver strong earnings this quarter. Their top stock picks going into this earnings season are Lowe's Companies Inc LOW, Carmax Inc KMX, UnitedHealth Group Inc UNH, Quest Diagnostics Inc DGX, Avago Technologies Ltd AVGO, Altera Corp ALTR and Broadcom Corp BRCM.