Wall Street was up in arms yesterday after Morgan Stanley released their FY 2023 earnings expectations. They weren’t good.

Most analysts agree about the coming recession so few companies are projected to grow their sales and earnings in 2023.

There are, of course, exceptions as the economy does keep moving forward even during a recession. The Zacks Rank and some clever filtering can help identify stocks that may still perform well in 2023.

American Airlines

After getting obliterated in response to the world altering Covid-19 pandemic, American Airlines appears to finally be in a position to make a recovery. AAL is a Zacks Rank #1 (Strong Buy) stock, and one of few companies with positive sales growth expectations for 2023. Analysts have next year’s sales projected to be +5.8% while earnings are expected to be up over 1000%.

Also encouraging are consensus earnings estimates, which have been revised higher by 20% over the last 90 days. American Airlines stock price has started the year on a tear, positive 6 of the last 7 days rallying an impressive 19% YTD.

FY 2022 estimates are extremely promising as well. Sales growth for the company is FY2022 is expected to be +63%, and earnings projected at +98%. This is an extremely welcome improvement to AAL’s financials as the stock price is still 50% off it’s pre-Covid price of $31. Additionally the stock traded in a range of $12-$16 for most of the second half of 2022 and looks to be breaking out on these improving estimates.

Harley Davidson 

Another Zacks Rank #1 (Strong Buy) stock is Harley Davidson. HOG is among the rare list of companies with positive sales and earnings growth expectations for 2023. Next year sales are estimated at +2.7%, and earnings +1.1%. FY 2022 sales were projected to grow 7.5% pushing earnings estimates up to 12.7%.

Harley Davidson has a P/E ratio of 9x, below the industry average of 18x, and inline with its historical median of 10.5x. HOG also raised their dividend 3.8% this year, and 36% last year showing management’s willingness to return cash to shareholders. The dividend now stands at $0.62 per share or 1.43% yield.

Arista Networks 

Arista Networks is a cloud networks computing company providing applications to a range of industries. ANET sports a Zacks Rank #1 (Strong Buy) due to its strong upward earnings revisions.

Arista Networks’ 2023 sales are forecasted to climb +22% to lift, earnings by +19%. Arista Networks has had FY23 consensus earnings revised up 15% over the last 90 days. You are going to have to pay a premium for that growth though as ANET trades at a TTM P/E of 33x. This is well above the industry average of 19x, but below its 5yr median of 38x.

Such a rich valuation is often the case for companies with strong growth prospects. Cloud services is one of the fastest growing industries in the world, with the industry expected to grow a whopping 20.7% this year from $490 billion to $591 billion. This leaves ANET is very well positioned to benefit from this global trend.

Conclusion

Wall Street has low expectations for 2023, but that doesn't mean every stock will shrink its revenue and earnings. Even in down years there will be places to hide. The Zacks Rank, and its use of earnings revisions is one very effective way to find these stocks. 

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