Chewy, Eaton and 2 Other Stocks Set to Gain After Earnings, Says Morgan Stanley

Chewy stock might not be left out in the cold this earnings season. (Angus Mordant/Bloomberg)

Stock movements after earnings reports have been fairly hit or miss. Anyone picking stocks should find names that are particularly well-positioned to provide an encouraging report.

With 135 companies that are components of the S&P 500 having reported second-quarter earnings as of Thursday morning, the aggregate sales and earnings results have beaten analysts’ expectations by 2% and 6.4%, respectively, according to Evercore strategist Julian Emanuel.

Companies beating estimates for both the top and bottom lines have seen an average stock price movement that’s up 1.9% the trading day after earnings, and that’s especially true for companies that also reported strong guidance. That’s key. The market is “punishing any signs of softness,” Emanuel writes.

Consider Texas Instruments. It beat estimates for both top and bottom lines, and even gave higher-than-expected revenue guidance. But the stock dropped 13% after the report, and it didn’t help that the company mentioned the tariff picture could dent demand, so the market is concerned that TI’s guidance looks too optimistic.

That’s why investors picking stocks must identify names likely to demonstrate sturdy and growing businesses. Morgan Stanley strategists highlighted companies that look likely to impress the market when they report.

Some names are usual suspects such as Nvidia and Eli Lilly, both of which have a history in the past few years of beating estimates, and providing satisfactory outlooks.

Another is Chewy. Morgan Stanley analyst Nathan Feather expects the pet-supplies retailer to deliver higher-than-expected second-quarter sales and profits, which should help it lift full-year 2025 guidance.

Feather’s data indicate web traffic to Chewy’s site has been up by a mid-single-digit percentage year over year for the quarter. That could mean faster growth in active customers, as analysts only expected 3.8% growth to 20.77 million customers in the second quarter, according to FactSet. Assuming spending per customer grew close enough to expectations, sales would beat estimates for $3.08 billion.

This would help the company lift 2025 guidance, but also, the fairly disappointing full-year guidance issued in the first quarter would look too low. It encapsulated concern about broader consumer demand, as tariffs caused the business world to grimace about the economy. But so far, consumer spending has looked strong. Management looks to have been conservative in its initial guidance. Chief Financial Officer David Reader even said on the first-quarter earnings call that “we are reserving the flexibility to adjust the [guidance] range upward throughout the year.”

Larger-than-expected sales could easily translate into an earnings beat. As long as costs associated with sturdy demand don’t balloon, profit margins would beat analysts’ forecasts, pushing profit guidance higher. Feather notes that Chewy has lifted its full-year guidance for earnings before interest, tax, depreciation, and amortization, or Ebitda, in most of the quarters in its history as a public company.

That could lift shares, which are down 29% from their 2025 peak set in early June.

Eaton, the $149 billion manufacturer of power systems, could turn in a positive surprise for the second quarter. The average analyst estimate calls for operating margins in the company’s Americas Electrical segment—its largest by sales—slip to 29% from 30% in the first quarter as tariff costs bite. But Morgan Stanley analyst Chris Snyder writes that the trade-war picture, though worsening this month, has “de-escalated” since Eaton’s early May first-quarter report. That, combined with the fact that Eaton’s second-quarter margins typically increase from the first quarter, means the segment could see higher margins—and overall operating profit—versus expectations.

“We have confidence in both Eaton’s pricing power and ability to drive volumes higher,” Snyder added. So Eaton could beat sales expectations, an additional driver of a potential profit beat. The company has grown sales and beaten both revenue and earnings expectations in the vast majority of the past 20 quarters, according to FactSet.

A beat could lift Eaton stock, too. Yes, it trades at 29.7 times expected earnings for the coming 12 months, above the S&P 500’s 22.5 times, but it’s still below the year peak of 30 times. And a higher-than-expected earnings number would lower the current multiple, suggesting that growing and larger-than-anticipated profits can easily pump shares upward.

Take a chance on these stocks.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com