Wolfe Research warns that several large stocks may face earnings disappointments amid a volatile macroeconomic backdrop. The firm notes that earnings quality scores, which consider seven financial ratios, sentiment and valuation, range from 0 to 100. Companies valued at $4 billion or more that rank in the lowest 20% of their sector for earnings quality were flagged. Additional red flags include chief financial officer departures, recent M&A activity, reliance on non‑GAAP earnings, and possible undisclosed SEC investigations tied to B7A exemptions. Yum Brands, with an EQ score of 10, was highlighted due to M&A moves and a recent CFO change, amid the fallout from a cyclospora outbreak linked to shredded lettuce at Taco Bell. Yum’s Q2 results were mixed; sales fell in July but have begun to recover as consumers recognize the issue is industry‑wide. Nike, scoring 17, also faces low‑quality earnings, highlighted by a CFO change and a downgrade by JPMorgan to underweight. Analyst Matthew Boss says Nike’s “Win Now” turnaround plan will affect results through 2026‑2028, and the reduction of its U.S. store footprint by roughly 10% will continue to impact earnings until fully annualized around mid‑2027. Chewy, with an EQ score of 2, was noted for M&A activity, a CFO change and a wide gap between GAAP and non‑GAAP earnings, where non‑GAAP EPS has been about 146% higher than GAAP over the past year. Chewy is set to report its Q2 results on September 9, while expanding beyond retail by acquiring veterinary‑clinic operator Modern Animal, expected to contribute earnings in the first year post‑closing. Wolfe’s list also includes Amazon and Meta Platforms, each with an EQ score of 5.
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