In July 2022, U.S. stocks posted their best month this calendar year. While the S&P 500’s 9.1% ascent had much to do with hopes for a less aggressive Fed rate hike campaign, there was another big factor—earnings season is off to a good start!

And with plenty more earnings reports to come, optimism around an extended summer rally is building. According to Factset, approximately three out of four S&P 500 companies have exceeded consensus earnings per share (EPS) estimates despite worries of weaker demand and cost inflation.

There is, however, another side to the story. Many companies are issuing negative earnings guidance for the current quarter. This has Wall Street analysts lowering Q3 estimates across most economic sectors.

So with the market still jittery about what lies ahead, we’ve learned that beating last quarter’s expectations isn’t always enough. Investors want to be reassured that the outlook for the coming months is just as rosy.

These three upcoming earnings announcers have the potential to surprise in both categories.

Will Caterpillar Extend Its Earnings Beat Streak? 

Caterpillar Inc. (NYSE: CAT) reports before the open on August 2nd. The street is expecting Q2 EPS of $3.01, which represents 16% year-over-year growth. The world’s top construction equipment manufacturer is bringing an eight-quarter earnings beat streak into the result that includes last quarter’s 11% beat.

The Dow Jones 30 component is benefiting from a surge in its Resources Industries business, which is its smallest segment but one that is growing the fastest. Last quarter, sales jumped 30% due to strong demand from mining customers that appear to be full steam ahead with commodity prices trending higher. 

Aside from the momentum in Resources Industries, Caterpillar looks poised for another solid performance because the rest of the business is experiencing double digit growth. The construction, energy, and transportation sectors have also ramped their spending as part of their ongoing economic recoveries.

Management’s disciplined cost practices are another reason to expect good numbers. Despite increases in labor, freight, and input costs, Caterpillar’s operating margin is near the high end of its historic range.

Has Lumen Technologies Reached an Inflection Point?

Lumen Technologies, Inc. (NYSE: LUMN) announces its second-quarter results after the close on August 3rd. The telecom service provider is expected to earn $0.46 per share on revenue of $4.6 billion. In eight of the last nine quarters, Lumen Technologies has surpassed analyst estimates with one of its biggest beats coming last quarter. 

The upside surprises, however, have not been driven by strong top line growth. In fact, the company is on pace to record lower revenues for the fourth consecutive year. In a rapidly evolving economy, it has been slow to introduce technologically advanced products and digitize the business. Instead, a significant reduction in operating expenses has helped Lumen Technologies actually grow their EPS in each of the last three years.

Meanwhile, a transformation is underway as the company looks to play catch up by investing in its Quantum Fiber business and penetrating the Enterprise market. Emerging growth markets like 5G networking, big data analytics, cybersecurity, Internet of Things (IoT), and artificial intelligence (AI) represent tremendous growth opportunities that could drive improved sales.

Lumen Technologies stock has been in a steady downtrend since last summer but has perked up in recent weeks. After management raised its 2022 EBITDA guidance from $6.6 billion to $7.0 billion, the market is wondering if a sustainable turnaround is underway. 

Will Marathon Oil Corporation Beat Q2 Estimates?

If the recent results from other oil and gas producers are any indication, Marathon Oil Corporation (NYSE: MRO) is in for a blowout quarter when it reports after the closing bell August 3rd. Among the S&P 500 energy sector companies that have reported Q2 results, the year-over-year earnings growth rate is 290%. By comparison, earnings growth for the broader market is only 6%.

Based on Wall Street’s projection for 600% Q2 EPS growth, Marathon is set to make the sector’s astounding growth rate go even higher. Of course, gushing crude oil prices is the main accelerant here. WTI crude re-approached the $120 level during the period, undoubtedly resulting in some lofty average realized selling prices and huge profit margins for oil producers and service providers alike.

In addition to the sector-wide tailwind, Marathon has the wind at its back heading into Wednesday’s report because it has topped EPS estimates in six straight quarters coming out of the pandemic down cycle. Higher natural gas and natural gas liquids (NGL) prices along with reduced exploration costs have helped the recovery—and are likely to be factors again in Q2 and beyond.

Marathon Oil shares have come down from their May 2022 record peak above $30 but have good momentum heading into this week’s announcement. As we’ve seen from Hess Corporation and other oil peers, a positive report and outlook could re-energize the stock.