These companies in the S&P 500 are winning this earnings season using 4 critical measures

What does it mean for a company to have a good earnings report?

It’s more than a headline saying it “beat” its earnings estimate. After all, a company’s quarterly earnings may come in higher than analysts expect, even if it posts a net loss.

A deeper look at sales growth, profit margins and how analysts react after the earnings report may be of more value to investors, especially at a time when the stock market is hypersensitive to any sign of a slowdown for a company’s business.

Below is a screen showing 29 U.S. companies that appear to be doing many things right, with improving sales, gross margins and operating margins.

An earnings-season screen of winners

The following screen is based on sales growth and profit-margin improvement, rather than net profit, because one-time events (such as Amazon.com Inc.’s
AMZN
$11.8 billion unrealized gain on its investment in Rivian automotive Inc.
RIVN
) can have a dramatic temporary effect on the bottom line.

  • Through Feb. 4, 310 companies among the S&P 500
    SPX
    had reported results for quarters ended Oct. 29 or later.

  • Among those 310 companies, 29 met the following criteria:

  • Quarterly sales were higher than the year-earlier quarter.

  • Gross and operating margins for the quarter were improved from a year earlier. These measures aren’t used for most financial-services companies, so most were excluded from the screen. For some of the other companies, FactSet cannot calculate gross or operating margins (or both) without the set of GAAP data available later, when the 10-Q reports come out (generally within 45 days of the end of the reported fiscal quarter).

  • Consensus sales estimates for calendar 2022 have increased at least 2% from where they were Dec. 31. We have used calendar years for a uniform set of estimates, even though many companies have fiscal years that don’t match the calendar.

A company’s gross margin is its revenue minus the cost of goods or services sold. It reflects a company’s pricing power and its direct production costs, including labor and materials. A company’s gross margin might narrow as it builds market share by increasing discounts to customers or if it attempts to avoid price increases. It is a good sign if the gross margin is expanding as sales increase.

A company’s operating margin goes further, subtracting more overhead and other expenses that aren’t directly related to the production of goods and services sold. It is, essentially, earnings before interest, taxes, depreciation and amortization (EBITDA) divided by sales.

Here are the 29 companies that have met the four criteria so far this earnings season. They are assessed in two tables, sorted in order of quarterly sales increases from a year earlier. The first table includes the screening data, and the second table is a summary of opinions among analysts polled by FactSet:

Company

Ticker

Increase in quarterly sales

Gross margin

Gross margin – year-earlier quarter

Operating margin

Operating margin – year-earlier quarter

Increase in cons. sales estimate since Dec. 31

ConocoPhillips

 
COP
174.8%

34.11%

-13.36%

41.90%

25.63%

10.0%

Delta Air Lines Inc.

 
DAL
138.4%

11.27%

-36.35%

7.93%

-31.39%

3.2%

Alaska Air Group Inc.

 
ALK
135.0%

15.01%

-40.84%

7.11%

-42.70%

4.3%

Valero Energy Corp.

 
VLO
 

116.2%

5.29%

-1.26%

6.11%

0.84%

9.1%

Phillips 66

 
PSX
 

97.7%

4.17%

1.66%

4.12%

0.72%

13.9%

Nucor Corp.

 
NUE
 

97.0%

33.99%

13.67%

31.48%

14.48%

4.4%

Marathon Petroleum Corp.

MPC
 

96.9%

6.42%

-1.08%

6.87%

-0.33%

29.0%

Hess Corp.

 
HES
85.0%

33.84%

3.31%

47.79%

38.88%

3.5%

Advanced Micro Devices Inc.

 
AMD
 

48.8%

50.27%

44.73%

27.89%

21.12%

11.2%

KLA Corp.

 
KLAC
42.4%

60.86%

58.71%

44.70%

39.95%

4.7%

Dow Inc.

DOW
 

34.2%

17.18%

13.76%

17.14%

14.10%

4.3%

Catalent Inc.

 
CTLT
 

33.6%

33.28%

32.74%

23.25%

22.36%

2.0%

Old Dominion Freight Line Inc.

 
ODFL
 

31.4%

32.47%

29.98%

31.15%

30.22%

3.3%

Qualcomm Inc.

 
QCOM
 

30.0%

59.80%

57.63%

39.89%

35.09%

6.1%

Microchip Technology Inc.

 
MCHP
30.0%

53.35%

45.43%

46.39%

39.70%

2.4%

J.B. Hunt Transport Services Inc.

 
JBHT
 

27.7%

11.44%

10.18%

13.26%

12.94%

4.9%

Ralph Lauren Corp. Class A

 
RL
26.7%

62.82%

60.36%

18.95%

16.61%

3.4%

Xilinx Inc.

 
XLNX
 

25.8%

71.56%

67.73%

35.44%

27.43%

3.5%

United Rentals Inc.

 
URI
21.8%

38.47%

33.96%

46.04%

43.70%

2.5%

Packaging Corp. of America

 
PKG
19.2%

24.96%

19.44%

23.26%

17.66%

3.3%

D.R. Horton Inc.

 
DHI
18.9%

30.45%

26.98%

21.47%

17.74%

4.8%

Seagate Technology Holdings PLC

 
STX
18.8%

30.52%

26.27%

22.08%

16.85%

2.2%

Texas Instruments Inc.

 
TXN
18.5%

69.33%

63.76%

57.33%

50.44%

6.4%

W.W. Grainger Inc.

 
GWW
14.2%

37.30%

34.92%

13.84%

11.25%

2.2%

Charles Schwab Corp.

 
SCHW
 

13.2%

87.92%

86.94%

50.37%

43.00%

4.6%

Apple Inc.

 
AAPL
 

11.1%

43.76%

40.05%

35.65%

32.77%

3.0%

Crown Castle International Corp

 
CCI
10.8%

43.53%

38.51%

57.38%

52.65%

3.7%

Juniper Networks Inc.

 
JNPR
6.3%

59.27%

58.65%

17.12%

16.82%

3.1%

Cboe Global Markets Inc.

 
CBOE
 

2.6%

40.22%

31.58%

30.74%

24.18%

3.7%

Source: FactSet

You can click on the tickers for more about each company.

You should also read Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

The top of the list is dominated by companies grossly affected by the pandemic — oil producers and refiners as well as airlines. Semiconductor manufacturers, another category on the list, may be in a golden age for their products, given supply shortages and with demand for all sorts of circuit boards, graphics processors and computer chips increasing regardless of the pandemic.

Apple Inc.
AAPL
is one of the slower sales growers on the list, but investors were very impressed with its results, pushing its stock up 8% since the close before it reported on Jan. 27.

Read: Apple just reported its best performance of the past five years by three key measures

Leaving the list in the same order, here’s a summary of analysts’ opinions:

Company

Ticker

Share “buy” ratings

Share neutral ratings

Share “sell” ratings

Closing price – Feb. 4

Cons. price target

Implied 12-month upside potential

ConocoPhillips

 
COP
 

86%

14%

0%

$91.87

$101.75

11%

Delta Air Lines Inc.

 
DAL
 

79%

21%

0%

$39.85

$51.85

30%

Alaska Air Group Inc.

 
ALK
 

93%

7%

0%

$53.49

$74.71

40%

Valero Energy Corp.

 
VLO
81%

14%

5%

$86.70

$94.12

9%

Phillips 66

 
PSX
 

79%

21%

0%

$88.84

$99.31

12%

Nucor Corp.

 
NUE
27%

66%

7%

$111.26

$112.78

1%

Marathon Petroleum Corp.

 
MPC
79%

21%

0%

$78.19

$85.41

9%

Hess Corp.

 
HES
 

63%

37%

0%

$95.63

$110.58

16%

Advanced Micro Devices Inc.

 
AMD
 

59%

39%

2%

$123.60

$155.90

26%

KLA Corp.

 
KLAC
 

67%

33%

0%

$377.38

$457.62

21%

Dow Inc.

 
DOW
 

36%

56%

8%

$60.60

$67.10

11%

Catalent Inc.

 
CTLT
93%

7%

0%

$102.65

$148.00

44%

Old Dominion Freight Line Inc.

 
ODFL
20%

70%

10%

$309.58

$344.88

11%

Qualcomm Inc.

 
QCOM
 

68%

32%

0%

$179.47

$223.91

25%

Microchip Technology Inc.

 
MCHP
 

70%

30%

0%

$73.18

$96.54

32%

J.B. Hunt Transport Services Inc.

 
JBHT
 

50%

42%

8%

$189.60

$215.33

14%

Ralph Lauren Corp. Class A

 
RL
53%

43%

4%

$118.63

$143.63

21%

Xilinx Inc.

 
XLNX
 

6%

94%

0%

$209.02

$189.23

-9%

United Rentals Inc.

 
URI
 

55%

40%

5%

$312.29

$417.07

34%

Packaging Corp. of America

 
PKG
31%

62%

8%

$146.67

$149.11

2%

D.R. Horton Inc.

 
DHI
77%

23%

0%

$84.02

$119.83

43%

Seagate Technology Holdings PLC

 
STX
41%

56%

4%

$108.72

$112.95

4%

Texas Instruments Inc.

 
TXN
 

43%

44%

13%

$171.42

$200.46

17%

W.W. Grainger Inc.

GWW 28%

55%

17%

$487.68

$537.54

10%

Charles Schwab Corp.

 
SCHW
 

65%

30%

5%

$91.90

$104.86

14%

Apple Inc.

 
AAPL
 

77%

21%

2%

$172.39

$190.26

10%

Crown Castle International Corp

 
CCI
52%

43%

5%

$180.30

$199.83

11%

Juniper Networks Inc.

 
JNPR
35%

45%

20%

$35.13

$35.12

0%

Cboe Global Markets Inc.

 
CBOE
 

53%

27%

20%

$120.25

$137.67

14%

Source: FactSet

Don’t miss: Russian stocks have 35% upside when the Ukraine crisis ‘de-escalates.’ These 2 ETFs give you a way to play

Also: Investors love to boast about their great stock picks, but beware of those who use fancy math to calculate their gains

https://www.marketwatch.com/story/only-29-stocks-hit-all-4-of-these-key-metrics-so-far-this-earnings-season-11644242721

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