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B400 Companies Swamp Those of S&P 500 in 1Q EPS, Revenue Growth

John A. PrestboJohn A. Prestbo

Some market analysts believe this year’s first quarter marked the high point in stock-market gains powered by an upsurge in corporate earnings. They cite developing global trade wars among the possible reasons why they make this prediction. Maybe so, but it’s tough to argue against the growth momentum exhibited by Barron’s 400 Index companies in the first period of 2018.

The Barron’s 400 handily surpassed securities analysts’ forecasts (by an average of more than four percentage points) to rack up year-over-year increases in per-share earnings of 30% and in revenue of 14.5%. These results swamped those of Standard & Poor’s 500 Index companies, as this table shows:

Median Reported EPS Vs. Median Reported Revenue Vs.
Estimate 1Q 2017 Estimate 1Q 2017
Barron’s 400 5.75% 30.00% 2.36% 14.46%
S&P 500 4.95% 22.03% 1.91% 8.54%

It wasn’t that securities analysts didn’t try to keep up with the rapidly improving outlooks for Barron’s 400 companies. They raised their estimates steadily. But they kept their adjustments in check for the S&P 500 during the six months prior to these companies posting their results.

Median Estimates Over Previous Six Months
Previous Six Months
EPS Revenue
Barron’s 400 7.04% 0.30%
S&P 500 4.46% -0.98%

For the most part, the Barron’s 400 companies superior growth performance carried over to the sector level. There were some exceptions, however. For example, in year-over-year per-share earnings growth the S&P 500 prevailed in consumer staples, energy and telecommunications. In these cases, particularly energy, feeble or subdued year-earlier growth—which made for more favorable comparisons—was the primary factor in the S&P 500’s outperformance. In none of these three sectors were the Barron’s 400 results weak in this year’s first quarter; they simply were lower than the S&P 500’s.

As for revenue growth, the Barron’s 400 dominated across the board—even in the rebounding energy sector with a margin of 12 percentage points. Other sectors in which the Barron’s 400 significantly surpassed the S&P 500 in revenue increases were health care and technology.

Barron’s 400 S&P 500
Median Reported EPS Vs. Median Reported EPS Vs.
Med. Estimate Med. 1Q 2017 Med. Estimate Med. 1Q 2017
Consumer Discretionary 6.65% 24.43% 4.41% 17.07%
Consumer Staples 1.37% 7.22% 4.05% 10.82%
Energy 6.70% 55.87% 6.80% 74.77%
Financials 3.35% 28.21% 4.31% 27.01%
Health Care 4.29% 25.23% 5.28% 17.19%
Industrials 8.99% 29.37% 5.64% 21.95%
Materials 6.33% 31.58% 4.41% 26.61%
Technology 7.60% 40.52% 4.93% 26.19%
Telecommunications 7.21% 10.33% 5.18% 14.86%
Utilities 7.91% 14.19% 5.04% 10.86%

 

Barron’s 400 S&P 500
Median Reported Revenue Vs. Median Reported Revenue Vs.
Med. Estimate Med. 1Q 2017 Med. Estimate Med. 1Q 2017
Consumer Discretionary 1.65% 9.97% 1.64% 6.74%
Consumer Staples -0.21% 7.95% 0.51% 5.53%
Energy 2.33% 31.37% 0.77% 19.19%
Financials 8.22% 13.05% 3.72% 8.38%
Health Care 0.70% 16.47% 1.46% 9.87%
Industrials 1.78% 14.92% 2.16% 8.06%
Materials 0.58% 13.41% 2.48% 9.98%
Technology 2.10% 16.73% 1.78% 10.80%
Telecommunications 1.21% 7.66% -0.44% 6.57%
Utilities 2.29% 7.40% 2.28% 4.70%

Stock-size comparisons also favored the Barron’s 400 to substantial degrees for both per-share earnings and revenue growth in mega- and large-capitalization segments—the only two that the indexes have in common. On top of those fat margins the Barron’s 400 added important gains in the mid-cap and small-cap segments. The only fly in this sumptuous ointment was the micro-cap segment, where securities analysts were seriously overoptimistic about earnings growth. Given a nearly 16% increase in year-over-year revenue, however, the problem for companies this size obviously is too-high costs and additionally the lack of pricing power for their products and services.

Median Reported EPS Vs. Median Reported Revenue Vs.
Median Estimate Median 1Q 2017 Median Estimate Median 1Q 2017
Estimate 2017 Estimate 2017
Mega Cap
(>$10 billion)
 Barron’s 400 5.63% 31.64% 1.68% 12.11%
S&P 500 5.03% 22.70% 1.81% 8.97%
Large Cap
($3 bln-$10 bln)
Barron’s 400 6.65% 30.58% 2.46% 15.57%
S&P 500 3.60% 13.58% 2.61% 6.60%
Mid Cap
($1 bln-$3 bln)
Barron’s 400 4.90% 25.71% 2.33% 15.11%
S&P 500 N/A N/A N/A N/A
Small Cap
($500m-$1 bln)
Barron’s 400 15.38% 46.81% 5.71% 20.57%
S&P 500 N/A N/A N/A N/A
Micro Cap
(< $500 mln)
Barron’s 400 -21.12% 0.25% 6.47% 15.83%
S&P 500 N/A N/A N/A N/A

Whether these growth numbers shrink in future quarters remains to be seen, of course. The U.S. economy is still strong and the Barron’s 400 companies have shown repeatedly that they can use those conditions to produce consistent, superior growth. Anticipating otherwise doesn’t seem at this point to be a good bet.

John Prestbo, senior advisor to MarketGrader Capital, was formerly editor and executive director of Dow Jones Indexes. He was also chairman of the Dow Jones Index Oversight Committee. During his time at Dow Jones Indexes he worked, along with Barron's and MarketGrader, on the development of the Barron's 400 Index. Prior to that, Mr. Prestbo worked as an editor and writer for The Wall Street Journal in various capacities, including page-one editor, commodity news editor and markets editor. Mr. Prestbo has co-authored or edited several books over the past 30 years. The most recent was "The Market's Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average," published by Dow Jones Indexes in 1999 and "Barron's Guide to Making Investment Decisions" which he helped to compile and edit in 2006. Mr. Prestbo won the University of Missouri Award for Distinguished Business Writing in 1967 and the George M. Loeb Achievement Award for Business Writing in 1968. In 2007, he won the William F. Sharpe Indexing Lifetime Achievement Award. That same year, he was honored for his leadership by Dow Jones Indexes during its celebration of 10 years as a separate business unit.

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