GARP Lens

Archives


Categories


Recent Comments


Blogroll


B400 Companies Trounce Those in S&P500 in 2Q Earnings and Revenue Growth

John A. PrestboJohn A. Prestbo

Companies in the Barron’s 400 Index grew more in profits and revenue than those in the S&P 500, and by a slightly wider margin than in the first period of this year. This tardy report (my computer went blooey and I had to get a new one) isn’t surprising, given the performance of Barron’s 400 companies in previous quarters. It reinforces the fact that financially strong companies have more mojo than those that are less so.

Here is the second-quarter “box score,” which shows stunning year-over-year gains:

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%

Note that companies in both indexes comfortably surpassed securities analysts’ forecasts, even though estimates were frequently adjusted in recognition of the quarter’s favorable business climate:

Median Estimates Over Past Six Months
2Q Earnings Revenue
Barron’s 400 7.04% 0.30%
S&P 500 4.46% -0.98%

Although the Barron’s 400 trounced the S&P 500 in overall growth, its per-share earnings advance was second-best in the consumer staples and the tiny telecommunications sectors:

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%

In revenue growth, however, the Barron’s 400 topped the S&P 500 across all sectors:

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%

In terms of stock size, as measured by market capitalization, the Barron’s 400 outgrew the S&P 500 in both mega caps and large caps—the only two size segments they share.

Median Reported EPS Vs. Median Reported Revenue Vs.
Mega Cap (>$10 billion) Estimate 1Q 2017 Estimate 1Q 2017
 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

All size segments—except micro caps—showed companies’ ability to convert revenue gains into even larger per-share earnings increases. The micros had a great advance in revenue but continued to have difficulty in converting sales gains to profit increases. These companies added workers to handle the upturn in sales, but the high overhead squashed profitability growth to near zero.

The economy is still growing strongly as the third quarter begins. It isn’t a stretch to believe Barron’s 400 companies will excel in this environment.

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.

Comments 0
There are currently no comments.