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B400 Hits 4Q EPS, Revenue Growth Out of the Park

John A. PrestboJohn A. Prestbo

The recommended treatment for investors’ periodic panic attacks over economic growth—in the United States, certainly, and also worldwide—is perusal of the financially strong, growth-oriented companies whose stocks make up the Barron’s 400 Index. Moreover, grumbling that the fourth quarter of 2018 didn’t turn out as robust as initially thought was no impediment to the stellar earnings and revenue results these companies have reported.

Barron’s 400 companies grew per-share earnings and revenue more than twice as much as S&P 500 companies, which we, like much of the investing world, use in this report as an indicator of all publicly held corporations in the country.

Median 4Q 2018 Actual vs. Median 4Q 2017 Actual
EPS Revenue
Barron’s 400 31.33% 10.53%
S&P 500 14.29% 3.83%

These results blew past security analysts’ estimates, too. Barron’s 400 companies surpassed per-share earnings forecast by 6.4%, compared to 2.7% for the S&P 500. Revenue “surprises” were a different story. Barron’s 400 companies inched beyond expectations by 0.9%. But S&P 500 companies registered a thumping year-over-year increase of 3.8%. That was largely the result of big revenue gains for energy firms, as is shown in a subsequent table.

To put those numbers in perspective, we look at how analysts’ estimates changed over the six months preceding announcement of actual results. For per-share earnings, the median forecast of Barron’s 400 growth rose by 12.5% while that of the S&P 500 was trimmed by 0.7%. For revenue, the median Barron’s 400 prediction increased by 2.2% while that of the S&P 500 rose just 0.8%.

Median Estimates Over Past Six Months
EPS Revenue
Barron’s 400 12.50% 2.17%
S&P 500 -0.74% 0.77%

It isn’t surprising, therefore, that sector EPS growth tilted heavily in favor of the Barron’s 400, except for one sector—energy—in which the S&P 500 components were still recovering from the depressed oil market a year earlier.

Median 4Q 2018 EPS Actual  vs. Median 4Q 2017 EPS Actual
Barron’s 400 S&P 500
Consumer Discretionary 25.80% 14.19%
Consumer Staples 20.66% 9.03%
Energy 33.21% 76.52%
Financials 34.03% 14.48%
Health Care 32.89% 14.34%
Industrials 37.50% 20.54%
Materials 32.84% 10.79%
Technology 22.98% 16.94%
Telecommunications N.A. 30.23%
Utilities 5.42% -4.60%

And EPS results for both indexes improved over analysts’ predictions, though more so for the Barron’s 400 than for the S&P 500. The one exception was a shortfall in the utilities sector of the Barron’s 400, which is of insignificant size.

Median 4Q 2018 EPS Actual vs. Median EPS Estimate
Barron’s 400 S&P 500
Consumer Discretionary 6.39% 3.14%
Consumer Staples 6.85% 1.60%
Energy 4.64% 4.43%
Financials 3.30% 1.36%
Health Care 8.65% 2.97%
Industrials 7.83% 3.38%
Materials 5.40% 1.55%
Technology 9.10% 6.10%
Telecommunications N.A. 2.97%
Utilities -2.38% 2.18%

For revenue, the median year-over-year growth in the Barron’s 400 sectors swamped the S&P 500 increases—even in the energy sector where the S&P 500 had giant EPS gains. The exception was, again, utilities, where revenue increased for both indexes but a shade less so than in the Barron’s 400. The S&P 500 showed a small decline in telecommunications, which is a currently empty sector in the Barron’s 400.

        Median 4Q 2018 Revenue Actual vs. Median 4Q 2017 Actual
Barron’s 400 S&P 500
Consumer Discretionary 9.66% 3.36%
Consumer Staples 8.16% 1.89%
Energy 32.62% 11.20%
Financials 2.22% 0.41%
Health Care 11.31% 6.35%
Industrials 10.81% 5.70%
Materials 11.89% 3.01%
Technology 12.43% 3.94%
Telecommunications N.A. -0.18%
Utilities 2.33% 2.45%

Security analysts usually are fairly accurate in making revenue forecasts, but median results for most sectors in both indexes surpassed expectations. The exceptions were consumer staples, materials and, for the Barron’s 400, utilities once more.

Median 4Q 2018 Revenue Actual vs. Median Revenue Estimate
Barron’s 400 S&P 500
Consumer Discretionary 0.73% 0.17%
Consumer Staples -1.11% 0.00%
Energy 2.33% 1.26%
Financials 0.18% 0.04%
Health Care 1.77% 1.30%
Industrials 1.06% 0.63%
Materials -0.95% -0.13%
Technology 1.13% 0.18%
Telecommunications N.A. -0.46%
Utilities -9.87% 1.42%

We also gauge growth by companies’ market capitalization segment. Though the Barron’s 400 is equal-weighted, it’s still an instructive exercise. Here, too, the Barron’s 400 significantly outgrew the S&P 500 in the two size segments they share. Of course, the Barron’s 400 benefitted from exceptional growth in the three smaller segments.

Median 4Q 2018 Actual vs. Median 4Q 2017 Actual
Earnings per Share Revenue
Barron’s 400 S&P 500 Barron’s 400 S&P 500
Mega Cap (>$10 billion) 25.51% 15.18% 10.46% 4.61%
Large Cap ($3 bln-$10 bln) 30.23% 9.54% 8.80% 1.31%
Mid Cap ($1 bln-$3 bln) 32.00% N.A. 12.01% N.A.
Small Cap ($500m-$1 bln) 44.44% N.A. 11.09% N.A.
Micro Cap (< $500 mln) 69.05% N.A. 32.92% N.A.

There you have it, another championship quarter for the Barron’s 400. Analysts apparently were listening too closely to the drums of doom, which typically foretell more bad news than actually happens. The words “economic slowdown” often mean “slowdown in the rate of growth,” so it’s no wonder investors get confused. Whatever rate of growth lies ahead, it’s a good bet that Barron’s 400 companies will achieve more of it than many others.

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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