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First-quarter earnings season is just about over for the S&P 500. Then again, with about 20% of the companies having fiscal quarters that don’t match the calendar, it seems the flow of earnings reports never ends.
It might seem from media reports that the economy is always facing some sort of crisis, but you may be surprised that more than half of the S&P 500 companies
SPX
increased quarterly sales from a year earlier. There are pockets of opportunity in any market environment.
Below is a screen of companies that showed three areas of improvement in their results for fiscal quarters ended Feb. 15 or later.
The three areas are:
- Quarterly sales were up from the year-earlier quarter.
- Gross profit margins improved. A company’s gross margin is its is net sales, less the cost of goods or services sold, divided by sales. Net sales are sales minus returns and discounts, such as coupons. The cost of goods or services sold includes the actual costs for making the items or providing the services, including labor. It is a useful measurement of pricing power, and a combination of an expanding gross margin and increasing sales is a good sign.
- Operating margins improved. A company’s net operating margins 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 and taxes (EBIT), divided by sales.
Profit margins vary widely by industry. They are most useful when looking at their movement for individual companies.
In the following screen we are not looking at earnings per share, because so many one-time factors can affect profit numbers for any company any quarter, and even distort bottom-line results for a full year.
What about the Covid-19 distortion?
A screen based in part on comparisons of quarterly sales from a year earlier can still be confusing because of the near wipeout of sales for travel-related companies during the Covid-19 pandemic that started to slow the U.S. economy in the first quarter of 2020. Even though the most dire restrictions were lifted over a year ago, the cruise industry, hotel and casino operators and airlines were still in recovery mode, which would inflate the most recent year-over-year comparisons. If a company such as Norwegian Cruise Line Holdings Ltd.
NCLH
showed a 249% increase in first-quarter sales, of course its profit improved. A year earlier, the company’s margins were negative.
So for this screen’s first test, which was for year-over-year increases in quarterly sales, the numbers for the most recent quarter had to be be higher than they were four years earlier. That is, for a company whose fiscal quarter ended March 31, the sales number had to be greater than it was during the first quarter of 2019. It turns out that for Norwegian Cruise Line Holdings, first-quarter sales were up nearly 30% from four years earlier. So this company passed the first cut of the screen, while its competitor Carnival Corp.
CCL
didn’t, because sales for its fiscal first quarter ended Feb. 28 were lower 5% than they were for the quarter ended Feb. 28, 2019.
The screen
Getting back to the S&P 500, 477 companies had announced results for fiscal quarters ended Feb. 15 or later, through May 22. Among these, gross and operating margin data was available for the most recent and year-earlier quarters from FactSet for 425 companies. The margins aren’t available for most companies in the financial sector. The banking and insurance industries use different measures of profitability.
Among the 425 companies, there were 121 showing improved quarterly sales, gross margins and operating margins from a year earlier.
Among these 121 companies, 106 reported sales for the most current quarter that were higher from pre-Covid levels, as explained above.
Here are the 20 companies that passed the screen while showing the largest increases in quarterly sales from a year earlier:
| Company | Ticker | Change in quarterly sales from year earlier | Gross margin | Gross margin – year-earlier quarter | Operating margin | Operating margin – year-earlier quarter |
| Norwegian Cruise Line Holdings Ltd. |
NCLH |
249% | 19.87% | -76.65% | 12.84% | -96.20% |
| Royal Caribbean Group |
RCL |
172% | 25.67% | -47.75% | 22.01% | -53.19% |
| Albemarle Corp. |
ALB |
129% | 49.40% | 39.57% | 46.38% | 35.16% |
| VICI Properties Inc. | VICI | 111% | 99.23% | 98.55% | 82.93% | 74.87% |
| Enphase Energy Inc. |
ENPH |
65% | 44.02% | 38.79% | 25.47% | 17.63% |
| United Airlines Holdings Inc. |
UAL |
51% | 3.27% | -15.31% | 5.48% | -10.22% |
| First Solar Inc. | FSLR | 49% | 19.92% | 2.95% | 18.89% | 3.32% |
| SolarEdge Technologies Inc. | SEDG | 44% | 31.82% | 27.32% | 16.74% | 9.54% |
| Booking Holdings Inc. | BKNG | 40% | 95.74% | 94.43% | 16.20% | 13.36% |
| American Airlines Group Inc. |
AAL |
37% | 19.27% | 0.57% | 7.69% | -12.07% |
| Delta Air Lines Inc. |
DAL |
36% | 11.91% | -0.73% | 2.25% | -3.02% |
| Marriott International Inc. Class A |
MAR |
34% | 20.55% | 18.46% | 18.11% | 15.22% |
| Fortinet Inc. |
FTNT |
32% | 75.24% | 72.75% | 23.75% | 18.37% |
| Lamb Weston Holdings Inc. |
LW |
31% | 31.73% | 23.14% | 24.90% | 18.89% |
| PACCAR Inc. |
PCAR |
31% | 20.88% | 15.55% | 20.01% | 14.37% |
| Alaska Air Group Inc. | ALK | 31% | 6.97% | -4.40% | 0.64% | -10.83% |
| Deere & Co. | DE | 30% | 38.29% | 33.74% | 28.29% | 24.25% |
| Allegion Public Ltd. Co. |
ALLE |
28% | 42.71% | 39.97% | 22.38% | 19.06% |
| Ceridian HCM Holding Inc. |
CDAY |
26% | 55.18% | 51.21% | 17.49% | 7.50% |
| Rockwell Automation Inc. |
ROK |
26% | 40.65% | 36.61% | 21.32% | 16.37% |
| Source: FactSet | ||||||
Click on the tickers for more about each company.
Click here for Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.
Here’s the same list in the same order, with a summary of analysts’ opinions of the sto
| Company | Ticker | Share “buy” ratings | Share neutral ratings | Share “sell” ratings | May 22 price | Consensus price target | Implied 12-month upside potential | Forward P/E |
| Norwegian Cruise Line Holdings Ltd. |
NCLH |
42% | 47% | 11% | $14.33 | $16.20 | 13% | 13.2 |
| Royal Caribbean Group |
RCL |
67% | 33% | 0% | $80.33 | $87.64 | 9% | 14.7 |
| Albemarle Corp. |
ALB |
72% | 21% | 7% | $206.50 | $261.86 | 27% | 9.1 |
| VICI Properties Inc. |
VICI |
95% | 5% | 0% | $31.61 | $37.63 | 19% | 12.8 |
| Enphase Energy Inc. | ENPH | 74% | 23% | 3% | $164.65 | $256.67 | 56% | 26.2 |
| United Airlines Holdings Inc. | UAL | 67% | 28% | 5% | $47.41 | $63.56 | 34% | 4.8 |
| First Solar Inc. | FSLR | 48% | 41% | 11% | $201.69 | $224.37 | 11% | 21.3 |
| SolarEdge Technologies Inc. |
SEDG |
75% | 25% | 0% | $298.87 | $375.56 | 26% | 26.6 |
| Booking Holdings Inc. |
BKNG |
58% | 39% | 3% | $2,695.62 | $2,871.46 | 7% | 18.4 |
| American Airlines Group Inc. | AAL | 24% | 67% | 9% | $14.38 | $18.19 | 26% | 4.9 |
| Delta Air Lines Inc. | DAL | 100% | 0% | 0% | $35.46 | $50.94 | 44% | 5.8 |
| Marriott International Inc. Class A |
MAR |
31% | 65% | 4% | $174.68 | $188.22 | 8% | 20.5 |
| Fortinet Inc. |
FTNT |
69% | 31% | 0% | $69.52 | $75.10 | 8% | 44.3 |
| Lamb Weston Holdings Inc. | LW | 56% | 33% | 11% | $111.75 | $120.71 | 8% | 22.5 |
| PACCAR Inc. | PCAR | 22% | 69% | 9% | $71.39 | $81.14 | 14% | 9.8 |
| Alaska Air Group Inc. | ALK | 93% | 7% | 0% | $44.92 | $64.65 | 44% | 6.8 |
| Deere & Co. |
DE |
70% | 30% | 0% | $360.50 | $452.39 | 25% | 11.3 |
| Allegion Public Limited Co. | ALLE | 60% | 33% | 7% | $109.76 | $123.83 | 13% | 15.9 |
| Ceridian HCM Holding Inc. |
CDAY |
58% | 42% | 0% | $63.40 | $76.29 | 20% | 47.1 |
| Rockwell Automation Inc. | ROK | 32% | 48% | 20% | $282.47 | $291.18 | 3% | 22.3 |
| Source: FactSet | ||||||||
Forward price-to-earnings ratios are in the rightmost column, based on consensus earnings estimates for the next 12 months among analysts polled by FactSet. For the full S&P 500, the weighted aggregate forward P/E ratios is 18.3.
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