S&P 500: what recession? 8 companies’ profits are about to explode by 350% or more
This earnings season isn’t a great one for most S&P 500 investors. But some outliers are poised for giant earnings growth.
Analysts believe that eight S&P 500 companies, including Valero Energy (VLO), Marathon Oil (MPC) and CF Industries (heart rate) – posted adjusted earnings growth of more than 350% in the second quarter of 2022, according to an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
And it will be a welcome sight for investors. It’s already the case. Shares of the eight companies that posted strong profit growth in the second quarter are all up this year, while the S&P 500 is down 19%. Why? S&P 500 companies as a group are posting just 4.2% earnings growth, says John Butters of FactSet. And if so, this will be the weakest period of S&P 500 earnings growth since the fourth quarter of 2020.
“Given that earnings are measured in nominal dollars, this will likely support earnings season (Q2), which has just begun, and provide further respite from recession-related concerns,” said Matt Peron, chief research officer. at Janus Henderson Investors. .
S&P 500 earnings fight a headwind
It’s normal and reasonable to expect S&P 500 companies to do better than analysts think. But this quarter, a surprise might be muted.
Of the small number of S&P 500 companies that have released their second-quarter results so far, only 60% have exceeded expectations, according to Butters. That’s below the 77% of companies that have exceeded earnings forecasts in the past five years. Also, the surprises are smaller. Of the S&P 500 companies that beat earnings forecasts, they only beat them by 2%. That’s a fraction of the 8.8% by which they normally beat analysts’ estimates.
Additionally, three S&P 500 companies have already issued third-quarter earnings warnings. And with all this negative news piling up, it’s only fair that S&P 500 investors are looking for points of light.
S&P 500 Energy: Always where the action is
There is no doubt that investors looking for big jumps in earnings will find them in the same sector: energy. All but one of the nine S&P 500 companies, which are expected to post the strongest profit increases in the second quarter, are in energy.
The biggest is Valero, an oil refiner and marketer based in San Antonio, Texas. Analysts believe the company will earn $9.39 per share, up 1,857% from the same period a year ago. This is a larger increase in earnings for all S&P 500 companies in the second quarter.
Another energy company is No. 2 for expected earnings growth in the S&P 500. Analysts believe Marathon Petroleum will earn $7.68 per share in the quarter ending June. If they’re right, that would represent earnings growth of 1,047%. Unsurprisingly, shares of Valero and Marathon are up 39% and 32% respectively this year.
Chasing S&P 500 mega-growth outside of energy
You have to look far and wide to find stellar earnings growth for the quarter outside of the S&P 500 energy sector. FK is the rare exception.
The nitrogen and hydrogen seller would earn $6.04 per share in the quarter, up more than 425% from the second quarter of 2021. Shares are up more than 20% this year alone.
It is always possible that analysts are too optimistic about the profits of energy companies. But given the rise in the price of crude this year, it’s a safe bet that the bottom line of energy companies will rise much faster than the S&P 500.
The S&P 500’s Biggest Earnings Producers
Based on analysts’ adjusted earnings forecast for the second quarter of 2022
|Company||Symbol||Q2 EPS change (est.)||Sector||Change in shares since the beginning of the year|
|CF Industries Holdings||(heart rate)||425.8%||Materials||19.5%|
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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