What’s in it for you when an S&P 500 company tops profit forecasts? Investors in the right places are finding out in a big way.
Eight S&P 500 companies, including consumer discretionary plays Nike (NKE) and Chipotle Mexican Grill (CMG) plus HCA Healthcare (HCA), topped second-quarter profit views by more than 10%. But more importantly for investors, the shares popped 10% or more following their positive earnings surprise, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Seeing such positive reactions to big earnings beats is refreshing, if not surprising.
Many investors thought strong earnings were already priced into the S&P 500. S&P 500 companies are on pace to report more than 74% higher profit in the second quarter — the strongest growth since 2009, says FactSet. And the S&P 500 is up nearly 20% this year in anticipation.
But where do you find more upside? S&P 500 profits for the second quarter coming in even higher than anyone thought. Nearly 90% of the roughly quarter of S&P 500 companies to report have topped profit expectations.
“We cannot recall a time when US equity markets have run so far ahead of Wall Street analysts’ earnings estimates,” said Nicholas Colas, co-founder of DataTrek Research. “The reason for this optimism is earnings leverage.”
S&P 500 Profit Coming In Strong
Coming into the quarter, earnings expectations were sky-high. But reality is proving to be even stronger.
And analysts weren’t just putting out an easy profit bar for S&P 500 companies to top. The 74% quarterly profit growth called for is actually up from the 63% growth they expected as of June 30, FactSet says.
That’s why positive earnings surprises are still largely being met with big stock gains — even though the S&P 500 is up so much already this year. Shares of just 28 S&P 500 companies of the 84 that topped quarter profit estimates by 10% or more, or just a third, fell following their reports.
The rest are up. And many by a large amount.
Nike Shoots And Scores
If you’re looking for an example of a profit beat followed by a stock surge, look at Nike.
Shares of the athletic gear maker vaulted more than 23% higher since it reported a strong profit gain on June 24. The S&P 500 in that time is only up roughly 4%. Nike is the top-performing S&P 500 company of any that have topped second-quarter profit forecasts by at least 10% so far.
Why such good feelings? Nike reported a quarterly profit of 93 cents a share. And that absolutely demolished profit forecasts by more than 80%. And it’s not just a cost-cutting juke move. Revenue in the period topped expectations, too, by 12%. Just look at the nearly perfect 96 Composite Rating to see how everything is going right.
And now for the fiscal year, analysts think Nike can make $4.30 a share, up more than 20% from last year. Should you buy Nike stock now?
Action In S&P 500 Consumer Discretionary, Health Care
Chipotle is another big S&P 500 winner following an earnings beat. Shares are up nearly 18% in the mere days following the burrito chain’s profit report on July 20. Chipotle reported a quarterly profit of $7.46 a share, topping views by nearly 15%.
And now, analysts are scrambling to up their profit target for the year. Analysts are now calling for Chipotle to make $25.52 a share this fiscal year. That’s up more than 130% from last year. And it’s up more than 5% from what they expected just three months ago.
The profit beat at hospital operator HCA Healthcare is even more dramatic. The company also on July 20 reported a second-quarter profit of $4.37 a share, topping views by nearly 40%. Shares since then are up more than 13%.
To be sure, stocks gains are far from assured following a profit beat. Shares of tech giant Intel (INTC) are down more than 5% since it reported on July 21. And that’s even following its turning a profit of $1.28 a share, exceeding views by nearly 20%. Microsoft (MSFT) and Apple (AAPL) shares, too, failed to lift off in after-hours trading following their profit reports late Tuesday.
But overall, it seems, S&P 500 companies are still finding ways to top sky-high profit expectations. And investors are mostly impressed.
S&P 500 Stock Winners Following Profit Beats
They’re up the most after topping second-quarter profit views by 10% or more
|Company||Ticker||EPS Q2 surprise||Profit announcement||Stock % ch. after announce||Sector||Composite Rating|
|Chipotle Mexican Grill||(CMG)||14.6||7/20/2021||18.3%||Consumer Discretionary||99|
|HCA Healthcare||(HCA)||38.3||7/20/2021||13.8%||Health Care||97|
|The Interpublic Group of Companies||(IPG)||63.9||7/21/2021||13.0%||Communication Services||85|
|Costco Wholesale||(COST)||20.7%||5/27/2021||10.0%||Consumer Staples||89|
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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