3 Companies Growing Earnings Faster Than the S&P 500
Past performance is not a guarantee of future results, but strong growth in cumulative earnings increases the likelihood that companies will continue to do so, driving their share prices higher in the coming years.
The S&P 500 Index reported a 9.5% average growth in its annual earnings over the past five years, generating a nearly 55% rise in its share price to $2,940.25 at close on Tuesday.
Thus, investors may be interested in the following holdings that have beaten the benchmark for U.S. markets in terms of higher cumulative earnings growth, showing over a 9.5% annual increase.
These companies are expected to perform well over the next several years.
Further, this search considers earnings per share without non-recurring items as it better enables investors to project future earnings growth.
Here are some results of my search for companies with market capitalizations above $5 billion.
The first company is Linde PLC (NYSE:LIN), which has grown earnings per share without non-recurring items by 26.5% on average every year over the past five years, as illustrated in the chart below.
The British industrial gas company closed at $188.55 per share on Tuesday for a market capitalization of $101.93 billion.
The stock has climbed 20.8% so far this year, outperforming the S&P 500 Index by 3.5%.
The company has a price-earnings ratio of 16.02 versus the industry median of 15.39 and a price-sales ratio of 3.87 compared to the industry median of 1.02.
On Sept. 17, Linde paid a quarterly dividend of 87.5 cents per common share, producing a 1.81% forward dividend yield versus the S&P 500's yield of 1.91% as of Oct. 1.
The company has paid dividends for 27 years.
Wall Street recommends holding shares of Linde with an average target price of $196.35.
The second company is Leidos Holdings Inc. (NYSE:LDOS). The company has grown its trailing 12-month earnings per share without non-recurring items by 12.7% per annum over the past five years.
The Reston, Virginia-based defense, aviation, information technology and biomedical research company closed at $84.78 per share on Tuesday for a market capitalization of $12.19 billion.
The stock has gained 60.8% so far this year, outperforming the S&P 500 by 43.5%.
The company has a price-earnings ratio of 19.14 versus the industry median of 24.88 and a price-sales ratio of 1.2 versus the industry median of 2.28.
On Sept. 30, Leidos Holdings paid a quarterly dividend of 34 cents per common share, producing a 1.58% forward dividend yield versus the S&P 500's yield of 1.91%.
The company has distributed dividends since April 30, 2012.
Wall Street issued an overweight recommendation rating for shares of Leidos Holdings with an average target price of $90.18.
The third company is E*Trade Financial Corp. (NASDAQ:ETFC), which has posted 10.9% annual growth for its trailing 12-month earnings per share without non-recurring items over the past five years.
The New York-based online financial broker closed at $36.51 per share on Tuesday for a market capitalization of $8.76 billion.
The stock has fallen nearly 17% so far this year, underperforming the Nasdaq by 36%.
The stock appears to be undervalued as its price-earnings ratio of 9.01 is below the industry median of 17.26 and its price-sales ratio of 3.17 is just a bit over the industry median of 3.05.
On Aug. 26, E*Trade paid a quarterly dividend of 14 cents per common share, producing a 1.28% forward dividend yield versus the S&P 500's yield of 1.91%.
The company distributed quarterly dividends between Sept. 30, 1998 and June 30, 2004. Then it stopped for 14 years, but resumed paying dividends on Nov. 15, 2018.
Wall Street issued an overweight rating for shares of E*Trade with an average target price of $48.63.
Disclosure: I have no positions in any securities mentioned in this article.
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This article first appeared on GuruFocus.
