Deep Dive: These companies in the S&P 500 are winning this earnings season using 4 critical measures

A deeper look at sales growth, profit margins and how analysts react after the earnings report may be of more value to investors, especially at a time when the stock market is hypersensitive to any sign of a slowdown for a company’s business.

Below is a screen showing 29 U.S. companies that appear to be doing many things right, with improving sales, gross margins and operating margins.

An earnings-season screen of winners

The following screen is based on sales growth and profit-margin improvement, rather than net profit, because one-time events (such as Amazon.com Inc.’s
AMZN
$11.8 billion unrealized gain on its investment in Rivian automotive Inc.
RIVN
) can have a dramatic temporary effect on the bottom line.

• Through Feb. 4, 310 companies among the S&P 500
  SPX
  had reported results for quarters ended Oct. 29 or later.

• Among those 310 companies, 29 met the following criteria:

• Quarterly sales were higher than the year-earlier quarter.

• Gross and operating margins for the quarter were improved from a year earlier. These measures aren’t used for most financial-services companies, so most were excluded from the screen. For some of the other companies, FactSet cannot calculate gross or operating margins (or both) without the set of GAAP data available later, when the 10-Q reports come out (generally within 45 days of the end of the reported fiscal quarter).

• Consensus sales estimates for calendar 2022 have increased at least 2% from where they were Dec. 31. We have used calendar years for a uniform set of estimates, even though many companies have fiscal years that don’t match the calendar.

A company’s gross margin is its revenue minus the cost of goods or services sold. It reflects a company’s pricing power and its direct production costs, including labor and materials. A company’s gross margin might narrow as it builds market share by increasing discounts to customers or if it attempts to avoid price increases. It is a good sign if the gross margin is expanding as sales increase.

A company’s operating margin 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, taxes, depreciation and amortization (EBITDA) divided by sales.

Here are the 29 companies that have met the four criteria so far this earnings season. They are assessed in two tables, sorted in order of quarterly sales increases from a year earlier. The first table includes the screening data, and the second table is a summary of opinions among analysts polled by FactSet:

You can click on the tickers for more about each company.

You should also read Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

The top of the list is dominated by companies grossly affected by the pandemic — oil producers and refiners as well as airlines. Semiconductor manufacturers, another category on the list, may be in a golden age for their products, given supply shortages and with demand for all sorts of circuit boards, graphics processors and computer chips increasing regardless of the pandemic.

Apple Inc.
AAPL
is one of the slower sales growers on the list, but investors were very impressed with its results, pushing its stock up 8% since the close before it reported on Jan. 27.

Read: Apple just reported its best performance of the past five years by three key measures

Leaving the list in the same order, here’s a summary of analysts’ opinions:

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