4 Signs The Broad-Based Recovery Is Gaining Strength
There is a broad-based economic recovery going on around the world today. The question facing the market is whether or not that recovery is gaining strength. The expectations for earnings growth are going to fall sharply at the end of this quarter but there is a factor in play that we will keep the market moving higher. While the pace of earnings growth will slow from high double digits in the second quarter to low double digits in the third quarter that's because of the COVID-comp, not any fundamental change in the economy. The salient point is that earnings growth is going to continue on top of tough comps in the second half of the year and the expectation for that growth is growing across a broad swath of the market.
1. Crocs Is A Comfortable Fit
Shares of consumer product maker Crocs (NASDAQ:CROX) are moving higher after the company blew past consensus estimates and raised guidance for the year. The company's sales of core clog products surged high double digits and was aided by strength in the new sandals division. The company's revenue is up 93% from last year and 78% from two years ago proving the strength of the business. As for guidance, the company increased its outlook for full-year 2021 revenue growth to a range of 60% to 65% versus the previous 40% to 50% and adjusted operating margin to 25% which is a 200 basis point Improvement. What this means is that not only is Crocs revenue stronger than expected but earnings leverage is also stronger than expected so we expect to see solid results in the back half of the year.
2. Quest Diagnostics Is On Target
Med-tech services company Quest Diagnostics (NYSE:DGX) reported a better-than-expected quarter and raised guidance as well. The company's $2.55 billion in consolidated revenue is up 39% over the past year and 30% over the past two years proving the long-term growth strategy is working. Bottom-line results also topped consensus estimates and are fueling a healthy 1.8% dividend. Turning to the guidance, the company is expecting net revenues in the range of $9.54 billion to $9.79 billion versus the $9.43 billion predicted by the analyst. This is a significant uptick in expectation and should drive a solid round of revisions.
3.American Airlines Is Ready To Fly
Shares of American Airlines (NASDAQ:AAL) are holding steady in the wake of its so-called mixed report. The company missed the consensus estimate by 40 basis points but that is relative to a 35,000 basis point improvement YOY earnings. The revenue of $7.45 billion is up 359.9% from last year although it is still a far cry short of the $11-odd billion posted in 2019. Looking forward, the company got really aggressive with this revenue forecast estimating the Q3 revenue would be down only 20% from the 2019 level which is a vast improvement from the second quarter. As aggressive as it sounds, that's only a 27.5% sequential increase and completely within the company's ability. We think the company could do better.
4. MiddleMan Reliance Steel Well-Positioned For Secular Trends
Reliance Steel & Aluminum (NYSE:RS) is well-positioned in the metals Market as the middleman between manufacturers and end-market users. The company operates hundreds of service centers globally providing materials and services to all verticals of Industry. The company just reported a quarter in which high double-digit year-over-year growth was compounded by a 700 basis point beat versus the consensus estimate. This left revenue up 18.75% from the same period in 2019 and set the company up for solid results in the back half of the year. Reliance Steel & Aluminum didn't technically raise their guidance but they did Issue guidance that is, to say the least, well above the consensus estimate. Reliance Steel & Aluminum executives are looking for EPS in the range of $5.55 to $5.75 versus the consensus of $4.53, a detail that we see driving a solid dividend increase later in the year.
