This earnings season is turning out to be more or less as strong as predicted (so far). There are a few things primarily on investors’ minds at this time-
Are the latest variants of the coronavirus going to affect the great reopening?
Are profit margins going to hold up in the face of rising input costs?
How are the rising wage rates impacting Corporate America?
How long will the semiconductor shortage continue?
Etc.
And that’s why there has been some volatility in the last few trading sessions.
But it’s worth noting the data is not all negative.
For one thing, commentary from company management and market watchers indicate that so far, the recovery is on track. Even if things change as we move through the quarter and infection rates do pick up, it’s currently expected that there can at most be a slowdown but not a return to the lockdowns we had last year. Particularly since it appears that vaccination is lowering severity of infections, so hospitalizations are lower this time round.
Second, existing home sales data from the National Association of Realtors shows a 1.4% increase in June sales at an average price of $363,300 (down around 20 bps from May). Inventories edged higher to 2.4 months supply (it was 2.3 in May and 2.2 in April, slightly higher than the first quarter, but still very tight).
While million-dollar and sub-million-dollar home sales continue to see the strongest increase from last year (at triple-digit rates), medium range home sales are also growing strong double-digits and constitute the fastest-moving category. Homes at the low end of the spectrum continue to decline. But inventory is unlikely to be the only issue because the days on the market is highest for the cheapest homes.
Which brings up the topic of employment. Initial jobless claims for the week ending Jul 17 (data released Jul 22) are at 419,000, up from the previous week’s raised level of 368,000.
So definitely, from here it looks like the labor market is tight, which means cost inflation for companies. That could be because of fears of infection, childcare issues or free money (probably a mix of all three). But as the housing market seems to indicate and the numbers below seem to confirm, increased costs are moving on to the consumer. So corporate profits likely remain unaffected.
One would expect that reopening stories like travel, hotels and restaurants to be mostly in the flux. But as Delta Air Lines (NYSE:DAL) CEO Ed Bastian told CNBC, the company has good visibility 60 to 90 days out. And bookings haven’t slowed down.
A quick look at the 120 members (24%) of the S&P 500 that have already reported shows that total earnings (or aggregate net income) for these companies are up 118.9% from last year on 18.4% higher revenues. What’s more, 89.2% have topped EPS estimates and a record 85% beat revenue estimates.
So, as has happened almost always in the past, earnings season is going to be a good time for the market. And the best way to profit from the phenomenon is by picking stocks with beat-and-raise quarters. Here are 5 worth buying today-
Controladora Vuela Compania de Aviacion, S.A.B. de C.V. VLRS
This aircraft transportation services provider serving Mexico, the U.S. and Central America reported earnings of 67 cents when analysts were looking for a loss of 7 cents. Total revenue per available seat mile (TRASM) increased 22% despite a 14% increase in total capacity. EBITDAR margin of 40.8% expanded 13.1 percentage points.
As a result, the September quarter estimate went from 3 cents to 39 cents while the full year estimate jumped 164% to $1.11. The 2022 estimate also increased.
The Zacks Rank #1 (Strong Buy) company has a VGM Score of A.
The largest automotive retailer in the United States, AutoNation offers new and used vehicles, as well as a range of after-market products and financing.
In the last quarter, the company reported an earnings surprise of 69% on revenue that surprised by 18%. The reported revenue and earnings set quarterly records. Its second quarter 2021 same store gross profit increased 68% from last year and 52% from the second quarter of 2019. AutoNation continues to add stores every year with the goal of reaching 130 AutoNation USA stores by 2026 and increase its overall share of the used vehicles market.
Following these results, the company’s earnings estimate for 2021 jumped 24% and for 2022, 18%.
The Zacks Rank #1 company has a VGM Score A.
Lithia Motors (NYSE:LAD), Inc. LAD
This leading U.S. retailer of new and used vehicles as well as related services reported revenue and earnings surprises of 20% and 70%, respectively for the June quarter. It was the highest second-quarter earnings in company history. Year-over-year same store revenue growth for new vehicles was 20%, for used vehicles was 49%, for F&I 39% and for service 3%.
The company has an aggressive acquisition strategy that helps it increase network density in desired markets. Acquisitions completed in the last quarter are expected to contribute $3.7 billion in annualized revenue.
Following the strong results, the Zacks Consensus Estimates for 2021 and 2022 moved up a respective 14% and 11.0%. The company’s revenues are currently expected to grow 61% and 19%, respectively in 2021 and 2022. Earnings are expected to grow 54% and 4%, respectively.
The shares carry a Zacks Rank #1.
Silvergate Capital (NYSE:SI) Corp. SI
This is the holding company for Silvergate Bank.
The Zacks Rank #1 company’s $42 million in reported revenue was 21.3% ahead of the Zacks Consensus Estimate while its earnings of 80 cents were 95.1% ahead. The strength was driven by strong demand for its growing suite of digital currency related solutions powered by the Silvergate Exchange Network (SEN). The number of SEN transactions increased 242% while dollar volumes increased 969%. Transactions were down 17% sequentially although dollar volumes increased 44%.
The strong results sent the September quarter estimate up 84% to 83 cents. The full-year estimate went up 59% to $3.08. the 2022 estimate jumped 47%.
There’s just one analyst providing estimates and those estimates currently call for 101% revenue growth and 127% earnings growth this year, followed by 55% revenue growth and 38% earnings growth in the following year.
The Simply Good Foods Co. SMPL
This provider of nutrition bars, ready-to-drink shakes, snacks and confectionery products posted an earnings beat of 48% and revenue beat of 17% in the May quarter. The results were driven by increasing consumer mobility and improving shopper traffic at brick-and-mortar retailers versus the year ago period. Management announced a price increase starting from the following quarter that would enable the company to cover raw materials and freight cost inflation and fund its growth initiatives.
As a result, the estimates for fiscal years 2020 and 2021 have appreciated 13% and 11%, respectively. The Zacks Consensus Estimates for the two years currently represent revenue growth of 22.7% and 9.2% in the two years. Earnings are expected to grow a respective 36.3% and 10.5%.
The shares are ranked #1 by Zacks.
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Silvergate Capital Corporation (SI): Free Stock Analysis Report
AutoNation, Inc. (AN): Free Stock Analysis Report
Lithia Motors, Inc. (LAD): Free Stock Analysis Report
The Simply Good Foods Company (NASDAQ:SMPL): Free Stock Analysis Report
Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (VLRS): Free Stock Analysis Report
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