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Philip van Doorn

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Nov. 13, 2019, 7:57 a.m. EST

Sales winners in the third quarter include Netflix, Autodesk and PayPal

Plenty of companies have produced double-digit sales increases and wider profit margins during an otherwise dismal earnings season

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By Philip van Doorn, MarketWatch


Bloomberg
Netflix’s third-quarter revenue was up 31% from a year earlier and its gross margin also widened.

There’s no question that third-quarter earnings season has been pretty bad. But there are always companies that outperform, and we have listed a group of sales-growth winners below.

First, the bad news

Through Monday, 97% of the S&P 500 /zigman2/quotes/210599714/realtime SPX -4.42%  had reported results for fiscal quarters ended July 26 or later. According to the most recent Consensus Snapshot report from S&P Global Market Intelligence, combined and weighted earnings per share (EPS) for the S&P 500 were down an estimated 4.1% from a year earlier — which was even worse than the estimate of a 3.3% decline a month ago.

That runs counter to the usual trend among sell-side analysts of setting up earnings “beats” by incorporating lowered guidance from the companies they monitor into earnings (and sales) estimates that are, arguably, too low. Then again, according to S&P Global, 86% of the reporting companies have beaten consensus earnings estimates, 62% have beaten sales estimates and 57% have beaten both.

Here’s a summary of the most recent estimates for changes in third-quarter earnings per share from a year earlier:

S&P 500 sector Estimated change in EPS
Communications Services 0.07%
Consumer Discretionary -0.01%
Consumer Staples -0.54%
Energy -31.58%
Financials 1.73%
Health Care 1.81%
Industrials 0.94%
Information Technology -8.56%
Materials -20.65%
Real Estate -14.34%
Utilities -3.77%
 
S&P 500 Index -4.11%
Source: S&P Global Market Intelligence

That’s a lackluster quarter, reflecting a less-than-favorable market for commodity and energy prices, as well as the effect of the trade conflict between the U.S. and China on the technology sector. Semiconductor manufacturers were hit particularly hard.

However, investors have been hopeful of an easing of trade tensions, or at least a resumption of sales growth for the semiconductor group next year from 2019’s lower base. The iShares PHLX Semiconductor ETF /zigman2/quotes/209255350/composite SOXX -4.62% , which holds all 30 stocks in the PHLX Semiconductor index, has risen 52% year-to-date.

Sales and margin winners

Any company will wish to increase its revenue, but it will also try to improve its gross margin, which is its sales, less the cost of goods sold, divided by sales. It is a measure of a company’s pricing power. An expanding margin as sales rise is a very good sign. A narrowing margin may indicate the company is being forced to defend its market share with discounts or is pushing sales growth over profitability. If the margin continues to narrow, the company may be facing a very difficult market for its products or services.

Gross margin isn’t used by analysts who track banks and insurance companies.

Among the S&P 500 companies that had announced results for fiscal quarters ended July 26 or later through Nov. 12, here are the 20 that reported the largest increases in sales, while also expanding their gross margins:

Company Ticker Industry Sales growth - most recent quarter from a year earlier Change in sales per share - most recent quarter from year-earlier quarter Gross margin - most recent quarter Gross margin - year-earlier quarter
Fiserv Inc. /zigman2/quotes/204817680/composite FISV Data Processing Services 122% 53% 48.31% 45.33%
Newmont Goldcorp Corp. /zigman2/quotes/205356474/composite NEM Precious Metals 56% 2% 22.85% 20.81%
Prologis Inc. /zigman2/quotes/200785374/composite PLD Real-estate investment Trusts 38% 26% 44.12% 36.22%
CVS Health Corp. /zigman2/quotes/209664499/composite CVS Drugstore Chains 36% 7% 17.78% 15.90%
Fidelity National Information Services Inc. /zigman2/quotes/207166559/composite FIS Data Processing Services 35% -14% 34.87% 34.55%
Marathon Petroleum Corp. /zigman2/quotes/209634297/composite MPC Oil Refining/Marketing 35% -7% 8.84% 7.84%
Netflix Inc. /zigman2/quotes/202353025/composite NFLX Cable/Satellite TV 31% 31% 40.93% 39.68%
Autodesk Inc. /zigman2/quotes/209828392/composite ADSK Software 29% 27% 88.76% 88.04%
MarketAxess Holdings Inc. /zigman2/quotes/202710814/composite MKTX Investment Banks/Brokers 28% 27% 87.19% 86.60%
Alexion Pharmaceuticals Inc. /zigman2/quotes/206262068/composite ALXN Biotechnology 23% 24% 85.14% 83.33%
NextEra Energy Inc. /zigman2/quotes/200558509/composite NEE Electric Utilities 23% 8% 34.52% 28.29%
Incyte Corp. /zigman2/quotes/204510994/composite INCY Biotechnology 23% 22% 93.02% 92.61%
Intuitive Surgical Inc. /zigman2/quotes/204935713/composite ISRG Medical Specialties 23% 22% 69.63% 69.53%
Dominion Energy Inc. /zigman2/quotes/206853976/composite D Electric Utilities 22% -2% 61.86% 61.40%
CenterPoint Energy Inc. /zigman2/quotes/206368471/composite CNP Electric Utilities 21% 4% 16.27% 14.24%
Copart Inc. /zigman2/quotes/200378896/composite CPRT Mis. Commercial Services 21% 24% 43.65% 40.91%
Fortinet Inc. /zigman2/quotes/205733290/composite FTNT Computer Communications 21% 21% 71.16% 70.15%
Vertex Pharmaceuticals Inc. /zigman2/quotes/202259802/composite VRTX Biotechnology 20% 20% 85.96% 85.79%
PayPal Holdings Inc. /zigman2/quotes/208054269/composite PYPL Data Processing Services 19% 20% 44.47% 39.77%
Ansys Inc. /zigman2/quotes/207638775/composite ANSS Software 19% 19% 86.87% 86.25%
Source: FactSet

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

Changes in sales per share are also shown because they can provide more insight. The increase in sales per share will be less than the increase in sales if a company’s share count has increased. Small increases in the share count probably reflect the exercise of stock-based awards to executives.

A company’s sales may rise considerably following an acquisition, but if the company has issued new shares to help pay for the purchase, the shares may be diluted considerably, which means the buyer’s shareholders have had their percentage of ownership meaningfully reduced. The per-share numbers show how much their portion of sales increased. That helps investors understand if an acquisition was worthwhile for them.

Fiserv’s /zigman2/quotes/204817680/composite FISV -3.84%  third-quarter revenue more than doubled from a year earlier, reflecting its $22 billion all-stock acquisition of First Data Corp. on July 29. The company’s third-quarter results were consolidated for the full quarter, and First Data contributed 51% of sales.

If a company issues enough shares, you might even see sales per share declining as raw revenue increased. This may not necessarily indicate a problem if it fits in with a successful long-term growth strategy. But if the per-share number is significantly different from the raw number, you had better learn why if you are considering a stock for investment.

Ratings and price targets

Here’s a summary of sell-side analysts’ opinions of these companies:

Company Ticker Share 'buy' ratings Share neutral ratings Share 'sell' ratings Closing price - Nov. 11 Consensus price target Implied 12-month upside potential
Fiserv Inc. /zigman2/quotes/204817680/composite FISV 79% 17% 4% $110.25 $122.19 11%
Newmont Goldcorp Corp. /zigman2/quotes/205356474/composite NEM 67% 33% 0% $36.71 $47.52 29%
Prologis Inc. /zigman2/quotes/200785374/composite PLD 75% 25% 0% $87.32 $93.17 7%
CVS Health Corp. /zigman2/quotes/209664499/composite CVS 70% 30% 0% $71.73 $77.08 7%
Fidelity National Information Services Inc. /zigman2/quotes/207166559/composite FIS 79% 17% 4% $132.36 $154.65 17%
Marathon Petroleum Corp. /zigman2/quotes/209634297/composite MPC 94% 6% 0% $65.71 $80.35 22%
Netflix Inc. /zigman2/quotes/202353025/composite NFLX 68% 27% 5% $294.18 $371.96 26%
Autodesk Inc. /zigman2/quotes/209828392/composite ADSK 71% 21% 8% $152.92 $172.27 13%
MarketAxess Holdings Inc. /zigman2/quotes/202710814/composite MKTX 0% 82% 18% $359.74 $325.00 -10%
Alexion Pharmaceuticals Inc. /zigman2/quotes/206262068/composite ALXN 83% 17% 0% $109.01 $151.10 39%
NextEra Energy Inc. /zigman2/quotes/200558509/composite NEE 88% 6% 6% $222.22 $243.43 10%
Incyte Corp. /zigman2/quotes/204510994/composite INCY 65% 35% 0% $84.86 $94.56 11%
Intuitive Surgical Inc. /zigman2/quotes/204935713/composite ISRG 71% 23% 6% $544.80 $607.87 12%
Dominion Energy Inc /zigman2/quotes/206853976/composite D 31% 69% 0% $79.62 $84.82 7%
CenterPoint Energy Inc. /zigman2/quotes/206368471/composite CNP 65% 35% 0% $27.70 $31.83 15%
Copart Inc. /zigman2/quotes/200378896/composite CPRT 45% 46% 9% $82.97 $86.22 4%
Fortinet Inc. /zigman2/quotes/205733290/composite FTNT 41% 52% 7% $95.95 $99.52 4%
Vertex Pharmaceuticals Inc. /zigman2/quotes/202259802/composite VRTX 73% 27% 0% $201.90 $228.33 13%
PayPal Holdings Inc /zigman2/quotes/208054269/composite PYPL 76% 24% 0% $102.67 $125.87 23%
Ansys Inc. /zigman2/quotes/207638775/composite ANSS 47% 41% 12% $227.35 $237.77 5%
Source: FactSet

Don’t miss: This simple stock investing strategy combines value, quality and dividends into a winning formula

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2,978.76
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$ 371.71
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$ 180.65
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$ 92.09
-2.69 -2.84%
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$ 75.84
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$ 244.15
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$ 108.54
-4.33 -3.84%
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N/A
Market Cap
$76.74 billion
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$ 108.54
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N/A
Market Cap
$20.98 billion
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$131.76 billion
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US : U.S.: Nasdaq
$ 75.84
-2.13 -2.73%
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P/E Ratio
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$16.90 billion
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$ 544.62
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P/E Ratio
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Dividend Yield
N/A
Market Cap
$64.90 billion
Rev. per Employee
$673,819
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$ 81.28
-4.55 -5.30%
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Feb. 27, 2020 4:10p
P/E Ratio
48.09
Dividend Yield
4.63%
Market Cap
$71.93 billion
Rev. per Employee
$631,737
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/zigman2/quotes/206368471/composite
US : U.S.: NYSE
$ 24.16
+0.08 +0.33%
Volume: 12.11M
Feb. 27, 2020 4:10p
P/E Ratio
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Dividend Yield
4.80%
Market Cap
$12.09 billion
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$1.31M
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$ 84.59
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Feb. 27, 2020 4:00p
P/E Ratio
27.48
Dividend Yield
N/A
Market Cap
$20.54 billion
Rev. per Employee
$310,934
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$ 102.64
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N/A
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$18.17 billion
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$308,161
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$ 223.30
-8.74 -3.77%
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P/E Ratio
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Dividend Yield
N/A
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$1.22M
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$ 107.84
-1.27 -1.16%
Volume: 15.45M
Feb. 27, 2020 4:00p
P/E Ratio
52.08
Dividend Yield
N/A
Market Cap
$127.98 billion
Rev. per Employee
$710,138
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$ 244.15
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Volume: 1.53M
Feb. 27, 2020 4:00p
P/E Ratio
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Dividend Yield
N/A
Market Cap
$23.12 billion
Rev. per Employee
$380,481
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Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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