Want to put an S&P 500 investor in a good mood during earnings season? A huge earnings surprise would do it — and a few companies have a knack for reliably pulling that off.
Eleven companies in the S&P 500, including Warren Buffett favorite T-Mobile US, real estate firm Prologis and financial W.R. Berkley, blew away Wall Street's earnings forecasts for the past four-straight quarters by 15% or more, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
And investors like what they see so far. Shares of the 11 S&P 500 companies that consistently beat earnings in the past 12 months are only down 8%, on average, this year. That's miles ahead of the S&P 500's more than 20% drop in that time. Companies with better-than-expected earnings might become all the more rare, too.
"The current 25% drop in equities largely takes into account the move higher in interest rates but does not include a drop in earnings, which we believe is likely as the economy slows," said Jim Besaw, chief investment officer of GenTrust.
Investors Hoping For Positive S&P 500 Surprises
Companies that top earnings views will be all the more prized as S&P 500 profit growth slows down.
Third-quarter profit season is kicking off in full force in upcoming weeks. So far, analysts only think S&P 500 companies' profit will rise a paltry 2.4%, says John Butters of FactSet. That would be the lowest earnings growth since profit fell 5.7% in the third-quarter of 2020 amid the throes of Covid-19.
But here's the big wild card: Profit surprises. Most companies report better-than-expected profit. And judging by historical norms, if that happens again, S&P 500 profit growth might wind up closer to 6% or 7%, Butters says.
Some S&P 500 companies, though, reliably beat profit forecasts quarter after quarter.
T-Mobile US Is The S&P 500's Profit Surprise King
T-Mobile US doesn't just beat profit estimates each quarter. It completely smashes them again and again.
The wireless communications firm has reported profit that topped expectations by an average 508% over the past four quarters. The second quarter was a case in point. The company wound up reporting an adjusted profit of $1.94 a share, topping expectations by 454%.
And that wasn't even its largest beat. T-Mobile US in the fourth quarter of 2021 blew away profit forecasts by 1,122%. When you're beating estimates by this much and so regularly, no wonder shares are up 15% this year.
Can T-Mobile US do it again in the third quarter? Analysts think the company will earn 49 cents a share on the quarter, down 63%. That's a low bar. The company reports on Oct. 27.
Profit Surprises Make Investors Smile
W.R. Berkley, an insurer, shows just how much S&P 500 investors like upside surprises. Shares of the Greenwich, Conn.-based company are up nearly 29% this year. Why? Much of the gains are due to the company topping earnings forecasts the past four quarters by an average of nearly 24%.
Just in the second quarter, the company earned $1.12 a share, which was 30% more than expected. And the insurer hasn't beaten quarterly profit forecasts by less than 15% in at least four quarters. It's expected to post 2% lower profit of 86 cents a share for the third quarter when it reports on Oct. 24. That sounds like an easy hurdle to beat.
Don't assume, though, that shares rise on every earnings beat. Warehouse rental firm Prologis has topped earnings forecasts in the past four-straight quarters by an average 115%. Even so, shares are down 40% this year, amid a slowdown in online commerce.
And yet, there's always another opportunity to impress. The company is seen reporting third-quarter profit of $1.19 a share, that's up nearly 23%.
But if history is a guide, that just might be as easy to beat.
Earnings Surprise!
S&P 500 companies that topped earnings forecast for four straight quarters
| Company | Ticker | Year to date stock % ch. | Avg. beat | Sector |
|---|---|---|---|---|
| T-Mobile US | 15.0% | 508.9% | Communication Services | |
| Prologis | -39.5 | 115.3 | Real Estate | |
| Ceridian HCM | -47.0 | 74.4 | Information Technology | |
| Hologic | -17.7 | 47.5 | Health Care | |
| MetLife | 4.4 | 36.1 | Financials | |
| Etsy | -55.4 | 34.1 | Consumer Discretionary | |
| Valero Energy | 62.2 | 32.0 | Energy | |
| Gartner | -12.9 | 30.8 | Information Technology | |
| Travelers | 5.5 | 29.6 | Financials | |
| W.R. Berkley | 28.9 | 27.5 | Financials | |
| CBRE Group | -36.3 | 23.9 | Real Estate |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
