About two-thirds of the S&P 500 companies that reported earnings in the first two weeks of the season had representatives mention inflation in their earnings calls, as per FactSet, indicating the grim inflationary environment companies are trying to cope with.
On top of it, according to economists polled by Reuters, the Federal Reserve will go for its fourth consecutive 75 basis point interest rate hike in its November meeting, which would lift the federal funds rate to 3.75%-4.00%. Economists also believe the central bank should not pause until inflation falls to around half its current level.
Brett Ryan, the senior U.S. economist at Deutsche Bank, said, “Fed officials have indicated that pausing is only possible after ‘clear and compelling’ evidence inflation has moderated.”
Amid the market jitters, we think investors should focus on fundamentally strong stocks such as Comcast Corporation (CMCSA), Ulta Beauty Inc. (ULTA), and Brown & Brown, Inc. (BRO), which have recently been upgraded in our proprietary POWR Ratings system.
Comcast Corporation (CMCSA)
CMCSA is a global media and technology company. It operates through three segments: Cable Communications; Media; Studios; Theme Parks; and Sky. The company also owns the Philadelphia Flyers, as well as the Wells Fargo Center arena in Philadelphia, Pennsylvania, and provides streaming services, such as Peacock.
On October 24, CMCSA announced that it had begun construction to expand service to hundreds of homes in the City of Sumas to bring the entire suite of Xfinity and Comcast Business services to the citizens and businesses in the rural community of Whatcom County. This might bolster the company’s revenue stream.
Moreover, on September 14, CMCSA announced an expansion in its share repurchase authorization to a total of $20.0 billion, with $9 billion worth of shares repurchased to date. This should improve shareholders’ returns.
For the second quarter of the fiscal year 2022 ended June 30, CMCSA’s revenue increased 5.1% year-over-year to $30.02 billion. During the same period, the company’s adjusted EBITDA increased 10.1% year-over-year to $9.83 billion. Its adjusted net income increased 14.3% year-over-year to $4.51 billion, while its adjusted EPS grew 20.2% year-over-year to $1.01.
Analysts expect CMCSA’s revenue to increase 4.5% year-over-year to $121.57 billion in the current fiscal year ending December 2022, while its EPS is expected to grow 11% year-over-year to $3.59 for the same year. Also, the company has an impressive earnings history, surpassing the consensus EPS estimates in each of the four trailing quarters.
The stock gained 2% intraday to close the last trading session at $31.08.
CMCSA’s POWR Ratings reflect its promising outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
CMCSA has a B grade for Value and Quality and is ranked the first among the nine stocks in the Entertainment – TV & Internet Providers industry.
Beyond what we’ve stated above, we have also given CMCSA grades for Growth, Momentum, Stability, and Sentiment. Get all CMCSA ratings here.
Ulta Beauty Inc. (ULTA)
ULTA operates as a retailer of beauty products. The company operates around 1,308 retail stores across 50 states and distributes its products through its website ulta.com and mobile applications.
On August 30, ULTA revealed Beauty&, a 360-campaign designed to move the industry forward, widen the lens of beauty and inspire all to reclaim beauty on their own terms. Karla Davis, vice president of marketing, said, “Our comprehensive campaign reflects many ways to celebrate individuality, resilience, strength, and above all else, the beautiful possibilities that live within each of us.”
ULTA’s net sales came in at $2.30 billion for the second quarter ended July 30, 2022, up 16.8% year-over-year. Its net income increased 17.8% year-over-year to $295.68 million. Moreover, the company’s income per share came in at $5.70, up 25% year-over-year.
The consensus EPS estimate of $21.31 for the current fiscal year ending January 2023 represents an 18.5% improvement year-over-year. The consensus revenue estimate of $9.76 billion for the same year represents a 13% increase from last year. The company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
ULTA gained marginally intraday to close the last trading session at $384.63.
It is of no surprise that ULTA has an overall rating of B, which indicates a Buy in our proprietary rating system.
The stock has an A grade in Quality and a B grade in Sentiment. Within the Specialty Retailers industry, it is ranked #14 out of 46 stocks.
Click here to see ULTA’s additional POWR Ratings for Momentum, Value, Growth, and Stability.
Brown & Brown, Inc. (BRO)
BRO markets and sells insurance products and services in the United States, Bermuda, Canada, Ireland, the United Kingdom, and the Cayman Islands. It operates through four segments: Retail; National Programs; Wholesale Brokerage; and Services.
On October 18, BRO declared a regular quarterly cash dividend of $0.1150 per share, payable on November 16, 2022. The dividend represents a 12.2% increase from the previous regular quarterly cash dividend and reflects the shareholder return ability of the company.
For the fiscal third quarter of 2022 ended September 30, BRO’s total adjusted revenues increased 20.6% year-over-year to $927.60 million. Its adjusted EBITDAC rose 5.8% from the prior-year quarter to $289.80 million. The company’s net income grew 10% year-over-year to $161.10 million, while its net earnings per share came in at $0.57, up 9.6% from the prior-year quarter.
Street EPS estimate for the current fiscal year ended December 2022 of $2.31 reflects a rise of 5.4% year-over-year. Likewise, Street revenue estimate for the same quarter of $3.59 billion indicates an improvement of 17.8% from the prior-year period. Additionally, BRO has topped consensus EPS estimates in three of the trailing four quarters.
Over the past month, BRO’s stock has gained 7.1% to close its last trading session at $63.08.
This promising prospect is reflected in BRO’s POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
BRO has a B grade for Growth, Momentum, and Quality. It is ranked #3 out of 14 stocks in the Insurance - Brokers industry.
To see the additional POWR Ratings for BRO for Value, Stability, and Sentiment, click here.
CMCSA shares were trading at $31.42 per share on Tuesday morning, up $0.34 (+1.09%). Year-to-date, CMCSA has declined -35.92%, versus a -19.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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