This earnings season isn't much to look forward to for most S&P 500 investors. But some outliers are about to put up giant profit growth.
Analysts think eight S&P 500 companies — including Valero Energy, Marathon Petroleum and CF Industries — are seen putting up more than 350% adjusted profit growth in the second quarter of 2022, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
And that will be a welcome sight for investors. It already is. Shares of all eight companies seen putting up big second-quarter profit growth are all up this year, while the S&P 500 is down 19%. Why? S&P 500 companies, as a group, are only seen putting up profit growth of 4.2%, says John Butters of FactSet. And if that's right, it'll be the weakest period of S&P 500 profit growth since the fourth quarter of 2020.
"Since earnings are measured in nominal dollars, this will likely be a support for the (Q2) earnings season, which is just underway, and give some further reprieve to the recession worries," said Matt Peron, Director of Research at Janus Henderson Investors.
S&P 500 Earnings Fight A Headwind
It's normal and reasonable to expect S&P 500 companies to do better than analysts think. But this quarter, a surprise might be muted.
Of the small number of S&P 500 companies to report second-quarter results so far, just 60% topped expectations, says Butters. That's below the 77% of companies that exceeded earnings forecasts in the past five years. Additionally, surprises are smaller. Of the S&P 500 companies that beat earnings forecasts, they only topped them by 2%. That's a fraction of the 8.8% by which they normally beat analysts' estimates.
Furthermore, three S&P 500 companies have already warned about their profit in the third quarter. And with all this negative news piling up, it's fair that S&P 500 investors would be looking for some points of light.
S&P 500 Energy: Still Where The Action Is
There's no doubt investors looking for big jumps in profit will find them in the same sector: energy. All but one of the nine S&P 500 companies expected to post the highest second-quarter profit jumps are in energy.
The biggest is Valero, a refiner and seller of oil based in San Antonio, Texas. Analysts think the company will earn $9.39 a share, up a whopping 1,857% from the same year-ago period. That's a larger jump in profit seen from any S&P 500 companies in the second quarter.
Another energy firm is No. 2 for expected profit growth within the S&P 500. Analysts think Marathon Petroleum will make $7.68 a share in the June-ended quarter. If they're right, that would represent 1,047% profit growth. Not surprisingly, shares of Valero and Marathon are up 39% and 32% this year, respectively.
Looking For S&P 500 Mega-Growth Outside Of Energy
You must look far and wide to find stellar profit growth for the quarter outside of the S&P 500 energy sector. CF is the rare exception.
The seller of nitrogen and hydrogen is seen making $6.04 a share during the quarter, up more than 425% from the second quarter of 2021. Shares are up more than 20% just this year.
It's always possible analysts are being overly bullish on energy companies' profit. But given how much the price of crude is up this year, it's a pretty safe bet that the bottom line at energy firms will grow much faster than the S&P 500.
Biggest Profit Growers In S&P 500
Based on analysts' adjusted profit forecast for the second quarter of 2022
| Company | Symbol | EPS Q2 change (est.) | Sector | Stock YTD change |
|---|---|---|---|---|
| Valero Energy | 1856.5% | Energy | 39.2% | |
| Marathon Petroleum | 1046.7% | Energy | 31.9% | |
| Occidental Petroleum | 818.0% | Energy | 102.5% | |
| Hess | 801.9% | Energy | 28.6% | |
| Phillips 66 | 679.1% | Energy | 12.7% | |
| Marathon Oil | 465.4% | Energy | 27.0% | |
| CF Industries Holdings | 425.8% | Materials | 19.5% | |
| Coterra Energy | 366.6% | Energy | 41.7% |
