With almost three-quarters of S&P 500 companies having reported earnings this season, it’s time to review the winners.
Below is a screen showing 20 U.S. technology companies that appear to be firing on all cylinders, with improving sales, gross margins and operating margins.
This quarterly earnings season, year-over-year comparisons of results for companies in many industries are distorted because of pandemic shutdowns in 2020. For example, second-quarter sales for Delta Air Lines Inc.
DAL
were up 385% from a year earlier.
So the following list of earnings-season winners is derived from the 74 companies in the S&P 500
SPX
information technology sector, plus six tech players in the communications sector, including Alphabet Inc.
GOOGL
GOOG,
Facebook Inc.
FB,
Netflix Inc.
NFLX
and three videogame developers, along with two in the consumer discretionary sector (Amazon.com Inc.
AMZN
and Tesla Inc.
TSLA
), for a total of 82 “tech” companies.
What does it mean to be a winner in this environment? Well, investors always want to see a company’s sales increasing. They also want to see pricing power for a company’s products and services. And in an inflationary environment with rising costs for labor and other overhead, investors will keep an eye on operating earnings.
Businesses always face challenges. The good news for now is that U.S. consumers are happy to spend.
A screen of earnings winners
Beginning with the 82 “tech” companies in the S&P 500 (as defined above), 62 had reported financial results for fiscal quarters ending April 30 or later through Aug. 3. Among the 62 companies, 49 increased sales from a year earlier while also improving their gross margins and operating margins.
A company’s gross margin is it net revenue minus the cost of goods or services sold. It reflects a company’s pricing power and its direct production costs, including labor and materials. A company’s management team might decide to build market share by increasing discounts to customers or holding the line on price increases. This may be worthwhile depending on the competitive environment, but it cannot go on forever. It’s a good sign if the gross margin is expanding as sales increase.
A company’s operating margin goes further, subtracting more overhead and other expenses that aren’t directly related to the production of goods and services sold. It is, essentially, earnings before interest and taxes (EBIT) divided by sales.
Here are the 20 tech companies among the S&P 500 that increased quarterly sales the most from a year earlier while also improving their gross and net margins:
| Company | Increase in quarterly sales from year earlier | Gross margin | Gross margin – year-earlier quarter | Quarterly operating margin | Operating margin – year-earlier quarter |
|
Enphase Energy Inc. ENPH |
151.8% | 39.64 | 38.11 | 21.20 | 11.94 |
|
Advanced Micro Devices Inc. AMD |
99.3% | 47.53 | 43.89 | 24.68 | 13.20 |
|
Tesla Inc. TSLA |
98.1% | 24.12 | 20.99 | 16.86 | 14.81 |
|
Qualcomm Inc. QCOM |
64.7% | 57.77 | 57.49 | 32.27 | 23.40 |
|
Alphabet Inc. Class A GOOGL |
62.2% | 57.62 | 51.36 | 36.05 | 25.21 |
|
Facebook Inc. Class A FB |
55.6% | 81.43 | 79.51 | 49.36 | 41.03 |
|
Skyworks Solutions Inc. SWKS |
51.5% | 49.82 | 44.96 | 38.63 | 33.92 |
|
TE Connectivity Ltd. TEL |
50.9% | 32.28 | 27.75 | 24.14 | 16.88 |
|
Lam Research Corp. LRCX |
48.7% | 46.20 | 45.80 | 33.64 | 29.54 |
|
Zebra Technologies Corp. Class A ZBRA |
44.9% | 45.90 | 41.79 | 21.42 | 15.79 |
|
NXP Semiconductors N.V. NXPI |
42.9% | 50.12 | 26.42 | 34.63 | 22.40 |
|
Texas Instruments Inc. TXN |
41.4% | 67.18 | 64.28 | 54.76 | 47.89 |
|
Applied Materials Inc. AMAT |
41.2% | 47.47 | 44.18 | 32.92 | 25.95 |
|
IPG Photonics Corp. IPGP |
38.7% | 47.45 | 44.67 | 30.53 | 19.79 |
|
Apple Inc. AAPL |
37.2% | 43.46 | 37.11 | 33.28 | 25.60 |
|
Micron Technology Inc. MU |
36.5% | 41.85 | 32.42 | 50.70 | 42.66 |
|
Keysight Technologies Inc. KEYS |
36.4% | 60.44 | 57.54 | 26.45 | 20.11 |
|
Corning Inc. GLW |
36.4% | 36.26 | 32.33 | 26.59 | 22.78 |
|
Qorvo Inc. QRVO |
36.2% | 49.26 | 42.88 | 37.73 | 30.78 |
|
Amphenol Corp. Class A APH |
33.5% | 31.77 | 30.38 | 23.90 | 21.58 |
| Source: FactSet | |||||
Click on the tickers for more about each company, including news coverage and price ratios.
Outlook through 2023
Long-term investors might be interested in seeing how much more sales growth is expected for these companies, based on consensus estimates among analysts polled by FactSet going out another couple of years. Leaving the group in the same order, here are expected compound annual growth rates (CAGR) for sales through 2023, with 2020 as the baseline:
| Company | Estimated revenue – calendar 2020 | Estimated revenue – calendar 2021 | Estimated revenue – calendar 2022 | Estimated revenue – calendar 2023 | Estimated three-year sales CAGR through 2023 |
|
Enphase Energy Inc. ENPH |
$774 | $1,336 | $1,796 | $2,232 | 42.3% |
|
Advanced Micro Devices Inc. AMD |
$9,763 | $15,433 | $17,986 | $20,260 | 27.6% |
|
Tesla Inc. TSLA |
$31,536 | $50,042 | $68,401 | $85,143 | 39.2% |
|
Qualcomm Inc. QCOM |
$24,520 | $33,853 | $36,781 | $37,057 | 14.8% |
|
Alphabet Inc. Class A GOOGL |
$182,612 | $247,121 | $288,025 | $331,861 | 22.0% |
|
Facebook Inc. Class A FB |
$85,967 | $118,487 | $141,496 | $164,772 | 24.2% |
|
Skyworks Solutions Inc. SWKS |
$3,798 | $5,260 | $5,868 | N/A | N/A |
|
TE Connectivity Ltd. TEL |
$12,872 | $15,155 | $16,107 | $17,096 | 9.9% |
|
Lam Research Corp. LRCX |
$12,368 | $16,147 | $17,975 | $18,683 | 14.7% |
|
Zebra Technologies Corp. Class A ZBRA |
$4,452 | $5,487 | $5,708 | $6,010 | 10.5% |
|
NXP Semiconductors N.V. NXPI |
$8,611 | $10,841 | $11,597 | $12,200 | 12.3% |
|
Texas Instruments Inc. TXN |
$14,461 | $17,884 | $18,577 | $19,203 | 9.9% |
|
Applied Materials Inc. AMAT |
$18,122 | $23,012 | $24,961 | $26,080 | 12.9% |
|
IPG Photonics Corp. IPGP |
$1,201 | $1,472 | $1,618 | $1,715 | 12.6% |
|
Apple Inc. AAPL |
$297,656 | $368,618 | $382,730 | $403,987 | 10.7% |
|
Micron Technology Inc. MU |
$23,532 | $30,840 | $38,485 | N/A | N/A |
|
Keysight Technologies Inc. KEYS |
$4,332 | $4,920 | $5,194 | N/A | N/A |
|
Corning Inc. GLW |
$11,451 | $14,013 | $14,704 | $15,355 | 10.3% |
|
Qorvo Inc. QRVO |
$3,831 | $4,485 | $4,909 | $5,264 | 11.2% |
|
Amphenol Corp. Class A APH |
$8,599 | $10,465 | $11,111 | $11,655 | 10.7% |
| Source: FactSet | |||||
Even the calendar 2020 numbers are marked as estimates, because many companies have fiscal years and quarters that don’t match the calendar.
For three of the companies, consensus annual sales estimates are available only through calendar 2022. Here are their expected two-year sales CAGR from the estimates on the table:
-
Skyworks Solutions Inc.
SWKS
: 24.3%. -
Micron Technology Inc.
MU
: 27.9%. -
Keysight Technologies Inc.
KEYS
: 9.5%.
Roundup of analysts’ opinions
Here’s a summary of analysts’ ratings and price targets for the group of 20 “tech” sales winners:
| Company | Share “buy” or equivalent ratings | Closing price – Aug. 3 | Consensus price target | Implied 12-month upside potential |
|
Enphase Energy Inc. ENPH |
64% | $192.62 | $200.55 | 4% |
|
Advanced Micro Devices Inc. AMD |
59% | $112.56 | $111.70 | -1% |
|
Tesla Inc. TSLA |
43% | $709.74 | $695.41 | -2% |
|
Qualcomm Inc. QCOM |
62% | $147.95 | $181.91 | 23% |
|
Alphabet Inc. Class A GOOGL |
98% | $2,712.60 | $3,135.64 | 16% |
|
Facebook Inc. Class A FB |
80% | $351.24 | $415.85 | 18% |
|
Skyworks Solutions Inc. SWKS |
57% | $188.19 | $215.71 | 15% |
|
TE Connectivity Ltd. TEL |
58% | $149.40 | $156.13 | 5% |
|
Lam Research Corp. LRCX |
73% | $645.52 | $746.90 | 16% |
|
Zebra Technologies Corp. Class A ZBRA |
58% | $546.74 | $559.11 | 2% |
|
NXP Semiconductors N.V. NXPI |
66% | $210.53 | $230.63 | 10% |
|
Texas Instruments Inc. TXN |
44% | $189.34 | $204.03 | 8% |
|
Applied Materials Inc. AMAT |
76% | $142.16 | $161.92 | 14% |
|
IPG Photonics Corp. IPGP |
57% | $177.69 | $244.61 | 38% |
|
Apple Inc. AAPL |
75% | $147.36 | $163.74 | 11% |
|
Micron Technology Inc. MU |
88% | $80.86 | $120.03 | 48% |
|
Keysight Technologies Inc. KEYS |
71% | $166.71 | $166.46 | 0% |
|
Corning Inc. GLW |
67% | $41.70 | $48.75 | 17% |
|
Qorvo Inc. QRVO |
64% | $195.18 | $214.00 | 10% |
|
Amphenol Corp. Class A APH |
56% | $73.83 | $78.57 | 6% |
| Source: FactSet | ||||
Wall Street analysts’ ratings and price targets are based on one-year outlooks — a tradition in the brokerage industry. But one year is a short period for committed long-term investors. So the longer-term look at sales-growth projections in the second table doesn’t necessarily fit in with the 12-month price targets and ratings.
As always, a snapshot of data isn’t enough to make an investing decision. If you’re considering a stock for investment, it is best to do your own research and form your own opinion about a company’s likelihood of remaining competitive over the next decade.
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