The broader stock market feels like it’s shifting to a new phase in the second half of 2023, as are many stocks. Whether due to the end of the Covid-19 pandemic or individual businesses reaching inflection points, there’s a host of companies that are about to flip from losing money to making money.
Zeroing on those businesses can be a winning trade for investors, per equity strategists from Jefferies. They found that Russell 3000 companies that swung from negative earnings per share to positive earnings per share went on to outperform the index by an average of more than 5 percentage points over the next year since 1996.
It’s a case of investors saying “show me the money” before wading in.
Barron’s screened the S&P 500 for companies that have reported negative earnings per share over the past two years—but that analysts expect to show positive per-share profits this year and next. The screen yielded 18 names.
| Company / Ticker | 2021 EPS | 2022 EPS | 2023 Est. EPS | 2024 Est. EPS | YTD Return | Market Cap (bil.) |
|---|---|---|---|---|---|---|
| American Airlines Group / AAL | -$18.36 | -$3.09 | $2.86 | $3.26 | 48% | $12.1 |
| Axon Enterprise / AXON | -$0.03 | -$0.91 | $3.21 | $3.80 | 17% | $14.4 |
| Baker Hughes / BKR | -$14.73 | -$0.27 | $1.53 | $2.01 | 15% | $33.6 |
| Boeing / BA | -$7.15 | -$8.30 | $1.58 | $5.68 | 14% | $130.5 |
| Caesars Entertainment / CZR | -$13.50 | -$4.83 | $0.37 | $1.99 | 25% | $10.9 |
| Ceridian HCM Holding / CDAY | -$0.03 | -$0.50 | $1.22 | $1.62 | 6% | $10.3 |
| EQT / EQT | -$3.71 | -$3.54 | $2.45 | $4.34 | 21% | $14.6 |
| Expedia Group / EXPE | -$19.00 | -$1.80 | $9.09 | $11.54 | 33% | $16.9 |
| Las Vegas Sands / LVS | -$2.21 | -$1.26 | $1.91 | $3.26 | 20% | $44.0 |
| Live Nation Entertainment / LYV | -$8.12 | -$3.09 | $0.63 | $1.43 | 33% | $21.2 |
| Norwegian Cruise Line Holdings / NCLH | -$15.75 | -$12.33 | $0.77 | $1.51 | 83% | $9.6 |
| Palo Alto Networks / PANW | -$0.92 | -$1.73 | $4.27 | $5.01 | 79% | $75.7 |
| PG&E / PCG | -$1.05 | -$0.05 | $1.21 | $1.35 | 8% | $34.6 |
| Royal Caribbean Cruises / RCL | -$27.05 | -$20.89 | $4.72 | $7.00 | 105% | $26.4 |
| Targa Resources / TRGP | -$7.26 | -$0.07 | $4.70 | $6.40 | 7% | $17.4 |
| United Airlines Holdings / UAL | -$25.30 | -$6.10 | $9.62 | $10.99 | 49% | $18.4 |
| Viatris / VTRS | -$1.11 | -$1.05 | $2.95 | $2.63 | -9% | $11.9 |
| Wynn Resorts / WYNN | -$19.37 | -$6.64 | $2.70 | $5.02 | 20% | $12.2 |
Source: FactSet, Bloomberg
Many of the companies are seeing a profit inflection thanks to the end of the Covid-19 pandemic and the resumption of spending on in-person travel and entertainment. Those include airlines
American Airlines Group
(ticker: AAL) and
United Airlines Holdings
(UAL); cruise lines
Norwegian Cruise Line Holdings
(NCLH) and
Royal Caribbean Cruises
(RCL); and casino operators
Caesars Entertainment
(CZR),
Las Vegas Sands
(LVS), and
Wynn Resorts
(WYNN). Add travel-booking site
Expedia Group
(EXPE) and ticket marketplace
Live Nation Entertainment
(LYV) to that group, and that’s half of the names on the list.
The pandemic-recovery trade is no secret to investors. All of those companies are beating the market in 2023—some by a wide margin, such as Royal Caribbean’s 105% year-to-date surge.
The remaining nine make an eclectic mix. There’s aircraft giant
Boeing
(BA), which hasn’t reported a full-year, unadjusted profit per share since 2018 as 737 MAX woes and the pandemic wreaked havoc with the business. Analyst consensus calls for $1.58 in GAAP earnings per share this year, then $7.42 in 2024. That would be after losing a combined $15.45 in 2021 and 2022. Boeing shares are only slightly behind the S&P 500 this year, but remain down more than 50% from their early 2019 highs.
Another company expected to turn the page on a prolonged period of misfortune is
PG&E
(PCG). The California utility hasn’t been profitable on a GAAP basis since 2017, as penalties tied to its role in starting a deadly wildfire and costly upgrades to its infrastructure piled up. Shares are well behind the S&P 500 this year, but are among the best-performing utility stocks in the index.
Three companies in the oil-and-gas business made the screen:
Baker Hughes
(BKR),
EQT
(EQT), and
Targa Resources
(TRGP). Rounding out the list are
Axon Enterprise
(AXON),
Ceridian HCM Holding
(CDAY),
Palo Alto Networks
(PANW), and
Viatris
(VTRS).
It isn’t just about the earnings on the income statement, however—free cash flow rules all. Adding a similar FCF inflection requirement to the screen cuts the list to just four companies. They reported negative EPS and FCF in the past two years and are forecast by analysts to flip to positive territory on both lines this year and next. They are PG&E, Las Vegas Sands, Wynn Resorts, and Royal Caribbean Cruises.
Another interesting name is
Uber Technologies
(UBER), which didn’t pass the screen because it isn’t in the S&P 500…yet. Analysts expect the ride-hailing leader to narrowly flip to profitability this year and for free cash flow to surge. That could make it a candidate to join the index just as it reaches its earnings inflection. Shares are up 79% year to date but are about even with their 2019 initial public offering price.
Write to Nicholas Jasinski at [email protected]
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