When companies report earnings every quarter, sometimes they surprise the market with a gang-buster number that causes the stock price to rise sharply, pricing in the good news. If you believe that companies can consistently surprise the market, you may be interested in this list.
We ran a screen on companies with a history of surprising the market, with an average earnings surprise of at least 10% over the last four quarterly reports. We then ran DuPont analysis on these companies to find those with strong sources of profitability as well.
DuPont analysis is used to deconstruct changes in return on equity (ROE) profitability over time, telling us where the profits come from - some sources (namely net margin and asset turnover) are better than others (leverage).
ROE = Net Margin x Asset Turnover x Financial Leverage
If a company sees increasing ROE due to increases in net margin and asset turnover, it's considered a good sign. Increases in financial leverage are less preferable. We screened for stocks exhibiting these positive trends.
Interactive Chart: Press Play to compare changes in market cap over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
Do you think these names will continue to positively shock the market? Use this list as a starting point for your own analysis.
1. Boeing Co. (BA): Engages in the design, development, manufacture, sale and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services worldwide. Market cap at $55.46B.Price at $75.31. In Mar 2011: Reported EPS at 0.78 vs. estimate at 0.7 (surprise of 11.4%). In Jun 2011: Reported EPS at 1.25 vs. estimate at 0.97 (surprise of 28.9%). In Sept. 2011: Reported EPS at 1.46 vs. estimate at 1.1 (surprise of 32.7%). In Dec. 2011: Reported 1.83 vs. estimate at 1.01 (surprise of 81.2%). (Average earnings surprise at 38.55%). MRQ net profit margin at 7.12% vs. 7.03% y/y. MRQ sales/assets at 0.244 vs. 0.241 y/y. MRQ assets/equity at 22.756 vs. 24.789 y/y.
2. CF Industries Holdings, Inc. (CF): Through its subsidiary, CF Industries, Inc., manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide. Market cap at $11.96B.Price at $187.64. In Mar 2011: Reported EPS at 3.81 vs. estimate at 3.17 (surprise of 20.2%). In June 2011: Reported EPS at 6.87 vs. estimate at 5.95 (surprise of 15.5%). In Sept. 2011: Reported EPS at 5.16 vs. estimate at 4.92 (surprise of 4.9%). In Dec. 2011: Reported 7.13 vs. estimate at 6.85 (surprise of 4.1%). (Average earnings surprise at 11.17%). MRQ net profit margin at 25.54% vs. 16.18% y/y. MRQ sales/assets at 0.191 vs. 0.141 y/y. MRQ assets/equity at 1.974 vs. 2.161 y/y.
3. Cummins Inc. (CMI): Designs, manufactures, distributes and services diesel and natural gas engines, electric power generation systems and engine-related component products worldwide. Market cap at $23.07B.Price at $122.02. In Mar 2011: Reported EPS at 1.75 vs. estimate at 1.44 (surprise of 21.5%). In June 2011: Reported EPS at 2.41 vs. estimate at 2.01 (surprise of 19.9%). In Sept. 2011: Reported EPS at 2.35 vs. estimate at 2.25 (surprise of 4.4%). In Dec. 2011: Reported 2.56 vs. estimate at 2.23 (surprise of 14.8%). (Average earnings surprise at 15.15%). MRQ net profit margin at 11.14% vs. 8.75% y/y. MRQ sales/assets at 0.422 vs. 0.398 y/y. MRQ assets/equity at 2.125 vs. 2.227 y/y.
4. EOG Resources, Inc. (EOG): Engages in the exploration, development, production and marketing of natural gas and crude oil primarily in the United States, Canada, the Republic of Trinidad, Tobago, the United Kingdom and the People's Republic of China. Market cap at $29.93B.Price at $114.08. In March 2011: Reported EPS at 0.68 vs. estimate at 0.54 (surprise of 25.9%). In June 2011: Reported EPS at 1.11 vs. estimate at 0.79 (surprise of 40.5%). In Sept. 2011: Reported EPS at 0.83 vs. estimate at 0.78 (surprise of 6.4%). In Dec. 2011: Reported 1.15 vs. estimate at 0.88 (surprise of 30.7%). (Average earnings surprise at 25.87%). MRQ net profit margin at 4.35% vs. 3.% y/y. MRQ sales/assets at 0.112 vs. 0.083 y/y. MRQ assets/equity at 1.965 vs. 2.113 y/y.
5. Plains All American Pipeline, L.P. (PAA): Engages in the transportation, storage, terminalling and marketing of crude oil, refined products and liquefied petroleum gas and other natural gas-related petroleum products in the United States and Canada. Market cap at $12.60B. Price at $79.49. In March 2011: Reported EPS at 1.03 vs. estimate at 0.83 (surprise of 24.1%). In Jun 2011: Reported EPS at 1.12 vs. estimate at 0.87 (surprise of 28.7%). In Sep.t 2011: Reported EPS at 1.42 vs. estimate at 1.2 (surprise of 18.3%). In Dec. 2011: Reported 1.65 vs. estimate at 1.5 (surprise of 10%). (Average earnings surprise at 20.28%). MRQ net profit margin at 3.13% vs. 1.96% y/y. MRQ sales/assets at 0.578 vs. 0.528 y/y. MRQ assets/equity at 2.822 vs. 3.156 y/y.
6. Unitedhealth Group, Inc. (UNH): Provides healthcare services in the United States. Market cap at $61.59B.Price at $59.25. In March 2011: Reported EPS at 1.22 vs. estimate at 0.89 (surprise of 37.1%). In June 2011: Reported EPS at 1.16 vs. estimate at 0.94 (surprise of 23.4%). In Sep.t 2011: Reported EPS at 1.17 vs. estimate at 1.12 (surprise of 4.5%). In Dec. 2011: Reported 1.17 vs. estimate at 1.04 (surprise of 12.5%). (Average earnings surprise at 19.38%). MRQ net profit margin at 4.85% vs. 4.34% y/y. MRQ sales/assets at 0.382 vs. 0.381 y/y. MRQ assets/equity at 2.4 vs. 2.442 y/y.
*EPS data sourced from Yahoo! Finance, accounting data sourced from Google Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.