Second quarter earnings season has just started this week - do you have a watch list prepared? For ideas on which stocks to keep on your radar, we ran a screen on next week's reporting companies.
We began by screening for stocks reporting their second quarter earnings results next week. We then screened for those stocks with strong upward momentum, having outperformed the market with quarterly performance above 10%.
Then to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.
For an interactive version of this chart, click on the image below. Market cap data sourced from Zacks Investment Research.
Tool provided by Kapitall (kapitall.com).
Do you think these stocks will continue to beat the market by reporting strong earnings reports next week? Use this list as a starting point for your own analysis.
List sorted by performance over the last quarter.
1. AO Smith Corp. (AOS): Engages in the manufacture and sale of water heating equipment to the residential and commercial markets in the United States and internationally. Market cap at $2.27B. Price at $49.41. Earnings to be released on 07/18. Performance over the last quarter at 13.25%. MRQ net profit margin at 10.14% vs. 9.82% y/y. MRQ sales/assets at 0.208 vs. 0.189 y/y. MRQ assets/equity at 1.973 vs. 2.392 y/y.
2. Texas Pacific Land Trust (TPL): Engages in the sale, lease, and management of land in the United States. Market cap at $509.01M. Price at $55.75. Earnings to be released on 07/16. Performance over the last quarter at 12.35%. MRQ net profit margin at 62.07% vs. 58.74% y/y. MRQ sales/assets at 0.34 vs. 0.232 y/y. MRQ assets/equity at 1.436 vs. 1.514 y/y.
3. Meridian Bioscience Inc. (VIVO): Develops, sells, and distributes diagnostic test kits. Market cap at $833.45M. Price at $20.20. Earnings to be released on 07/20. Performance over the last quarter at 10.02%. MRQ net profit margin at 20.3% vs. 17.68% y/y. MRQ sales/assets at 0.3 vs. 0.261 y/y. MRQ assets/equity at 1.124 vs. 1.142 y/y.
*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.