With the recent banking crisis and fears of an impending recession shaking investors’ confidence, the stock market might remain under pressure. Despite the uncertainties, fundamentally strong stocks Brown & Brown, Inc. (BRO), Graco Inc. (GGG), and Chemed Corporation (CHE) look poised to soar and could be worth adding to your portfolio.
Before diving deeper into the fundamentals of these stocks, let’s discuss what could keep the stock market volatile in the coming months.
The latest economic data for April show that inflation moderated as the consumer price index (CPI) increased 0.4% for the month, in line with estimates, and rose 4.9% annually, slightly lesser than the 5% estimate. Although this provided some optimism, inflation remains above the Fed’s 2% target level.
The inflation data comes after nonfarm payrolls increased by 253,000 in April, higher than analyst estimates of 180,000. Last week, the Federal Reserve announced its 10th interest rate hike of 25 basis points.
The Federal Open Market Committee had hinted it could pause rate hikes, but officials will be taking various factors into account when determining how to proceed, with inflation data being the main factor.
While it is unclear whether the Fed will raise interest rates at its meeting in June, the probability of a recession remains after the central bank staff forecasted a “mild recession” later this year.
According to Morgan Stanley’s strategist, Mike Wilson, stocks are set to fall further as investors realize the economy is either headed for a recession or the Fed is poised to keep interest rates higher for longer. The uncertainty lingering around the economy will likely keep the stock market volatile in the upcoming months.
Let’s discuss the fundamentals of the featured stocks.
Brown & Brown, Inc. (BRO)
BRO markets and sells insurance products and services in the United States, Canada, Ireland, the United Kingdom, and internationally. It operates through four segments: Retail, National Programs, Wholesale Brokerage, and Services.
On May 9, 2023, BRO announced that its subsidiary acquired all of Brownlee Agency, Inc.’s assets. The acquisition is expected to boost BRO’s presence in Georgia. It will also expand the company’s capabilities by adding specialized talent and product offerings to meet the needs of new and existing customers.
In terms of the trailing-12-month EBIT margin, BRO’s 26.84% is 26.1% higher than the 21.30% industry average. Its 7.39% trailing-12-month Return on Total Capital is 46.9% higher than the 5.04% industry average. Likewise, its 5.13% trailing-12-month Return on Total Assets is 356.5% higher than the industry average of 1.12%.
BRO’s total revenues for the first quarter ended March 31, 2023, increased 23.6% year-over-year to $1.12 billion. Its net income increased 6.9% over the prior-year quarter to $235.50 million. Moreover, its adjusted net EPS came in at $0.84, representing an increase of 7.7% year-over-year.
BRO’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 15.9% and 18.4% year-over-year to $0.59 and $993.96 million, respectively. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters. The stock has gained 15.1% year-to-date to close the last trading session at $65.59.
BRO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #2 out of 14 stocks in the Insurance - Brokers industry. In addition, it has a B grade for Growth, Momentum, Sentiment, and Quality. We have also given BRO grades for Value and Stability. Get all the BRO ratings here.
Graco Inc. (GGG)
GGG designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials worldwide. It operates through three segments: Industrial segment, Process segment, and Contractor segment.
In terms of the trailing-12-month EBIT margin, GGG’s 27.56% is 185.8% higher than the 9.64% industry average. Its 22.44% trailing-12-month net income margin is 249.4% higher than the 6.42% industry average. Likewise, its 19.20% trailing-12-month Return on Total Assets is 275.3% higher than the industry average of 5.12%.
GGG’s net sales for the first quarter ended March 31, 2023, increased 7.2% year-over-year to $529.65 million. The company’s adjusted net earnings increased 27.5% year-over-year to $126.60 million. Its adjusted net EPS increased 29.8% year-over-year to $0.74.
GGG’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 16.2% and 4.8% year-over-year to $0.79 and $574.60 million, respectively. It has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 30.9% to close the last trading session at $78.13.
GGG’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #33 out of 78 stocks in the A-rated Industrial - Machinery industry. It has a B grade for Momentum, Stability, Sentiment, and Quality. We have also given GGG grades for Growth and Value. Get all GGG ratings here.
Chemed Corporation (CHE)
CHE provides hospice and palliative care services to patients through a network of physicians, registered nurses, home health aides, social workers, clergy, and volunteers, primarily in the United States. The company operates in two segments, VITAS and Roto-Rooter.
In terms of the trailing-12-month EBITDA margin, CHE’s 17.76% is 846.9% higher than the 1.88% industry average. Likewise, its 1.58x trailing-12-month asset turnover ratio is 346.8% higher than the industry average of 0.35x. Its 11.07% trailing-12-month net income margin compares to the negative 7.30% industry average.
CHE’s service revenues and sales for the first quarter ended March 31, 2023, increased 5.6% year-over-year to $560.16 million. The company’s adjusted net income increased marginally year-over-year to $72.87 million. Moreover, its adjusted net EPS came in at $4.82, representing a 0.6% rise from the prior-year quarter.
CHE’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 5.1% and 5.9% year-over-year to $5.09 and $562.54 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 13.9% to close the last trading session at $551.74.
CHE’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to a Buy. It is ranked #14 out of 75 stocks in the Medical - Services industry.
It has a B grade for Stability, Sentiment, and Quality. Click here to see the other ratings of CHE for Growth, Value, and Momentum.
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BRO shares were trading at $65.16 per share on Thursday morning, down $0.43 (-0.66%). Year-to-date, BRO has gained 14.81%, versus a 7.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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