Many hope the kickoff of earnings season next week might be what the S&P 500 needs to shake off its malaise. But a bonanza of profit is coming from just a handful of companies.
Just 10 S&P 500 companies, including real estate play UDR, consumer discretionary Hilton Worldwide and energy company Occidental Petroleum, are expected to post first-quarter profit that's 300% or more than a year ago, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. A flurry of profit reports are due out starting next week, as many S&P 500 financial companies put out their numbers for the quarter.
And S&P 500 investors badly need good news. The S&P 500 is down nearly 6% this year. Fears of an economic slowdown, higher interest rates and war in Europe are depressing stocks. And that's where sound solid profit growth would be a welcome sight.
"Markets are struggling to discount a wide range of expectations regarding what Fed policy will do to future economic and earnings growth," said Nicholas Colas of DataTrek Research. "That is different from every other rate cycle in the last 30 years."
S&P 500 Profit For First Quarter Is A Yawn
If you're expecting massive profit jumps for the S&P 500 at large, prepare to be disappointed. That's not likely.
Analysts polled by FactSet say S&P 500 profit will only rise 4.7% in the first quarter of 2022. Yes, that's at least growth. But not much. That's the lowest earnings growth posted by the S&P 500 since the anemic 3.8% growth reported in the fourth quarter of 2020.
And the trend isn't promising for the whole S&P 500. Analysts have cut their earnings estimates for S&P 500 companies by 0.7% during the quarter, FactSet says. Also concerning: 67 S&P 500 companies themselves warned profit in the quarter would be less than they previously predicted. It's the highest number of S&P 500 companies issuing warnings since the fourth quarter of 2019.
But there are massive outliers.
Where To Find Profit Booms
The biggest profit explosion in the S&P 500 is seen coming from UDR. It's a real estate development company that owns more than 50,000 apartment homes.
But more importantly, rising rents are flowing right to the bottom line. The company is seen making 5 cents a share, up a remarkable 6,686% from the same year-ago period. And that flows out of revenue that's seen rising more than 19% to $356.6 million. No other S&P 500 company is expected to post such robust bottom-line growth in the first quarter. The company has shown it can put up huge profit numbers, too. Last year's profit topped forecasts by 166%. Investors, though, are taking a wait-and-see approach. Shares are down nearly 2% this year.
And the comeback in travel, too, is resulting in some powerful earnings growth. Analysts think well-run hotel chain Hilton Worldwide will earn 65 cents a share in the first quarter. If that materializes, the would mean profit in the first quarter will have jumped more than 3,000% from a year ago. A strong first quarter is just the start. Analysts think Hilton's profit will double this full year, versus 2021. And yet, shares of Hilton are still down nearly 7% this year so far.
Profit Surge Coming From S&P 500 Energy
But when it comes to massive profit gains in the S&P 500, the energy patch is the place to be. By far.
S&P 500 energy companies' profit in the first quarter is expected to jump more than 245%, FactSet says. That blows away the 31.9% profit growth analysts are predicting in the second-fastest growing sector: industrials.
A case in point is one of Warren Buffett's favorite energy plays: Occidental Petroleum. It's expected to make $1.69 a share in the first quarter. That's up from a loss of 15 cents a share in the first quarter of 2021. Such amazing profit growth explains why the stock has roughly doubled this year.
Profits matter. And it's only a matter of time to find out by how much.
S&P 500 Companies Seen Posting Biggest First-Quarter Profit Growth
| Company | Symbol | Stock YTD % ch. | Sector | EPS Q1 2022 (est.) | Est. Q1 2022 EPS growth |
|---|---|---|---|---|---|
| UDR | -1.5% | Real Estate | $0.05 | 6,685.7% | |
| Hilton Worldwide | -6.7% | Consumer Discretionary | 0.65 | 3,144.3% | |
| Molson Coors Beverage | 8.9% | Consumer Staples | 0.19 | 1,784.9% | |
| Occidental Petroleum | 99.0% | Energy | 1.69 | 1,224.4% | |
| Exelon | -13.4% | Utilities | 0.65 | 1,185.2% | |
| Marriott International | -0.4% | Consumer Discretionary | 0.91 | 812.0% | |
| Marathon Petroleum | 34.2% | Energy | 1.12331 | 661.7% | |
| CF Industries Holdings | 48.6% | Materials | 4.16235 | 494.6% | |
| Marathon Oil | 51.8% | Energy | 0.92032 | 338.2% | |
| ConocoPhillips | 38.5% | Energy | 2.82955 | 310.1% |
Sources: IBD, S&P Global Market Intelligence
