by Alyssa Oursler | July 11, 2013 1:43 pm
If you think investing in small caps is the only way to bet on big growth, think again.
Large-cap stocks — companies with a market capitalization over $10 billion — are usually seen as slow-and-steady investments whose biggest growth has already come and gone. Still, there are some names in that category whose bottom lines are far from fully grown.
A quick screen reveals a handful of large-cap names expected to post annual EPS growth north of 25% not just this year, but every year for the next half-decade.
Of course, a good chunk of those — including companies like Toyota (TM) and Honda (HMC) — probably would be more accurately classified as “recovering” than “growing.” Automakers got pounded during the financial crisis, TM an HMC then suffered the Tohoku earthquake and tsunami, and a strong yen further dwindled Japanese profits.
But other large-cap stocks have indeed been improving earnings during the past five years, and still are poised to post solid growth in years to come. Let’s take a look:
Market Cap: $17 billion
Expected 5-year EPS Growth: 38%
Big-time E&P firm Continental Resources (CLR) has been soaring, and doesn’t look like it will run out of energy any time soon.
During the past five years, Continental averaged an annual EPS gain of nearly 90%. Meanwhile, since the depths of the recession, its stock has increased sixfold, putting it currently near all-time highs.
This year, earnings are expected to improved by almost 69% — less than the last half-decade, but hardly anything to sneeze at — while next year should tack another 33% improvement. Over the next half-decade, that will smooth out to annualized growth of 38% — that dwarfs the expected annual growth of 11% and 13% from sector-mates Whiting Petroleum (WLL) and Noble Energy (NBL), respectively.
Much of that growth likely will come from last year’s $650 million purchase of properties in the booming Bakken Shale — a region that a recent U.S. Geological Survey report suggests might actually hold nearly double the energy originally thought. Plus, operating costs have been on the way down there; Continental has lowered its costs by about 10% year-over-year, according to Daily Finance.
No wonder CLR’s mean analyst price target gives the stock over 13% upside.
Market Cap: $23 billion
Expected 5-year EPS Growth: 29%
Sirius XM Radio (SIRI) made headlines and jumped to a new 52-week high earlier this week after announcing that it hit 25 million subscribers in the second quarter thanks to a record net addition of 715,000 customers, and raised its subscriber outlook for the year.
During the past five years, Sirius has posted average earnings growth of 27% — a trend that helped the stock recover from a price tag of 10 cents during the 2008-09 market lows to SIRI’s current price around $3.60.
Analysts are expecting Sirius to top that kind of growth in the coming years, too. Next year, it’s slated to improved EPS by nearly 32%, while the next half-decade’s annualized growth will top the past five years’ sum by 2 percentage points.
One tailwind for the company that should keep blowing: strong auto sales. U.S. auto sales hit a six-year high last month — good news for a company that makes a good chunk of change off folks getting a fancy new radio in their fancy new cars.
Market Cap: $13 billion
Expected 5-year EPS Growth: 28%
Luxury hot-shot Michael Kors (KORS) burst onto the scene in late 2011 with an IPO pricing of $20. Around a year-and-a-half later, the stock has more than tripled, including a 25% push in the first half of 2013.
And no wonder — Michael Kors is one of the most rapidly growing specialty brands in the retail space, firing on all cylinders. The high-end company has enjoyed improving same-store sales while also dropping new stores across the U.S., looking overseas to new markets and plotting new partnerships.
Of course, because of that, growth has already become synonymous with KORS. The $13 billion brand has enjoyed annualized growth north of 50% during the past four years, making the coming 28% annualized growth — a rate most retailers would kill for — actually a bit disappointing to many investors.
Considering the stock is only trading at 20 times next year’s earnings, though, 28% EPS growth — including an expected 24% improvement next year — still looks pretty good.
Market Cap: $23 billion
Expected 5-year EPS Growth: 25%
Regeneron Pharmaceuticals (REGN) shares have simply exploded. The stock has doubled in the past 52 weeks alone, and since 2008, it has climbed from under $20 to its current price around $245. That has come courtesy of 44% EPS improvement annually during the past half-decade on sales growth north of 60%.
One big reason for the success: Regeneron’s eye drug Eylea. The drug already holds 20% of first-line intravitreal pharmacotherapy share among wet AMD patients after just 18 months — or, in other words, it’s already the second-most popular drug for a severe form of macular degeneration.
Of course, in biopharma, what’s coming up next matters almost as much as what you have. The most promising thing in Regeneron’s drug pipeline is dupilumab — a trial-stage asthma treatment it’s developing with Sanofi (SNY). The global asthma market is estimated to be worth $25 billion, so an eventual approval would be reason for REGN shareholders to cheer.
Regeneron had better hope that drug pans out, though, as it faces the same problem as KORS — one helluva high bar. Sure, Regeneron is supposed to posted 25% growth for the next five years … but that’s just more than half the rate it has been growing for the past five.
Market Cap: $28 billion
Expected 5-year EPS Growth: 27%
American Tower (AMT) has grown earnings during the past few years for an obvious reason: It’s a leader in a booming industry. As everything moves to wireless, AMT provides the infrastructure that makes it possible — and not just here in the U.S., but in 11 countries on five continents.
The result? Nearly 50% annualized growth during the past few years, and one eye-popping stock run. As of just a couple months ago, AMT had more than quadrupled from its recession lows.
However, AMT pivoted off those highs in May and now is sitting nearly 8% in the red year-to-date. Plus, it has missed analyst earnings estimates in three of the past four quarters, while the consensus for the current year has slowly been slipping in recent months.
Still, the company’s next five years are expected to be anything but stagnant. Earnings per share are slated for a 61% improvement this year, a 24% improvement next year and an average 27% improvement annually over the next half-decade.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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