Factset reported on March 4 that in the first two months of 2022, analysts decreased earnings estimates for S&P 500 companies for Q1. That doesn’t bode well for S&P 500 stocks.
According to its report, the median earnings estimate for all the constituents in the index decreased by 1.2% to $51.62 from $52.22. Further, eight sectors got earnings estimate reductions in the first two months of the year. The three sectors receiving increases: energy, tech, and real estate.
What does this all mean? Well, it’s the largest decrease since Q2 2020, which suggests that analysts believe life’s about to get a little harder for index constituents.
“As the bottom-up EPS estimate for the index decreased during the first two months of the quarter, the value of the S&P 500 also decreased during this same period. From December 31 through February 28, the value of the index declined by 8.2% (to 4373.34 from 4766.18),” Factset’s report stated.
Not to fear, some S&P 500 companies have actually increased earnings guidance in 2022.
- Tapestry (NYSE:TPR)
- Ralph Lauren (NYSE:RL)
- Parker-Hannifin (NYSE:PH)
- Hologic (NASDAQ:HOLX)
- Automatic Data Processing (NASDAQ:ADP)
- CVS Health (NYSE:CVS)
- Bath & Body Works (NASDAQ:BBWI)
Here are seven of the S&P 500 stocks that have upped their view since the beginning of the year.
S&P 500 Stocks Raising Guidance: Tapestry (TPR)
The owner of Coach, Kate Spade, and Stuart Weitzman announced Q2 2022 results in February that blew the doors off analyst estimates for the quarter. On the top line, Tapestry delivered revenue of $2.14 billion, $141 million higher than the consensus. On the bottom line, adjusted earnings per share were $1.33, 15 cents clear of analyst expectations.
Coach particularly did well in the second quarter:
“The continued outperformance of the brand is a direct reflection of the advantages of the tapestry platform, the benefits of the strategic investments we’re making, and marketing and our ability to meet the consumer where they want to shop,” Tapestry CEO Joanne Crevoiserat said on the analyst conference call.
As a result of its strong earnings, the company raised its guidance for all of 2022. It now expects sales of $6.75 billion this year, $175 million than its previous guidance. At the midpoint of its guidance, Tapestry expects EPS of $3.63, up from $3.47 previously.
In addition to upping its sales and earnings, Tapestry said that it would return $1.5 billion to shareholders in 2022, up from its original plan to return $1.25 billion. In Q2 2022, it bought back $500 million of its stock at $42.54 a share.
It still has $850 million left on its share repurchase program. Hopefully, it’ll be buying in the third quarter. Tapestry’s shares are $7 lower than what the company paid.
Ralph Lauren (RL)
While the news is nothing but conjecture at this point, it would be an excellent home for the iconic brand.
In early March, the company’s Chief Commercial Officer, Howard Smith, resigned from his position over alleged violations of its ethics code. The executive’s conduct is being investigated by independent parties. Smith spent 20 years at the company.
On a lighter note, in early February, the company raised its revenue guidance for the year. It now expects sales growth of 40% in 2022, up from its previous guidance of 35%. In Q3 2022, its sales increased 27% to $1.82 billion, $180 million ahead of estimates. On the bottom line, its adjusted EPS was $2.97, 77 cents clear of analyst expectations.
Ralph Lauren, excluding its in-house personnel issues, is on a roll.
Despite the good news, RL stock is down more than 10% over the past year. Perhaps that’s why management initiated a $15 billion share repurchase plan at the same time it raised its guidance.
RL is looking like a good GARP (growth at a reasonable price) stock at the moment.
S&P 500 Stocks Raising Guidance: Parker-Hannifin (PH)
The maker of motion and control technologies reported its Q2 2022 results on Feb. 3. Sales were 12% higher year-over-year to a record $3.82 billion.
Adjusted EPS was $4.46, 29% higher than a year earlier. Sales and operating profits were up in both segments of its business: Diversified Industrial and Aerospace Systems.
To recognize the strong quarter, Parker-Hannifin raised its 2022 full-year guidance. Adjusted EPS at the midpoint are now expected to be $18.05, up 23% from $14.67 previously. On the revenue front, it expects 11% organic sales growth at the midpoint of its guidance.
“For the remainder of this fiscal year, we expect positive demand trends to continue and are confident in our ability to navigate the Omicron variant and supply chain challenges ahead, CEO Tom Williams stated. “We are also encouraged with the progress being made on the regulatory clearances required for the closure of the Meggitt acquisition.”
Parker-Hannifin announced the Meggitt acquisition in August 2021. It is paying 6.3 billion British Pounds ($8.3 billion) for the UK company. It’s expected to close in the third quarter.
Of the 19 analysts that cover PH stock, 16 either rate it a Buy or Overweight with a median target price of $379, considerably higher than its current price.
The manufacturer of diagnostics products, medical imaging systems, and surgical products for women’s health reported solid sales results in February that included 9% organic growth, excluding its Covid-related revenues.
All four of its operating segments reported organic growth in Q1 2022. Unfortunately, the bottom line was nearly as good with a 24.1% decline in adjusted EPS.
However, it did raise its guidance for both sales and earnings for all of 2022. On the top line, it expects sales to increase by $600 million, or 15.5% over the previous guidance. On the bottom line, it raised non-GAAP EPS by 36% to $5.05 a share at the midpoint of its guidance.
The company sees upside growth from Covid-19 testing, along with healthy increases from its Diagnostics and Surgical businesses, offset by lower sales in its Breast Health business.
“Bolder was recognized for its innovation in designing surgical devices, in particular the CoolSeal® devices, which allow for dissection, vessel sealing and dividing all-in-one tool, stated Hologic’s press release.
Some companies are in business solely to make money. Others want to make a difference. Hologic does both. That’s a very good thing.
S&P 500 Stocks Raising Guidance: Automatic Data Processing (ADP)
I won’t lie, ADP’s increased guidance announcement in late January wasn’t a big deal.
The company expects its full-year revenues for fiscal 2022 to grow 8.5% at the midpoint of its guidance, 100 basis points higher than previous estimates. Meanwhile, its adjusted earnings will rise by 13% at the midpoint, also 100 basis points higher.
I included ADP on this list because it’s one of those steady businesses that seems to plod along under the radar while constantly pushing the ball forward, delivering for shareholders.
Over the past 10 years, ADP has had an annualized total return of 16.22%, 230 basis points better than the entire U.S. market. Over virtually every period, ADP betters the market.
If you’re a risk-averse investor, these are the types of stocks you want to own.
One of the interesting quirks of ADPs business is that it makes more than $400 million annually — $422 million in 2021 — for interest collected for funds held to satisfy its clients’ payrolls.
I know it only represented 2.8% of the company’s $15.0 billion in 2021 revenue, but it’s pure profit. Based on ADPs net income of $2.6 billion, that’s 16% of earnings, a much bigger deal.
And it’s got a 2% dividend yield to boot.
CVS Health (CVS)
The health solutions company reported Q4 2021 results on Feb. 9. Revenues rose 10.1% to $76.6 billion, while adjusted EPS jumped 52.3% to $1.98. For all of 2021, revenues increased 8.7% to $292.1 billion, while adjusted EPS rose 12.0% to $8.40.
All very healthy. Unfortunately, some investors took exception to the company’s 2022 guidance.
Not much changed from Jan. 11 when the company raised its full-year 2021 adjusted EPS from at least $8.33 from $8.00 previously. At the time, it also affirmed its 2022 full-year adjusted EPS of $8.20 at the midpoint of its guidance.
The only thing that changed in its Feb. 9 guidance for fiscal 2022 was a $250 million decline in cash flow from operations to $13.5 billion at the midpoint of its guidance.
Sure, investors might be concerned about what happens to future results once Covid-19 is gone, but the business is still pretty strong without it.
For example, excluding Covid-19 vaccinations, the company’s total pharmacy claims processed in the fourth quarter increased by 5.4% compared to last year. In addition, total prescriptions filled, excluding Covid-19 vaccinations, increased by 6.1% YOY.
However, analysts are looking at its Covid-19 business as something that could provide more upside in 2022.
CVS stock has been on a run since October 2020. There’s no evidence that I can see that it won’t keep moving higher over time.
S&P 500 Stocks Raising Guidance: Bath & Body Works (BBWI)
On the same day the company announced CEO Andrew Meslow would step down from the top job in May for health reasons, Bath & Body Works announced Q4 2021 earnings.
Meslow took the company through its separation from Victoria’s Secret (NYSE:VSCO) to become a standalone business. While his leadership will be missed, he developed a strong team while at the helm.
As for its Q4 2021 earnings, sales rose 11% in the quarter to $3.03 billion, while adjusted EPS from continuing operations jumped 17.3% to $2.30 from $1.96 a year earlier. As a result of these healthy gains, it authorized a $1.5 billion stock buyback and a 33% increase in its quarterly dividend.
On Jan. 6, BBWI announced that its Q4 2021 EPS would be at the high-end of its previous guidance between $2.10 and $2.25 a share. It also announced that it expected sales to be at the high-end of its previous guidance of a mid- to high-single-digit increase compared to 2020.
Unfortunately, investors didn’t like its 2022 EPS guidance of $4.50 at the midpoint, well below the analyst estimate of $4.78 a share.
Down 30% YTD, uncertainty provides opportunity. Long-term, BBWI will be fine.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.