Earnings season is the perfect time to evaluate the performance of blue-chip stocks and add or trim holdings. According to FactSet, with 41% of S&P 500 companies reporting as of July 26, 60% of companies reporting have had a positive revenue surprise. Even better, 78% have reported a positive EPS surprise.
Generally, this has been a positive earnings season, which reflects the ongoing strength of the U.S. economy. So, let’s look at three blue-chip stocks that exceeded earnings estimates and were surprised by the upside. Beyond the impressive beats in Q2, these companies had a positive outlook and raised guidance for the full year. With their EPS estimates moving higher, prices will follow.
Beyond this year, the long-term outlook for these blue-chip stocks is bright. First, they are competitively advantaged in their markets to support sustained earnings growth. Moreover, they are reasonably valued at today’s prices and pay a healthy dividend to support an attractive total return in the future.
Coca-Cola (KO)
After a shaky report from PepsiCo (NASDAQ:PEP) created skepticism about consumer staples stocks, Coca-Cola (NYSE:KO) blew past estimates, allying those fears. This outperformance over its rival highlighted the impressive execution by the management.
Looking at the numbers, net revenues grew 3% year-over-year and non-GAAP organic revenues soared 15%. In recent reports, most consumer staple stocks have grown revenues by raising prices while volumes have declined. However, Coca-Cola is one of the blue-chip stocks that has bucked this trend. In the quarter, global unit case volume increased by 2%.
Beyond the volume growth, price/mix was also up 9%. This means that despite the increase in prices, the soft drink giant was able to increase volumes. That’s a testament to the strong brand value of consumer favorites like Coca-Cola and Fanta.
The company raised its fiscal year guidance to put the cherry on the cake. Due to a strong performance and positive pricing in some markets, management expects non-GAAP organic growth of 9% to 10%. Also, they expect 5% to 6% EPS growth on the $2.69 reported in 2023. Therefore, KO stock trades at 24 times forward earnings. Plus, you earn a 2.8% dividend yield from this dividend aristocrat.
3M (MMM)
This industrial conglomerate soared over 20% after reporting stellar earnings on July 26. As of this writing, 3M (NYSE:MMM) stock is extended after its breakaway gap, so waiting for a pullback or consolidation is ideal. Still, over the long term, it’s one of the best blue-chip stocks to buy.
Indeed, as Q2 results showed, 3 M’s transformation is in full swing. New CEO William Brown had a very successful tenure leading L3Harris Technologies (NYSE:LHX) and is seeking to implement a similar playbook. Change has begun, starting with a shift from a geographic to a global business unit structure and centralizing the supply chain. Also, the company spun off its healthcare unit Solventum (NYSE:SOLV) on April 1.
Back to the results, the company blew past estimates, reporting a 39% increase in non-GAAP earnings per share to $1.93. Adjusted sales beat estimates by $170 million and grew 1.2% year over year to $6 billion. Additionally, the company generated $1.2 billion in adjusted free cash flow in the quarter.
What got the markets excited most was the updated adjusted EPS guidance. The company raised its guidance range from $6.80 to $7.30 to $7.00 to $7.30. Under the updated guidance, MMM stock trades at 18 times forward EPS, a bargain multiple for a company likely to expand earnings as the transformation takes shape.
Philip Morris International (PM)
Powered by its smoke-free products, this tobacco giant has found another growth gear. Indeed, it has now become an underappreciated growth story. Furthermore, Philip Morris International (NYSE:PM) is a high-yield stock with a 4.5% dividend.
After an excellent quarter, PM stock is one of the must-buy blue-chip stocks. In Q2 2024, it reported shipment volume growth of 2.8%. Meanwhile, net revenues rose 9.6% YOY, driven by an impressive 18.3% growth in smoke-free products. These results highlight the momentum the tobacco giant is seeing in its smoke-free products.
Emmanuel Babeau, the Chief Financial Officer, highlighted a growing consumer base with approximately 36.5 million adult users at quarter end. Its two main smoke-free products, IQOS and ZYN, showed momentum exceeding expectations. ZYN U.S. volumes grew 54% year over year despite price increases and supply hiccups. Additionally, VEEV is seeing tremendous growth and has become the closed pod leader in five European countries.
Based on the growth momentum, management had the confidence to raise fiscal year 2024 numbers. They increased net revenue growth from 7% – 8.5% to 7.5% – 9%. They also increased adjusted EPS growth guidance from 9% – 11% to 11% – 13%. Management expects at least $6.33 in adjusted EPS, which means PM stock is trading at 18 times forward EPS, hence a buy.
On the date of publication, Charles Munyi did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
