By John Prestbo
The companies whose stocks are in the Barron’s 400 Index brought forth admirable gains in both revenue and profit in the difficult second quarter, but barely nudged their MarketGrader scores a tad higher. With all but five of the index’s 396 components reporting results—four have been absorbed by mergers and acquisitions since being selected last March—the overall picture is positive:
- Per-share profits totaling $371.62 (the sum of already-reported results and estimates for the five still to be announced) are up 1.5% from the comparable quarter a year ago.
- Revenues totaling $1.14 trillion (the same combination as above) rose 1.8% from those of a year earlier. Not all current components were in the index 12 months ago.
But the average grade of reporting companies was 64.1 a week after each company reported, just 0.1% above the average before results were announced. Don’t improved revenue and profit deserve a comparable uptick in grade? We asked Carlos Diez, who runs MarketGrader, about this. His answer illuminates not only the MarketGrader scoring process but also how many aspects of financial performance are distilled into that one number. First off, he replies, “all 24 grades play a vital role in the calculation of our overall final grade. Thus, you may have a company with decent/moderate revenue and EPS growth but maybe some of its cash flow or profitability indicators might be weak, such as return on equity and EBITDA margin, for example. “Or the company’s overall fundamentals may be getting marginally better from the growth perspective but the valuation may be deteriorating. It is difficult to tell without breaking down each company’s overall grade into the contribution by each individual fundamental indicator.” Second, he says, “we have always tried to strike a balance between the impact that near-term figures have on the grade with the effect that longer-term figures have. For example, many of the growth metrics—and also things such as ROE and profit margins—we measure on a trailing 12-month basis. Hence, as you know, a good quarter does not a trend make.” “In summary, I think that one of MarketGrader’s core strengths is the process by which we distill so many variables into a single, easy to understand and to compare overall grade. This, of course, without dumbing down the underlying components of what we think is a pretty rigorous analysis.” So, respectable quarterly results may move the grade needle, but not without taking many other factors into account, including those measured over long-term spans. In short, let’s be glad the average grade went up even a little bit.
New Daily Market Wrap by John Morgan
MarketGrader introduced this week a new Daily Market Wrap column, penned by John Morgan, which nicely encapsulates the factors that contributed to the day’s trading activity. It also highlights the day’s top gainers and losers among B400 components, adding some color to the index’s ebb and flow. Readers may find it on the MarketGrader home page shortly after the market closes at 4:00 pm every day. Below we have included a brief bio on John, who we are lucky to have on our team.
John Morgan is a journalist and media executive who began his career at United Press International (UPI) and Cable News Network (CNN). He is a frequent editorial contributor to Moneynews.com and other financial news outlets. Morgan was the founder of the Entertainment News Wire and several prominent media and entertainment sites including Adweek.com, Mediaweek.com and Billboard.com. He has held management positions at two successful VC-backed portfolio companies.
The latest B400 Diary entries by John Prestbo:
B400 Companies Post Some Additional Earnings and Revenue Surprises
As the earnings-reporting season winds down for companies in the Barron’s 400 Index, the surprises in per-share profit and revenue reveal some surprises of their own.
Reported Revenues, Earnings Improve for B400 Companies
The second-quarter earnings season is brightening for Barron’s 400 Index companies.
