NEW YORK (TheStreet) -- Which S&P 500 companies are poised to have the biggest profit growth rates this year?
With first-quarter earnings reports wrapping up with results from retailers this week, S&P Capital IQ, a division of McGraw Hill Financial (MHFI), analyzed annual earnings-per-share estimates for S&P 500 companies with a market capitalization of at least $20 billion to identify those most likely produce the largest year-over-year profit growth in 2015. (The analysis excludes the REIT sub-industry as well as companies with growth driven by one-time items, such as acquisitions, it said.) The earnings-per-share growth percentages are based on overall analysts' consensus earnings estimates for 2015, tallied by S&P Capital IQ.
Five of the top 10 companies are airlines or automobile manufacturers benefitting from lower oil prices, according to the report, issued Monday.
Airlines "have also benefited from industry consolidation, which has reduced competition and capacity, making it easier for airlines to raise fares and increase passenger yields," the report said. "With expected growth of 38.9%, the transportation subsector -- including airlines -- is driving the industrial sector's 6.2% expected growth for 2015."
Auto companies are "benefiting from pent-up vehicle demand given lower oil prices and an elevated average vehicle age of 11.4 years," the report added. "Consumers have also increased their interest in SUVs, which carry higher margins, because of lower oil prices. The consumer discretionary sector is expected to have the third-best growth in 2015 at 11.3% after growth of 10.0% in 2014."
The other companies in the top 10 list either operate in high-growth markets, such as cloud computing and biotech, or are reorganizing "to better address the operating environment and customer needs," the report said.
Check out which companies made the top 10 list of companies expected to produce the largest earnings growth rates in 2015. We paired the companies with ratings from TheStreet Ratings. And when you're done be sure to check out the 10 S&P 500 companies expected to have the most revenue growth this year.
TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Note: Year-to-date returns are based on May 19, 2015 closing prices.CRM data by YCharts
10. Salesforce.com (CRM)
Market Cap: $46.9 billion
Year-to-date return: 20.5%
2015 Consensus EPS Growth Estimate: 32.21%
S&P Capital IQ Rating/Price Target: Hold/$79 PT
TheStreet Ratings: Hold, C
TheStreet Ratings said: "We rate SALESFORCE.COM INC (CRM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and increase in net income. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 1.5%. Since the same quarter one year prior, revenues rose by 26.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Powered by its strong earnings growth of 47.36% and other important driving factors, this stock has surged by 40.47% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- SALESFORCE.COM INC has improved earnings per share by 47.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SALESFORCE.COM INC reported poor results of -$0.42 versus -$0.40 in the prior year. This year, the market expects an improvement in earnings ($0.69 versus -$0.42).
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, SALESFORCE.COM INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite currently having a low debt-to-equity ratio of 0.38, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that CRM's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.66 is low and demonstrates weak liquidity.
- You can view the full analysis from the report here: CRM Ratings Report
9. Morgan Stanley (MS)
Market Cap: $76.2 billion
Year-to-date return: -0.28%
2015 Consensus EPS Growth Estimate: 32.67%
S&P Capital IQ Rating/Price Target: Strong Buy/$45 PT
TheStreet Ratings: Buy, B
TheStreet Ratings said: "We rate MORGAN STANLEY (MS) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and attractive valuation levels. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- MS's revenue growth has slightly outpaced the industry average of 5.2%. Since the same quarter one year prior, revenues slightly increased by 7.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 59.45% and other important driving factors, this stock has surged by 26.08% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MS should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- MORGAN STANLEY reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MORGAN STANLEY increased its bottom line by earning $1.60 versus $1.38 in the prior year. This year, the market expects an improvement in earnings ($2.95 versus $1.60).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 59.1% when compared to the same quarter one year prior, rising from $1,505.00 million to $2,394.00 million.
- You can view the full analysis from the report here: MS Ratings Report