As earnings season kicks into high gear, we at InvestingPro are on the prowl for particularly stalwart companies set to issue their quarterly numbers this week - those that look primed for growth regardless of whether they surpass Wall Street expectations in this particular quarter. And for that, we’ll check in on the InvestingPro financial health rating, which helps us find the mightiest companies in a given sector.
We’ve found 4 VIP Pro Picks that pass muster, including the ubiquitous Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG).
The InvestingPro Financial Health score blends detailed assessments of a company’s cash flow health, growth, profit strength, and more to provide a rich picture of its prospects as an investment. And the result can be quite telling - because for the past 7 years, stocks with at least a 2.75 rating (out of 5.0) have outpaced the S&P 500.
Well, Google operator Alphabet has clinched a superb “Great Performance” InvestingPro health score of 3.33 out of 5.0 - and a drill-down into its numbers reveals why.
Critically, the search giant yields a high return on invested capital: its two-year average is at 23.8%, in the 95th percentile for its sector. Its profit margins are wildly healthy, outperforming the vast majority of peers, and it holds more cash than debt on its balance sheet. On the subject of cash flow health, the company is in the cream of the crop for its sector for cash flow to liabilities and cash flow to total debt, as well as its interest coverage ratio.
And as far as share performance goes, Alphabet’s five-year total return is at 106.5% - in the 96th percentile for tech, as InvestingPro data shows.
And analysts overwhelmingly call the stock a buy. Case in point: Stifel just recently stamped the stock with a Buy rating in March, saying that they expect consumer behavior to continue favoring Alphabet despite Microsoft’s recent foray into AI. In May Morgan Stanley said Google is leading in the AI assistant race.
Looking ahead to this week’s earnings, BofA - which also has a Buy rating on GOOGL - just predicted that the company will surpass Street estimates on the top and bottom lines, raising the firm’s price target on the stock to $142 from $128.
Overall for Q2, the company’s earnings per share are projected to jump 17.4% from the prior year - and analysts have revised EPS estimates upward at an 80% rate in the past 90 days.
With all of those EPS revisions - as well as a 35% share climb so far this year - InvestingPro fair value still estimates Alphabet’s upside at some 19% above its current share price.
Want to see the full list of this week’s Pro Picks of companies slated to report earnings this week? Start here to unlock must-have insights and data. And while you’re here, dig into InvestingPro’s wealth of tools and screeners to begin building a lucrative portfolio.
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Data as of July 20, 2023.