As the U.S. economic recovery picks up steam, corporate earnings are proving to be a pleasant surprise for the investors. With a substantial reduction in COVID-19 cases, and fresh fiscal stimulus in the guise of the $1.9 trillion American Rescue Plan coming in at the higher end of expectations, companies that have reported first-quarter so far have impressed investors. Some of the companies have even reported their strongest profit growth in more than a decade.
Furthermore, the nation’s fast-paced vaccination program has investors looking forward to and investing based on a widespread, emerging sense of normalcy. Given that the economy started to register a potentially strong recovery, businesses rebounded sharply in the last quarter.
Improved demand and significant growth in spending have contributed to the strong earnings numbers. Established corporate giants like International Business Machines Corporation (IBM), The Goldman Sachs Group, Inc. (GS), and The Blackstone Group Inc. (BX) have reported solid results in their last reported quarter and investors have rewarded their stocks. And we believe these stocks will keep advancing in the near term.
International Business Machines Corporation (IBM)
Formerly known as Computing-Tabulating-Recording Co., IBM provides integrated solutions and services worldwide. The company operates in Cloud and Cognitive Software, Global Business Services, Global Technology Services and Global Financing segments, all of which offer various kinds of IT infrastructure support products and services.
This month, IBM entered a partnership with HCL Technologies (HCL) to modernize security operations and unified threat management. Under the partnership, HCL Cybersecurity Fusion Centers will be designed to take advantage of IBM’s Cloud Pak for security, which will help in the creation of a platform to connect security teams, tools and processes across the threat lifecycle.
Also, this month, IBM teamed up with Parle Products Pvt. Ltd. (Parle) to help it get its products into the homes of consumers more quickly and effectively by leveraging IBM’s transformative hybrid cloud and AI capabilities, along with its leading security and industry expertise, business consulting and technology services.
In the first quarter, ended March 2021, IBM’s non-GAAP operating gross profit margin increased 110 basis points year-over-year to 47.3%, while its total cloud revenue grew 21% from its year-ago value to $6.50 billion. Also, its global business services revenue rose 2% year-over-year. The company’s global business services’ gross profit margin was 30.1%, compared to 27.6% in the fourth quarter of 2019.
A $18.29 billion consensus revenue estimate for the current quarter, ending June 30, 2021, represents a 3.2% increase from the same period last year. The company’s EPS is likely to increase 25.4% for its fiscal year 2021 to $10.87. The stock has gained 6.6% since it reported its first quarter earnings on April 19.
IBM’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
IBM is also rated a B in Value, Momentum, and Quality. Within the B-rated Technology – Hardware industry, it is ranked #7 of 48 stocks.
To see additional POWR Ratings for Growth, Stability, and Sentiment for IBM, Click here.
The Goldman Sachs Group, Inc. (GS)
GS is a leading global financial institution that delivers financial services across investment banking, securities, investment management and consumer banking to corporates, financial institutions, governments and individuals.
In March, GS announced an additional $500 million commitment to its ‘Launch with GS’ initiative to invest in diverse funds and businesses. Launch with GS has so far been beneficial, and it should only grow further by fostering a community that will strengthen the pipeline of investment opportunities in diverse businesses.
The company’s net revenue increased 102% year-over-year to $17.70 billion for the first quarter ended March 31, while its net earnings grew 464% to $6.84 billion over the same period. The company’s EPS came in at $18.60, which was a 498% increase from its year-ago value. In fact, GS’ net revenues in Investment Banking were $3.77 billion for the first quarter of 2021, 73% higher than the first quarter of 2020.
GS is expected to see22.9% revenue growth year-over-year to $11.98 billion in the current quarter, ending June 30, 2021. Its EPS is estimated to increase 1679.2% from the year-ago value to $9.43 in the current quarter. GS’ stock has gained 5.5% since it reported its first quarter earnings on April 14.
GS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating, which equates to Buy in our POWR Ratings system. GS has a B grade for Growth, Value, and Sentiment also. Among the 24 stocks in the A-rated Investment Brokerage industry, it is ranked #11.
Click here to see the additional POWR Ratings for GS. (Momentum, Stability, and Quality).
The Blackstone Group Inc. (BX)
BX is an alternative asset management firm that focuses on real estate, private equity, hedge fund solutions, credit, secondary funds of funds, public debt and equity and multi-asset class strategies. In addition, the firm provides capital market services. This firm typically invests in early-stage companies.
This month, BX committed up to $2.8 billion to acquire a controlling stake in Mphasis Limited along with other co-investors. Mphasis is one of the leading providers of Information Technology services, specializing in cloud and digital solutions, and serves 35 of the top 50 U.S. BFSI firms. The investment should allow BX to create more value and provide additional resources to further accelerate the company’s growth momentum.
In the first quarter, ended March 31, BX’s net income increased 29.1% year-over-year to $3.37 billion. Its adjusted EBITDA grew 111.1% year-over-year to $1.33 billion. And its EPS increased 255.7% year-over-year to $2.46 over the same period.
BX’s EPS is expected to grow 76.7% to $0.76 for the current quarter ending June 30.The Street expects the company’s revenue to increase 60.4% year-over-year to $1.78 billion in the current quarter. It has gained 10.4% since it reported its first quarter earnings on April 22.
BX’s strong fundamentals are reflected in its POWR Ratings. The stock has an A grade for Sentiment, and a B grade for Growth and Quality. It is ranked #12 of 37 stocks in the Private Equity industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the BX ratings for Value, Momentum, and Stability here.
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IBM shares were trading at $142.93 per share on Wednesday afternoon, up $0.92 (+0.65%). Year-to-date, IBM has gained 15.06%, versus a 12.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...
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