While thousands of companies achieved earnings growth during the economic expansion that ended a year ago, prospects for most are dimmer for the current and upcoming recessionary years.
But an analysis of TheStreet.com Ratings' stock database found five companies whose growth is expected to continue.
Parameters were established to identify companies likely to achieve continuing earnings growth rather than just short-term spurts in profitability. To qualify, firms needed to increase earnings over the past three years and, in the opinion of a consensus of analysts, extend the trend for the current and following year.
Each of the stocks on the accompanying table survived these filters:
- Compound annual earnings per share growth of at least 15% for the past three years.
- Consensus forecast for EPS growth of at least 15% in the current year as well as for the following year.
- Market cap of at least $250 million.
- A grade in the "A" range by TheStreet.com Ratings, equivalent to a "buy" recommendation.
The quintet in the table that survived the above constraints represent interesting diversity. With representation in chemicals, biotech, education, electronics and health care, they cut across a spectrum of business lines. They vary from $460 million to $4.2 billion in market capitalization. Annual revenue ranges from $176 million to $1.1 billion.
Their businesses range from the forefront of high technology to labor-intensive endeavors.
As is appropriate for stocks expected to grow, each is priced at more than 20 times next year's consensus earnings estimate. But as measured by their respective PEG ratios -- a stock's P/E ratio divided by its growth rate -- four of the stocks are expected to experience EPS growth next year at rates exceeding their P/E ratios based on next year's EPS totals. Only Balchem is expected to produce growth roughly equal to its projected P/E ratio, which is still an impressive set of numbers.
Balchem (BCPC) serves a unique niche in the chemical industry. The firm develops, manufactures and markets specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical and medical-sterilization industries.
Cubist Pharmaceuticals (CBST) is engaged in the research and development of pharmaceutical products for acute medical care. Its focus has been on state-of-the art anti-infective measures.