Insights

3 Growth Stocks That Beat Earnings Despite Inflation

Beating earnings is quite an accomplishment these days. Between a war going on in Ukraine, supply-chain issues, inflation, and rising interest rates, there is no shortage of headwinds that businesses are facing now.
And yet, remarkably, three companies that soundly beat earnings expectations in their latest round of reports include Centene (NYSE: CNC), PepsiCo (NASDAQ: PEP), and Microsoft (NASDAQ: MSFT). Here’s a closer look at how they did this past quarter and whether these stocks are buys right now.
Image source: Getty Images.

1. Centene
Managed-care company Centene released its latest quarterly results last month. For the first three months of the year, the healthcare company reported sales of $37.2 billion, up 24% year over year. Centene cited a 28% increase in membership in its Medicare business along with the benefit of multiple acquisitions as being key reasons behind the stronger top-line performance. Adjusted diluted earnings per share (EPS) of $1.83 came in higher than Wall Street estimates of $1.68, and that was the third-straight quarter where Centene beat expectations.
In light of the strong performance, the company has increased its guidance for all of 2022. Now, Centene expects its EPS to total between $4.19 and $4.30 for the year. Previously, it was forecasting between $4.03 and $4.19. At the midpoint of $4.25, the new forecast suggests an earnings increase of 86% this year.
Centene’s rapid growth makes its price-to-earnings (P/E) multiple of 32 more tenable for growth-oriented investors who might otherwise not be willing to pay such a high premium for a healthcare stock; holdings within the Health Care Select Sector SPDR Fund average a P/E of just 22.
Down just 2% in 2022, Centene has been performing better than the S&P 500 of late, which has fallen by 12%. It could be a good option for investors looking for a growing healthcare stock to own that can also provide some stability in what’s shaping up to be a volatile year in the markets. Whatever the level of inflation, healthcare is essential, which is why Centene’s business could continue to do well.
2. PepsiCo
Strong, popular brands like Pepsi and Lay’s help make PepsiCo an inflation-resistant stock as modest price hikes may not be enough to deter its loyal consumers. In fact, the food and beverage company delivered a solid opening quarter to start the new year. Net sales of $16.2 billion for the period ended March 19 were up 9.3% year over year, beating analysts’ expectations of $15.6 billion. On the bottom line, adjusted EPS of $1.29 also soundly beat the $1.23 that Wall Street was projecting.
All of the company’s major segments generated some type of year-over-year revenue growth with Latin America leading the way — up 19% to just under $1.5 billion in sales. Its key Frito-Lay North America division, one of the company’s largest, also reported strong numbers with $4.8 billion in sales, up 14% from the prior-year period.
Like Centene, PepsiCo has also upgraded its guidance. The company expects to generate organic revenue growth of 8% in 2022, which is higher than the 6% it previously projected.
PepsiCo’s broad operations make it a good stock for investors to hold on to as this diversity gives the business many ways for it to pursue growth opportunities. And amid a return to normal this year, the stock stands to be a big winner as demand for its products could surge.
3. Microsoft
Tech giant Microsoft has proven to be resilient at a time when many top growth companies have been struggling. Its numbers for the third quarter were strong with sales of $49.36 billion for the period ended March 31, rising by 18% and surpassing analysts’ estimates of $49.05 billion. Its adjusted EPS of $2.22 also provided a modest $0.03 beat on the $2.19 that analysts were predicting.
The company projects fourth-quarter revenue to come in between $52.4 billion and $53.2 billion. That’s promising as the business anticipates even more growth at a time when consumers and businesses may be looking to keep costs and expenditures down. For investors, this suggests that Microsoft may prove to be yet another inflation-resistant stock to hold.
Year over year, many of the company’s products delivered strong growth, notably Azure and other cloud services, which saw revenue jump 46%. The cloud business has been a continued source of strength for Microsoft, but the company also has other levers it can pull on to generate growth. LinkedIn’s revenue, for example, rose by 34% this past quarter, and Office 365 commercial jumped by 17%.
Regardless of how the company did in just a three-month snapshot, there’s little doubt that with all the different segments and products Microsoft has, growth will continue. Its pending acquisition of gaming company Activision Blizzard, for instance, could be a big growth driver. Microsoft makes the Xbox gaming console, giving those two businesses plenty of opportunities to complement one another.
For all these reasons, this is a stock that investors can safely buy and forget — and it may be one of the best growth stocks to own right now.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Activision Blizzard and Microsoft. The Motley Fool has a disclosure policy. –

Beating earnings is quite an accomplishment these days. Between a war going on in Ukraine, supply-chain issues, inflation, and rising interest rates, there is no shortage of headwinds that businesses are facing now.

And yet, remarkably, three companies that soundly beat earnings expectations in their latest round of reports include Centene (NYSE: CNC), PepsiCo (NASDAQ: PEP), and Microsoft (NASDAQ: MSFT). Here’s a closer look at how they did this past quarter and whether these stocks are buys right now.

Image source: Getty Images.

1. Centene

Managed-care company Centene released its latest quarterly results last month. For the first three months of the year, the healthcare company reported sales of $37.2 billion, up 24% year over year. Centene cited a 28% increase in membership in its Medicare business along with the benefit of multiple acquisitions as being key reasons behind the stronger top-line performance. Adjusted diluted earnings per share (EPS) of $1.83 came in higher than Wall Street estimates of $1.68, and that was the third-straight quarter where Centene beat expectations.

In light of the strong performance, the company has increased its guidance for all of 2022. Now, Centene expects its EPS to total between $4.19 and $4.30 for the year. Previously, it was forecasting between $4.03 and $4.19. At the midpoint of $4.25, the new forecast suggests an earnings increase of 86% this year.

Centene’s rapid growth makes its price-to-earnings (P/E) multiple of 32 more tenable for growth-oriented investors who might otherwise not be willing to pay such a high premium for a healthcare stock; holdings within the Health Care Select Sector SPDR Fund average a P/E of just 22.

Down just 2% in 2022, Centene has been performing better than the S&P 500 of late, which has fallen by 12%. It could be a good option for investors looking for a growing healthcare stock to own that can also provide some stability in what’s shaping up to be a volatile year in the markets. Whatever the level of inflation, healthcare is essential, which is why Centene’s business could continue to do well.

2. PepsiCo

Strong, popular brands like Pepsi and Lay’s help make PepsiCo an inflation-resistant stock as modest price hikes may not be enough to deter its loyal consumers. In fact, the food and beverage company delivered a solid opening quarter to start the new year. Net sales of $16.2 billion for the period ended March 19 were up 9.3% year over year, beating analysts’ expectations of $15.6 billion. On the bottom line, adjusted EPS of $1.29 also soundly beat the $1.23 that Wall Street was projecting.

All of the company’s major segments generated some type of year-over-year revenue growth with Latin America leading the way — up 19% to just under $1.5 billion in sales. Its key Frito-Lay North America division, one of the company’s largest, also reported strong numbers with $4.8 billion in sales, up 14% from the prior-year period.

Like Centene, PepsiCo has also upgraded its guidance. The company expects to generate organic revenue growth of 8% in 2022, which is higher than the 6% it previously projected.

PepsiCo’s broad operations make it a good stock for investors to hold on to as this diversity gives the business many ways for it to pursue growth opportunities. And amid a return to normal this year, the stock stands to be a big winner as demand for its products could surge.

3. Microsoft

Tech giant Microsoft has proven to be resilient at a time when many top growth companies have been struggling. Its numbers for the third quarter were strong with sales of $49.36 billion for the period ended March 31, rising by 18% and surpassing analysts’ estimates of $49.05 billion. Its adjusted EPS of $2.22 also provided a modest $0.03 beat on the $2.19 that analysts were predicting.

The company projects fourth-quarter revenue to come in between $52.4 billion and $53.2 billion. That’s promising as the business anticipates even more growth at a time when consumers and businesses may be looking to keep costs and expenditures down. For investors, this suggests that Microsoft may prove to be yet another inflation-resistant stock to hold.

Year over year, many of the company’s products delivered strong growth, notably Azure and other cloud services, which saw revenue jump 46%. The cloud business has been a continued source of strength for Microsoft, but the company also has other levers it can pull on to generate growth. LinkedIn’s revenue, for example, rose by 34% this past quarter, and Office 365 commercial jumped by 17%.

Regardless of how the company did in just a three-month snapshot, there’s little doubt that with all the different segments and products Microsoft has, growth will continue. Its pending acquisition of gaming company Activision Blizzard, for instance, could be a big growth driver. Microsoft makes the Xbox gaming console, giving those two businesses plenty of opportunities to complement one another.

For all these reasons, this is a stock that investors can safely buy and forget — and it may be one of the best growth stocks to own right now.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Activision Blizzard and Microsoft. The Motley Fool has a disclosure policy.

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