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Each earnings reporting season, you can count on a flurry of articles with headlines saying companies “beat” consensus estimates for quarterly profits. But that “success” alone means nothing. A 70% “beat rate” among the S&P 500 is typical. And an earnings beat may be a net loss that was lower than expected. It is as if companies in their guidance and analysts working for brokerage firms underestimate to set up the beats.
The U.S. earnings season will begin on Friday when the largest U.S. banks report their fourth-quarter results. Investors can expect a rough batch of comparisons with year-earlier results, in part because of myriad one-time items that will lower profits.
Maybe it would be better for investors to look ahead to 2024 to see which companies are expected to grow annual profits the most. One way to begin that process is to look at weighted estimates for the 11 sectors of the S&P 500
SPX.
All estimates in this article are based on calendar years. About 20% of companies in the S&P 500 have fiscal years that don’t match the calendar, but FactSet provides adjusted estimates to match the calendar.
Here are the sectors ranked by how much analysts expect their weighted 2024 earnings-per-share estimates to change from 2023, with the full S&P 500 at the bottom:
| Sector or index | Expected change in 2024 EPS from 2023 | Expected change in 2024 sales from 2023 | Price/ weighted consensus 2024 EPS estimate |
| Healthcare | 18.3% | 6.2% | 18.7 |
| Information Technology | 16.7% | 9.1% | 26.2 |
| Communication Services | 16.6% | 6.2% | 17.4 |
| Consumer Discretionary | 12.5% | 6.8% | 25.5 |
| Industrials | 11.9% | 5.1% | 19.7 |
| Financials | 8.5% | 5.7% | 14.6 |
| Utilities | 8.1% | 2.8% | 16.2 |
| Consumer Staples | 5.6% | 2.8% | 19.4 |
| Materials | 3.3% | 1.6% | 19.2 |
| Real Estate | 3.1% | 6.5% | 18.0 |
| Energy | -0.7% | 0.5% | 11.3 |
| S&P 500 | 11.6% | 5.2% | 19.6 |
| Source: FactSet | |||
Five sectors are expected to increase EPS more quickly than the full index this year, with the Healthcare sector topping the list.
A sector screen
For investors eager to jump aboard the sector expected to be the best earnings grower this year, the Health Care Select Sector SPDR ETF
XLV
provides broad exposure and spreads risk by holding all 64 stocks in the S&P 500 healthcare sector, weighted by market capitalization.
For investors considering individual healthcare stocks, we screened the group of 64 to narrow the list to companies expected to increase EPS at least 10% this year. Then we cut the list further to 21 with majority “buy” or equivalent ratings among analysts polled by FactSet.
Here they are, ranked by implied 12-month upside potential, based on consensus price targets:
| Company | Ticker | Share “buy” ratings | Jan. 8 price | Cons. price target | Implied 12-month upside potential | Expected change in 2024 EPS from 2023 |
| Humana Inc. |
HUM, |
73% | $460.74 | $583.21 | 27% | 11% |
| Elevance Health Inc. |
ELV, |
85% | $480.05 | $566.21 | 18% | 12% |
| Incyte Corp. |
INCY, |
57% | $65.82 | $75.85 | 15% | 21% |
| Insulet Corp. |
PODD, |
83% | $202.43 | $231.52 | 14% | 26% |
| Cigna Group |
CI, |
61% | $313.63 | $354.34 | 13% | 14% |
| Zoetis Inc. Class A |
ZTS, |
84% | $196.15 | $220.75 | 13% | 11% |
| UnitedHealth Group Inc. |
UNH, |
78% | $536.52 | $601.87 | 12% | 12% |
| ResMed Inc. |
RMD, |
74% | $172.77 | $192.80 | 12% | 12% |
| DexCom Inc. |
DXCM, |
88% | $129.63 | $141.70 | 9% | 20% |
| West Pharmaceutical Services Inc. |
WST, |
55% | $351.85 | $382.46 | 9% | 10% |
| GE Healthcare Technologies Inc. |
GEHC, |
60% | $77.36 | $83.88 | 8% | 11% |
| Boston Scientific Corp. |
BSX, |
87% | $58.42 | $63.16 | 8% | 12% |
| Stryker Corp. |
SYK, |
59% | $299.98 | $323.96 | 8% | 11% |
| McKesson Corp. |
MCK, |
78% | $476.63 | $512.47 | 8% | 11% |
| Merck & Co. Inc. |
MRK, |
85% | $117.38 | $125.03 | 7% | 484% |
| Edwards Lifesciences Corp. |
EW, |
53% | $75.67 | $79.04 | 4% | 10% |
| Intuitive Surgical Inc. |
ISRG, |
63% | $328.86 | $340.58 | 4% | 15% |
| Eli Lilly and Co. |
LLY, |
77% | $626.03 | $645.73 | 3% | 87% |
| Align Technology Inc. |
ALGN, |
75% | $273.94 | $282.32 | 3% | 11% |
| Idexx Laboratories Inc. |
IDXX, |
62% | $543.96 | $542.15 | 0% | 12% |
| Vertex Pharmaceuticals Inc. |
VRTX, |
69% | $419.12 | $417.22 | 0% | 10% |
| Source: FactSet | ||||||
If you are considering individual stocks, you should do your own research to form your own opinion about how likely a company is to remain competitive for the next decade, at least. One way to begin that process is by clicking on the tickers.
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