With the expectation that inflation has already peaked and central banks globally will start cutting rates this year, businesses will likely have a better time to achieve growth in the near term. Coming out of the economic slowdown recently, some companies are expected to recover stronger than others due to different financial profiles. For example, as the benefit of cost control initiatives in recent years will start to be realized, accelerating topline growth would help these companies generate healthy profitability. Some highly leveraged companies in terms of operational and financial leverage tend to do better due to their higher degree of fixed costs (depreciation, interest expense, stock-based compensation, etc.) compared to peers. 

As a result, with this expectation, analysts have adjusted an upward revision on companies with positive reflection in earnings in the near term. Although some of these improvements are already priced into the current share price. The degree of outperformance is quite hard to predict and analysts tend to be more conservative in their assumptions. Therefore, a better-than-expected acceleration in Earnings Before Interest and Taxes (EBIT) can have positive impacts on companies’ share price performance over the next three to five years.

Below we have screened for companies with the following criteria:

• Market cap larger than $50 million
• Return on equity of at least 0%
• An upward revision in Earnings Before Interest and Taxes (EBIT) of at least 20%

Here is the screener:

The criteria for the screen are quite simple as we screen companies that are over $100 million since these companies have had decent operating track records for investors to evaluate, and their trading volume is meaningful enough for investors to acquire a decent position in their portfolio.  Secondly, we screen for companies with a Return on Equity of at least 0% on a trailing-twelve-month basis, as we think these criteria tend to filter out highly cyclical, unprofitable companies that experience a short-term hiccup in their earnings.

Lastly, we look for companies that have a significant upward adjustment of at least 20% improvement in EBIT from analysts, because we think this is a meaningful revision which could potentially offer interesting optionality for investors. Some of these names could experience a tailwind due to the up cycle, we think investors are better off sticking with businesses that have secular demand for their products and services.

The screener came up with 13 names, members will recognize some of the names that we cover in our Model Portfolios and coverage lists such as Shopify (SHOP), Boyd Group Services (BYD) and Docebo (DCBO). Some of which we have been a huge fan of over the years.

Again, these companies on the list are not recommendations but a starting point that helps investors generate potential investment ideas and strategies. Investors can view our previous screener blog here. 

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Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.