What are we looking for?
U.S. stocks with low earnings per share (EPS) volatility and solid free cash flow (FCF)
Companies with low EPS volatility often experience reduced stock price fluctuations as their fundamentals are reflected in the market.
In these uncertain times, we will focus on identifying companies that combine low EPS volatility with both EBITDA growth and solid FCF to identify promising investment opportunities.
While EBITDA growth signals operational improvements, FCF demonstrates a company’s ability to sustain operations, reward shareholders through dividends, and finance future growth without external funding.
The screen
We screened US stocks using the following criteria:
- CPMS score in the top 25th percentile – We rank the US universe based on the annualized five-year EPS growth standard deviation (STD) and the one-year EBITDA growth. This removes the bottom 75th percentile from our screen. We then apply the other criteria;
- five-year annualized EPS growth STD lower than 15 per cent and positive one-year EBITDA growth;
- market capitalization greater than US$1 billion;
- FCF yield greater than 1 per cent – this metric is derived by dividing the FCF per share with the last known price;
- five-year annualized FCF per share growth greater than 5 per cent;
- positive enterprise value (EV) / EBITDA below 15 – EV is determined by summing the market capitalization, debt, and preferred shares, then subtracting the cash balance.
- 9-month price change greater than 10 per cent;
For informational purposes, we also added dividend yield.
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What we found
Resilient companies with solid free cash flow
| TICKER | NAME | PRICE (US$) | CPMS SCORE | MKT CAP (Bil. US$) | FCF YLD (%) | 5Y ANN. FCF GRTH. (%) | EV/EBITDA | 5Y EPS STD. (%) | 1Y EBITDA GRTH. (%) | 9M PRICE CHG. (%) | DIV. YLD. (%) |
| G-N | Genpact Ltd | 50.14 | 73 | 8.8 | 5.4 | 7.4 | 10.8 | 2.5 | 7.5 | 55.8 | 1.4 |
| RMD-N | ResMed Inc | 224.16 | 70 | 32.9 | 4.1 | 18.4 | 18.1 | 5.7 | 21.3 | 17.1 | 0.9 |
| CPAY-N | Corpay Inc | 337.86 | 67 | 23.7 | 6.3 | 10.3 | 12.3 | 5.1 | 9.0 | 26.8 | – |
| INCY-Q | Incyte Corp | 67.86 | 66 | 13.1 | 1.9 | 35.0 | 10.5 | 14.9 | 30.2 | 11.9 | – |
| EQH-N | Equitable Holdings | 51.27 | 65 | 15.8 | 13.8 | 17.2 | 4.2 | 13.2 | 27.3 | 25.5 | 1.9 |
| DBX-Q | Dropbox Inc | 25.62 | 64 | 5.5 | 8.9 | 15.3 | 9.4 | 7.2 | 17.0 | 14.0 | – |
| MKC-N | McCormick & Company Inc | 80.33 | 64 | 21.5 | 2.6 | 5.9 | 18.6 | 6.0 | 7.4 | 13.2 | 2.2 |
| PYPL-Q | PayPal Holdings Inc | 68.95 | 62 | 68.2 | 9.0 | 46.1 | 10.9 | 7.8 | 15.9 | 18.8 | – |
| WRB-N | W R Berkley Corporation | 63.23 | 62 | 24.0 | 13.5 | 7.7 | 12.6 | 10.0 | 17.8 | 20.7 | 0.5 |
| DOCU-Q | DocuSign Inc. | 85.76 | 62 | 17.3 | 5.1 | 64.3 | 18.9 | 9.8 | 17.2 | 60.3 | – |
| AXP-N | American Express Co | 265.63 | 62 | 186.6 | 6.1 | 24.6 | 14.3 | 13.6 | 18.6 | 14.7 | 1.2 |
| JAZZ-Q | Jazz Pharmaceuticals | 137.96 | 62 | 8.4 | 10.6 | 13.6 | 5.3 | 11.1 | 16.2 | 29.3 | – |
Genpact Ltd is a global professional services firm specializing in digital transformation, outsourcing and business process management. The company stands out with its five-year annualized EPS STD of only 2.5 per cent indicating extremely stable earnings growth. Genpact also boasts a healthy EV/EBITDA of 10.8, reflecting reasonable valuation, while its nine-month price change of 55.8 per cent signals significant positive momentum.
ResMed Inc develops cloud-connected devices and solutions designed to help individuals with sleep apnea and other chronic respiratory conditions. The company has achieved remarkable operational growth, with its one-year EBITDA rising 21.3 per cent, the third highest in our screen, but ranks also the third highest in terms of EV/EBITDA at 18.1, reflecting growth expectations. Additionally, the company has achieved a robust five-year annualized FCF growth of 18.4 per cent, further highlighting its growth potential.
Corpay Inc is a corporate payments solutions provider that offers businesses tools to manage expenses, streamline transactions, and mitigate currency risks. The company boasts a robust five-year EPS volatility of only 5.1 per cent, the second lowest on our list. It also strikes a balance between value, growth, and momentum, with a solid FCF yield of 6.3 per cent for value, five-year FCF growth of 10.3 per cent for growth, and a nine-month price change of 26.8 per cent for momentum.
Investors are advised to do further research before investing in any of the companies listed in the accompanying table.
For more details about these stocks, subscribe to the Inovestor for Advisors platform for free.
Anthony Ménard, CFA, is vice-president of data management at Inovestor.
