In our last Number Cruncher, we looked for U.S. companies that may be better positioned to navigate a high interest rate environment. With borrowing costs remaining elevated, companies carrying less debt and generating strong cash flows may have greater flexibility to fund operations and growth internally.
Three companies that stood out were Accenture PLC (ACN-N), EOG Resources Inc. (EOG-N) and Watsco Inc. (WSO-N). We will look at each company through the CPMS engine to better understand the characteristics behind their selection.
Accenture PLC (ACN:NYSE)
Starting with Accenture, the company scores 86 under CPMS’s US Dividend Growers strategy. The strategy is designed for income-oriented investors seeking financially stable companies that consistently grow their dividends. It focuses on five-year normalized dividend growth while also considering dividend yield, payout ratios, liquidity and financial health.
Accenture’s strongest factor is Quality at 74, followed by Yield at 69 and Value at 63. This supports the company’s profile as a profitable and financially stable dividend grower.
Looking more closely at its quality metrics, Accenture reports a return on capital of 14.08 per cent and a five-year average of 19.88 per cent. Its Economic Performance Index of 1.94 and performance spread of 6.81 per cent also indicate strong value creation.
These characteristics complement our original screen, where Accenture stood out for its high capital efficiency and low leverage, making it potentially less exposed to higher borrowing costs.
EOG Resources Inc. (EOG:NYSE)
Turning to EOG Resources, the company has a strategy score of 95 under CPMS’s Earnings Value strategy. The strategy is designed for investors focused on valuation and looks for companies trading at low earnings multiples while showing positive reported earnings growth and limited negative earnings revisions.
EOG’s strongest factor is Value at 75, followed by Quality at 70, and Volatility at 69.
The company’s valuation also compares favorably with its sector. EOG trades at a current-year P/E of 9.2 times compared with 13.6 times for its GICS sector and Debt-to-EBITDA is only 0.6 time, while return on equity reaches 25.3 per cent. EOG dividend yield of 2.8% is better than its sector. The stock has also outperformed the broad market by 24.7% year to date.
These metrics reinforce the original screen, where EOG’s strong free cash flow generation and interest coverage highlighted its ability to operate with limited financing pressure.
Watsco Inc. (WSO:NYSE)
Lastly, Watsco scores 92 under CPMS’s Dividend Growth strategy. The strategy is suited for income-oriented investors looking for profitable companies with growing dividends. It emphasizes expected dividend yield, earnings and dividend growth, cash flow relative to debt, earnings revisions and lower price volatility.
Watsco’s strongest factor is Quality at 72, followed by Yield at 58. Value is weaker at 40, suggesting that the company’s appeal is driven more by profitability and dividend characteristics than valuation.
Looking at its quality metrics, Watsco reports a return on capital of 14.49 per cent and a five-year average return on capital of 20.61 per cent. Its Economic Performance Index stands at 1.48, while debt-to-EBITDA is 0.93 time. It also has maintained a 5Y sales stability of 9.86%.
Conclusion
Our analysis of Accenture, EOG Resources and Watsco highlights three companies with strong financial characteristics that may help them navigate an environment of elevated borrowing costs.
Accenture stands out for its quality and dividend-growth characteristics, supported by strong returns on capital. EOG Resources combines an attractive valuation with strong profitability, cash generation and low leverage. Watsco also demonstrates high-quality fundamentals and conservative debt levels.
By combining leverage, cash flow and return on invested capital measures with CPMS factor exposures and investment strategies, investors can gain additional insight into the characteristics driving each company’s investment profile.
In conclusion, the CPMS engine provides a useful tool for identifying stocks that align with specific investment objectives. However, investors should consider their individual risk tolerance and investment objectives before making any investment decisions.
Anuj Anand, MBA, LLM is an Investment Analyst at Inovestor.