As we look back to the S&P 500’s Communication Services (NYSEARCA:XLC) ahead of the first-quarter earnings, the sector gained 13% in the last three months, outperforming the broader market.
The sector, which holds 8.7% weightage on the S&P500 and boasts of established players including Google-parent Alphabet (GOOG) and Meta Platforms (META), ended the previous year with a gain of 49.5%, riding on the strength of artificial intelligence, rebound in consumer spending and recovery in the global economy.
According to Seeking Alpha’s Quant Rating system, the communication services sector has an average health score of 3.56. The system awards grades based on quantitative measures, like valuation, earnings growth and recent stock performance. The highest possible score for any individual company is a 5.
Looking in to individual companies in the sector, seven out of 23 stocks are rated as Buy or higher based on their Quant Ratings, 15 stocks are rated Neutral, while none of the stocks are considered Sell or lower.
Alphabet is leading with the highest Quant score of 4.93, while and media and cable giant Comcast (CMCSA) took the second spot, with a score of 4.64. High score for profitability is boosting the ratings for both the stocks.
Even though Alphabet disappointed with its ad-sales growth, the company still beat overall financial expectations with its quarterly earnings. Similarly, Comcast posted results that topped expectations and unveiled an expanded $15B buyback despite continued declines in broadband subscribers.
Meta Platforms, which impressed investors after reporting a strong quarter back in February, has a Quant score of 3.49. The Facebook-parent, which is expected to report first quarter results on April 24, gained over 40% so far this year.
Steaming giant Netflix (NFLX) and Disney (DIS)- two other established players in the sector with a combined market valuation of over $400 billion, has a Quant score of 3.48 and 3.47, respectively.
Interpublic Group (IPG) has the lowest Quant score of 2.73 in the sector. The New York-based advertising and marketing firm, which lost nearly 3% so far this year, has a Quant rating of Hold.
“Despite significant gains in the past year, it appears that XLC is likely to extend the uptrend because of favorable market conditions and robust financial growth prospects of its portfolio holdings,” Seeking Alpha analyst Komal Sarwar said, adding that the information technology and communication services sectors are expected to experience nearly 18% earnings growth in 2024.
S&P 500 companies EPS is expected to grow 3% in the first quarter, with Communication services rising 22%, according to brokerage Goldman Sachs.
