Individual Stock Analysis

Zarin Sharif

Rutgers Business School

Capital Goods and Materials

• In 2022, the capital goods industry significantly outperformed the materials industry across all areas. Capital goods reported a total net income of $72,372.46 million, compared to materials at $52,487.86 million. The revenue gap is evident, with capital goods generating $904,858.28 million, almost double that of the materials industry, which earned $473,508.74 million. When it comes to operational efficiency, capital goods also led with $92,422.85 million in cash flow from operating activities, while materials recorded $69,023.11 million. Lastly, in terms of market capitalization, capital goods stood at $1.78 trillion, significantly higher than materials at $710.78 billion. Although capital goods dominated in all areas, the materials sector has shown steady growth across all metrics since 2020, reflecting on its progress and potential for long-term development.

• In 2022, the median Price-to-Earnings (P/E) ratio for the capital goods industry was 22.50, while the materials industry had a significantly lower ratio of 12.83. This indicates that investors were willing to pay more per dollar of earnings for capital goods companies compared to materials companies. Over the years, materials generally had higher P/E ratios than capital goods, especially in 2017 and 2020. However, since 2021, the trend has turned around, with capital goods maintaining a more stable and higher valuation, while materials saw a decline.

Capital Goods

Stock Analysis

Comparison of EPS, ESP, SE, & BSO

• In 2022, Lockheed Martin Corporation stood out among its competitors with the highest basic earnings per share (EPS) at $21.74 and the highest ending stock price at $486.49, reflecting on its strong profitability and investor confidence. Honeywell International Inc. led in total stockholder equity with $19,249 million and had the largest number of basic shares outstanding at $677,100, while reflecting on its strong equity position. Caterpillar Inc. showed a balanced performance, ranking second in both EPS ($11.93) and stock price ($213.30), while maintaining solid equity at $15,891 million. Raytheon Co. reported an EPS of $7.33, stockholder equity of $9,266 million, and a stock price of $92.66. 

Fair Price Range vs. Actual Price 

Lockheed has the highest slope of $13,47, implying $1 change in EPS will result in $13.47 change in stock price on average.

Lockheed Martin Corporation

• Growth: From 2016 to 2022, Lockheed Martin Corporation showed a strong  growth. Net income peaked at $6,888 million in 2020 before slightly declining to $5,732 million in 2022. Revenue increased from $47,248 million in 2016 to $65,984 million in 2022. Net margin and return on assets followed similar trends: both dropped in 2017 but recovered to stable levels, with net margin ending at 9% and return on assets at 11% in 2022.
• Financial Health: From 2016 to 2022, Lockheed Martin Corporation maintained a stable current ratio, ending at 1.32 in 2022, showing a healthy short-term liquidity. The liability asset ratio declined from 0.97 in 2016 to 0.82, showing improved asset coverage over liabilities. The long-term debt ratio decreased from 0.30 in 2016 to 0.29 in 2022, despite a slight rise in the final year.
• Revenue Breakdown: In 2022, Lockheed Martin Corporation had a higher proportion of its revenue allocated to COGS at 87.44%, compared to the broader capital goods industry at 74.73%. This shows that Lockheed operates with lower gross margins. It also spent more on SG&A Expenses (8.69%) than the industry average (6.59%). However, Lockheed had a lower net income as a percentage of revenue of 6.66% compared to the industry’s 12.80%, reflecting on less profitability.

Healthcare

Stock Analysis

Healthcare

• The total net income jumped to $56.18 billion in 2022, recovering from a low in 2017 and steadily growing since 2020. This reflects on the increase in profitability across SP500 pharmaceutical companies. In terms of total revenue, it reached $276.17 billion in 2022, showing increasing demand. The total cash flow from operating activities went from $43.80 billion in 2016 to $78.48 billion in 2022, showing improved operational efficiency and the industry’s ability to generate healthy internal cash flows. From 2016, the total market capitalization nearly doubled to $1.48 trillion by 2022, reflecting on the increase in investor confidence and an increase in stock values of many pharmaceutical firms. 
• In 2022 alone, the biotechnology industry reported a total net income of $68.19 billion, outperforming the pharmaceutical industry that year. The total revenue also reached $253.59 billion. In terms of operation, biotech firms generated $77.61 billion in cash flow, nearly matching pharmaceutical levels, which reflects its cash generation. However, when it comes to investor valuation, biotechnology’s market capitalization was $988.45 billion in 2022, way lower than pharmaceuticals. 
• The median P/E ratios fluctuated quite significantly over time for biotechnology and pharmaceuticals. Pharmaceuticals had a higher median P/E ratio, ranging from 25 to 35, than biotechnology, for which the P/E ratio ranged from 15 to 25.

Comparison Between the Companies

• From 2016 to 2022, Eli Lilly, Johnson & Johnson, and AbbVie each showed different growth patterns. Eli Lilly experienced a noticeable change in stock price from $92.19 in 2016 to $365.84 in 2022, crossing both competitors. Its earnings per share peaked at $8.93 in 2019 and stayed strong at $8.69 in 2022, with increasing shareholder equity, which rose from $14.01B in 2016 to $17.29B in 2022. Johnson & Johnson maintained the highest shareholder equity overall, growing from $70.42B in 2016 to $76.80B in 2022, and a stable EPS of around $6.86 in 2022. Meanwhile, AbbVie saw the biggest equity recovery, from a negative $8.45B in 2017 to $10.08B in 2022, and its EPS improved from $2.73 in 2020 to $6.65 in 2022. Overall, Eli Lilly had the strongest market performance, while Johnson & Johnson remained the most financially stable, and AbbVie showed a massive recovery.

Fair Price Range vs. Actual Price 

   AMD has a much bigger slope of 49, implying $1 change in EPS, stock price changes in $49 on average.

J&J's Recovery:

• J&J experienced a noticeable financial slip in 2017, which is evident across multiple metrics. Their net income went from $16.54 billion in 2016 to just $1.3 billion in 2017, marking a steep drop. This decline also dragged down their net margin from a healthy 23% to 2%, and their ROA collapsed from 12% to just 1%. Despite this downturn, J&J’s total revenue remained relatively stable, increasing slightly from $71.89 billion to $76.45 billion, suggesting that the drop was likely due to one-time problems such as tax impacts, for example.
• From 2016 to 2022, J&J consistently led the market in terms of total revenue, rising from $71.89 billion in 2016 to $94.94 billion in 2022, well above both AbbVie ($58.05B in 2022) and Eli Lilly ($28.54B in 2022). J&J also maintained the most stable financial structure, with a liability-to-asset ratio consistently below 0.65, showing great debt management compared to AbbVie, which peaked at 1.14 in 2018. In terms of liquidity, J&J’s current ratio ranged from 1.37 to 2.47, indicating steady short-term financial health. J&J also invested heavily in long-term assets, increasing its property, plant, and equipment from $15.91B in 2016 to $19.80B in 2022. 

Consumer Staples (Food and Retail)

Stock Analysis

Food and Retail

• In 2022, food retail outperformed food distributors in several areas: it reported a higher net income of $1.67 billion versus $1.36 billion, and nearly double the revenue of $137.89 billion compared to $68.64 billion. Food retail also generated far more operating cash flow ($6.19 billion versus $1.79 billion). However, food distributors had a stronger market presence, with a market cap of $35.54 billion, ahead of food retail’s $32.87 billion. 
• From 2016 to 2022, food distributors saw a much higher volatility in their median price-to-earnings (P/E) ratio compared to food retail. Distributors were at 22 in 2019 before increasing to 130 in 2020, likely due to earnings disruptions during the pandemic. In contrast, food retail maintained much lower and more stable P/E ratios, increasing from 7 in 2019 to just above 20 by 2022.
• From 2016 to 2022, Costco outperformed both Walmart and Kroger in these metrics. Its EPS rose from $7.15 to $13.17, and its stock price jumped from $233 to $522.10. Meanwhile, Walmart’s equity grew steadily to $91.89B, but its EPS stayed under $2.50. Kroger had modest equity and a flat share price ($46), with EPS rising to $3.31 in 2021.

Fair Price Range vs. Actual Price