All Cap Index & Sectors: Free Cash Flow Yield Near Record Highs Through 5/16/22

Articles From: New Constructs
Website: New Constructs


Investment Analyst

New Constructs

The NC 2000’s trailing free cash flow (FCF) remains high, relative to recent quarters, because stock prices are declining more than FCF. We think the market is signaling expectations for further declines in FCF, and we expect prices will continue to fall until the end of FCF declines is in sight.

This report is an abridged and free version of All Cap Index & Sectors: Free Cash Flow Yield Near Record Highs Through 5/16/22, one of our quarterly reports on fundamental market and sector trends.

The full version of this report analyzes[1],[2] free cash flow, enterprise value, and the trailing FCF yield for the NC 2000 and each of its sectors (last quarter’s analysis is here). These reports are available to clients with a Pro or higher membership or can be purchased here.

This report leverages our cutting-edge Robo-Analyst technology to deliver proven-superior[3] fundamental research and support more cost-effective fulfillment of the fiduciary duty of care.

NC 2000 Trailing FCF Yield Rises Over the Last Year

The trailing FCF yield for the NC 2000 rose from 1.2% as of 6/30/21 to 1.7% as of 5/16/22. The FCF yield for the NC 2000 has been this high only two other times since 2015: 6/30/16 and 12/31/18.

See Figure 1 in the full version of our report for the chart of FCF Yield for the NC 2000 from December 1998 through 5/16/22.

Eight NC 2000 sectors saw an increase in trailing FCF yield from 6/30/21 to 5/16/22,

Key Details on Select NC 2000 Sectors

With a 4.2% FCF Yield, investors are getting more FCF for their investment dollar in the Basic Materials sector than any other sector as of 5/16/22. On the flip side, the Industrials sector, at -0.9%, currently has the lowest trailing FCF yield of all NC 2000 sectors.

The Telecom Services, Energy, Utilities, Financials, Real Estate, Healthcare, Consumer Non-cyclicals, and Basic Materials sectors each saw an increase in trailing FCF yield from 6/30/21 to 5/16/22.

Below, we highlight the Energy sector’s trailing FCF yield.

The full version provides the same details for every sector as this report does for the Energy Sector.

Sample Sector Analysis: Energy

Figure 1 shows trailing FCF yield for the Energy sector rose from 0.7% as of 6/30/21 to 4.0% as of 5/16/22. The Energy sector FCF rose from $16.8 billion in 1Q21 to $123.2 billion in 1Q22, while enterprise value increased from $2.3 trillion as of 6/30/21 to $3.1 trillion as of 5/16/22.

Figure 1: Energy Trailing FCF Yield: Dec 1998 – 5/16/22

Energy Trailing FCF Yield: Dec 1998 – 5/16/22

Sources: New Constructs, LLC and company filings. 
The May 16, 2022 measurement period uses price data as of that date and incorporates the financial data from 1Q22 10-Qs, as this is the earliest date for which all the 1Q22 10-Qs for the NC 2000 constituents were available.  

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This article originally published on June 2, 2022.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] We calculate these metrics based on S&P Global’s (SPGI) methodology, which sums the individual NC 2000 constituent values for free cash flow and enterprise value before using them to calculate the metrics. We call this the “Aggregate” methodology.

[2] Our research is based on the latest audited financial data, which is the 1Q22 10-Q in most cases. Price data is as of 5/16/22.

[3] Our research utilizes our Core Earnings, a more reliable measure of profits, as proven in Core Earnings: New Data & Evidence, written by professors at Harvard Business School (HBS) & MIT Sloan and published in The Journal of Financial Economics.

Click here to download a PDF of this report.

Disclosure: New Constructs

David Trainer, Kyle Guske II, Sam McBride, Matt Shuler, Alex Sword, and Andrew Gallagher receive no compensation to write about any specific stock, style, or theme.

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