ROIC and its drivers, but I include them here, nonetheless, for comparison: These market-weighted methodologies add more value for ratios that do not include market values, e.g. The Aggregate methodology provides a straightforward look at the entire S&P 500/sector, regardless of market cap or index weighting, and matches how S&P Global (SPGI) calculates metrics for the S&P 500.įor additional perspective, I compare the Aggregate method for free cash flow with two other market-weighted methodologies. I call this approach the “Aggregate” methodology. I derive the metrics above by summing the individual S&P 500/sector constituent values for free cash flow and enterprise value to calculate trailing FCF yield. Utilities FCF & Enterprise Value New Constructs, LLCĪppendix II: Analyzing Trailing FCF Yield with Different Weighting Methodologies More methodology details in Appendix II.įigure 14 ranks all 11 sectors by free cash flow based on financial data from 1Q21 10-Qs.įigure 14: Free Cash Flow by Sector – Financial Data from 1Q21 10-Qs I call this approach the “Aggregate” methodology, and it matches S&P Global’s (SPGI) methodology for these calculations. I sum the individual S&P 500/sector constituent values for free cash flow and enterprise value. This appendix shows the two drivers used to calculate trailing FCF yield – free cash flow and enterprise value – for the S&P 500 and each S&P 500 sector going back to December 2004. The measurement period uses price data as of that date and incorporates the financial data from 1Q21 10-Qs, as this is the earliest date for which all the 1Q21 10-Qs for the S&P 500 constituents were available.ĭisclosure: David Trainer, Kyle Guske II, Alex Sword, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.Īppendix I: Free Cash Flow and Enterprise Value Since 2004 Utilities Trailing FCF Yield New Constructs, LLC The basic materials sector FCF fell from $125 billion in 1Q20 to $68 billion in 1Q21 while enterprise value increased from $907 billion to $1.3 trillion as of 5/19/21.įigure 3: Basic Materials Trailing FCF Yield: December 2004 – 5/19/21 The real estate, healthcare, industrials, utilities, and technology sectors each saw an increase in trailing FCF yield from 1Q20 to 1Q21.įigures 3-13 show the FCF yield trends for every sector since 2004.Īppendix I presents the components of trailing FCF yield: FCF and enterprise value for the S&P 500 and each S&P 500 sector.Īppendix II provides additional aggregated trailing FCF yield analyses that adjust for company size/market cap.įigure 3 shows trailing FCF yield for the basic materials sector increased significantly since mid-2018 even after the COVID-19-induced downturn in 2020. On the flip side, the telecom services sector currently has the lowest trailing FCF yield of all S&P 500 sectors. Investors are getting more FCF for their investment dollar in the basic materials sector than any other sector. Trailing FCF Yield for All S&P 500 Sectors New Constructs, LLC
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