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FCF Yield Increased in Six All Cap Index Sectors Through 2Q21

New Constructs

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This report is an abridged and free version of All Cap Index & Sectors: Free Cash Flow Yield Through 2Q21, one of the reports in our quarterly series on fundamental market and sector trends, available to Pro and higher members. More free reports on the fundamental trends for the overall market and each sector are available here.

The full version of this report analyzes[1] free cash flow (FCF), enterprise value, and the trailing FCF yield for the NC 2000[2], our All Cap Index, and each of its sectors (last quarter’s analysis is here). Our research is based on the latest audited financial data, which is the 2Q21 10-Q for most companies. Price data is as of 8/18/21.

These reports leverage more reliable fundamental data[3] that overcomes flaws with legacy fundamental datasets. Our Earnings Distortion factor generates substantial idiosyncratic alpha.

NC 2000 Trailing FCF Yield Rises in 2Q21

The trailing FCF yield for the NC 2000 rose from 0.8% in 2Q20 to 1.5% as of 8/18/21. See Figure 1 in the full version of our report for the chart of FCF Yield for the NC 2000 from December 1998 thru 2Q21. Six NC 2000 sectors saw an increase in trailing FCF yield year-over-year (YoY) based on 2Q21 financial data.

Key Details on Select NC 2000 Sectors

With a 4.4% FCF Yield, investors are getting more FCF for their investment dollar in the Basic Materials sector than any other sector. On the flip side, the Utilities sector has the lowest trailing FCF yield of all NC 2000 sectors.

The Healthcare, Industrials, Telecom Services, Energy, Basic Materials, and Real Estate sectors have each seen an increase in trailing FCF yield from 2Q20 to 2Q21. Below, we highlight the Financials sector.

Sample Sector Analysis[4]: Financials

Figure 1 shows trailing FCF yield for the Financials sector increased from 1.6% in 2Q20 to 1.7% in 2Q21. The Financials sector FCF rose from $73.4 billion in 2Q20 to $109.1 billion in 2Q21, while enterprise value increased from $4.5 trillion in 2Q20 to $6.6 trillion in 2Q21.

Figure 1: Financials Trailing FCF Yield: Dec 1998 – 8/18/21

Financials Trailing FCF Yield: Dec 1998 – 8/18/21

Sources: New Constructs, LLC and company filings. 
The August 18, 2021 measurement period uses price data as of that date and incorporates the financial data from 2Q21 10-Qs, as this is the earliest date for which all the 2Q21 10-Qs for the NC 2000 constituents were available.  

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[1] We calculate these metrics based on S&P Global’s (SPGI) aggregation 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. Get more details in Appendices I and II.

[2] The NC 2000 consists of the largest 2000 U.S. companies by market cap in our coverage. Constituents are updated on a quarterly basis (March 31, June 30, September 30, and December 31). We exclude companies that report under IFRS and non-U.S. ADR companies.

[3] For 3rd-party reviews, including The Journal of Financial Economics, on our more reliable fundamental data, historically and prospectively, across all stocks, click here and here.

[4] The full version of this report provides analysis for every sector like what we show for this sector.

Click here to download a PDF of this report.

This article originally published on September 2, 2021.

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

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Disclosure: 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.

About New Constructs

New Constructs leverages cutting-edge Robo-Analyst technology to provide insights and diligence on stocks, ETFs, mutual funds & debt issuers. Highly-respected public and private institutions believe in our concepts::

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