Gross margins are rolling over, but net margin expectations remain high

Trivariate Research

Median gross margins for the Top 500 peaked at 46.4% in Feb 25 and have since fallen to 44.9% in Jan 26, yet bottom-up forecasts imply continued strong net income growth - likely reflecting embedded AI-driven productivity assumptions. Historically, Trivariate finds valuation multiples correlate more closely with gross profit growth than net income growth, implying further multiple expansion will require renewed gross margin strength or a structural shift in how markets reward earnings. Their quantitatively derived longs (e.g. Merck, T-Mobile, McDonald’s) have had recent multiple expansion and are forecasted to have margin expansion, but not more net margin than gross margin expansion. While shorts (e.g. Amphenol, Salesforce, Arista Networks, Las Vegas Sands) screen for gross margin contraction but net margin expansion, reducing estimate achievability.

- 06 March, 2026

AI driven 10Q / 10K text analysis

280First

Since there are always reasons when companies change the wording in their financial filings, being alerted to these changes allows investors to realise potential risk factors and opportunities before they are reflected in the market. Recent alerts include: 1) AZZ - extension of credit to larger customers. 2) Constellation Brands - competitive pricing pressure. 3) DR Horton - changing long term expectation on debt to total capital ratio. 4) Moog - changing order demand in simulation and test products. 5) T-Mobile US - acquisitions of business with international exposure. 6) TriNet - change in stock repurchase expectations.

- 02 May, 2025

Musk (and T-Mobile) prevail over AT&T and Verizon at FCC

Communications

New Street Research

New Street previously commented that if Trump was elected, Elon Musk would be the most powerful force in telecom policy, elevating satellite priorities over the policy priorities of traditional communications networks. One of the issues they pointed to where that influence might be exercised involved potential SpaceX interference with T’s cellular network. The FCC recently addressed that issue, granting a conditional waiver to SpaceX re. OOBE that will improve the TMUS direct to device service, despite studies from T and VZ providing evidence that doing so will degrade T’s cellular service. In this note, New Street describes the grant and lays out the implications for investors, including how it may impact other spectrum battles.

- 21 March, 2025

Where Street earnings are too high & who should miss

New Constructs

Wall Street analysts are too bullish on Q3 expectations for most S&P 500 companies. Although down from record highs set in early 2021, the percentage of companies whose Street EPS exceeds New Constructs’ Core EPS remains high at 71%. Furthermore, 208 companies (>40%) overstate Core Earnings by >10% (Street Earnings are overstated by 24% on average in TTM through 2Q23). New Constructs highlights Bio-Techne as one of the companies most likely to miss Wall Street analysts’ expectations in Q3. Others include Principal Financial Group, T-Mobile, Tesla and Xcel Energy.

- 13 October, 2023