Earnings growth comes in all shapes and sizes. The fascinating thing about these three companies -- namely agri-science company Corteva (CTVA 1.59%), Google parent Alphabet (GOOGL -0.27%), (GOOG -0.28%), and Goodyear Tire & Rubber (GT) -- is how differently each one intends to reach the aim of boosting profits. Nevertheless, all three are attractive stocks in their own way. Here's why.

The word profit on a keyboard.

Image source: Getty Images.

Growing earnings

First, here's a look at Wall Street analysts' consensus forecasts for earnings before interest, taxation, depreciation, and amortization. All three are likely to increase EBITDA by at least a double-digit annual rate over the next few years.

Moreover, hitting these EBITDA forecasts would leave all three trading on attractive multiples of enterprise value (market cap plus net debt) to EBITDA relative to their growth prospects.

Company

2019

2020

2021

2022

2022 EV/EBITDA Multiple

Corteva

$1.99 billion

$2.09 billion

$2.56 billion

$2.94 billion

10.1x

Goodyear

$1.62 billion

$651 million

$1.91 billion

$2.24 billion

5.3x

Alphabet

$58.5 billion

$67.91 billion

$100.36 billion

$113.63 billion

15.1x

Data source: marketscreener.com

Corteva

The company sells seeds and crop protection. These products tend to be complementary as agri-science companies aim to sell them as part of a system. The seeds are designed to be resistant to specific crop protection products (herbicides). As such, seeds and crop protection (such as Corteva's proprietary Enlist soybean system).

The word "proprietary" in the previous paragraph is the key to the investment case. Management aims to expand sales of its proprietary systems, like Enlist, to grow sales, but more importantly, EBITDA margin. It can do this because, by selling Enlist versus a product that requires a competitor's product, Corteva can avoid hefty royalty payments to other companies.

A farmer in the field.

Image source: Getty Images.

The progress the company is making with Enlist is giving investors confidence Corteva can reach its aims. For example, on the second-quarter earnings call, CEO James Collins told investors, "further penetration of the Enlist soybean system for 2021, now estimated to be on approximately 35% of U.S. soybean acres, and that's up from prior estimates of 30%."

He promptly raised full-year 2021 EBITDA guidance to $2.5 billion to $2.6 billion, from a previous range of $2.4 billion to $2.5 billion. It augurs well for the development of the business, and if the Enlist system can demonstrate good yield versus competitors, then Corteva looks well placed to grow earnings in the coming years.

Alphabet

It's no secret that Google search is driving revenue and earnings at Alphabet. That will continue to be the case for the foreseeable future. However, as you can see below, Alphabet's other revenue items have a higher compound annual growth rate (CAGR) than Google search.

In case you are wondering, I've used a two-year comparison to reduce the impact of the pandemic on 2020 figures. Whichever way you look at it, Alphabet is growing YouTube advertising, Google cloud, and non-advertising YouTube revenue (under Google other) very strongly.

 

2021

2020

2019

2019-2021 CAGR

Google search

$35.85 billion

$21.32 billion

$23.64 billion

23.1%

YouTube ads

$7 billion

$3.81 billion

$3.6 billion

39.4%

Google network

$7.6 billion

$4.74 billion

$5.25 billion

20.3%

Google other

$6.62 billion

$5.12 billion

$4.08 billion

27.4%

Google services total

$57.07 billion

$34.99 billion

$36.57 billion

24.9%

Google cloud

$4.63 billion

$3 billion

$2.1 billion

48.5%

Total revenue

$61.88 billion

$38.3 billion

$38.94 billion

26.1%

Data source: Google presentations, author's analysis.

Moreover, Wall Street expects Alphabet will generate an incredible $235 billion in free cash over the next three years. That's a huge number in itself and equivalent to almost 12.5% of the company's current market cap. So it's reasonable to assume the company can find other areas to invest in while its non-search revenue continues to grow as a share of total revenue.

Goodyear

Investing in the tire sector means buying into a relatively mature low-growth industry. Tire manufacturers sell into two auto parts markets, both of which are low growth. The original equipment market (OEM) depends on growth in vehicle production and fluctuates with car sales/production. Meanwhile, tire replacement depends on miles driven.

One of the best ways to grow earnings in such an industry is through consolidation and building scale. That's precisely the idea behind Goodyear's acquisition of Cooper Tire for an enterprise value of $2.5 billion.

Tires.

Image source: Getty Images.

The deal is expected to generate $250 million in one-time working-capital savings and $165 million in run-rate cost synergies within two years. The cost savings will come through traditional ways of cutting costs of merged companies, such as cutting sales, administrative, and general expenses, and research and development spending.

The result will be a company with an expanded geographical presence and a higher earnings margin. Thus, despite operating in a mature industry, Goodyear has an earnings growth opportunity and a chance to consolidate the industry.