Weekly Snapshot: Earnings to Watch (DIS, PEP, PYPL)
AAn important week of the fourth quarter earnings season has just ended with mega-cap tech giants such as Meta Platforms (META) and Apple (AAPL) doing their best to silence many doubters while restoring energy to growth stocks. Although the Fed is still in rate-hike mode, there are now strong arguments to be made regarding stock market valuations, especially in areas that have been battered over the past year.
To be sure, opinions are still mixed on where equities are headed over the coming quarters, especially amid Friday’s release of a hotter than expected January jobs report. The January jobs report showed non-farm payrolls rose by 517,000, well ahead of the market estimate of 187,000. The jobless rate fell to 3.4% from the estimate of 3.6% which is the lowest level of unemployment for more than five decades.
The strong employment numbers make it hard to believe the US is in a recession. Continued strength in the labor market is making it harder for the Federal Reserve to be less hawkish on interest rates, and that explains why stocks sold off on Friday. The Dow Jones Industrial Average ended Friday slightly lower, falling 127.93 points, or 0.38% to end the session at 33,926.01. The Blue Chip index rebounded slightly after falling more than 300 points during the session. The S&P 500 index ended down 43.28 points to close at 4,136.48, with all eleven S&P sectors ending in negative territory. Among the biggest decliners was consumer discretionary which ended the day down more than 3%. The tech-heavy Nasdaq composite index fell 193.86 points, shedding 1.59% to close at 12,006.96. The Nasdaq’s decline ended a three-game winning streak even as Tesla (TSLA) and Apple finished higher.
Despite Friday’s decline, investors are understandably encouraged by what has been a strong rally in the first month of the year. Fourth-quarter earnings results were “less bad” than expected. Additionally, the forward guidance that has been released has also been encouraging. Is this optimism well placed? I suspect that question will be answered by the end of this earnings season. Here are the stocks I’ll be watching this week, with a particular focus on earnings from Disney, Pepsi and PayPal.
Disney (SAY) – Post Closing Reports, Wednesday, February 8
Wall Street expects Disney to earn 79 cents per share on revenue of $23.36 billion. That compares to the year-ago quarter where earnings were $1.06 per share on revenue of $21.82 billion.
What to watch: Driven by fears over weak consumer spending and broader macroeconomic uncertainties, Disney stock has been a massive underperformer over the past 12 months, with shares falling nearly 50 % from their 52-week high of $157 to a low of $84. But things have changed in recent months. In fact, 2023 is shaping up to be a magical year for Disney, as the stock has already jumped 30% year-to-date, against an 8% rise in the S&P 500. The streaming platform The company’s streaming service, Disney+, remains a key area of focus given the market’s upbeat subscriber results from Netflix (NFLX). Netflix’s strong fourth-quarter results sparked optimism in the streaming landscape, suggesting that Disney+ could remain a strong growth opportunity for the company over the coming quarters. Disney management has targeted Disney+ global subscriber gains between 230 million and 260 million by the end of 2024. The market wants to know if those goals are still achievable. While this subscriber goal is impressive, if achieved, it will require significant investment, which could impact profits. When the company last reported results, fourth-quarter revenue and EPS beat Street’s expectations. However, the company saw better-than-expected subscriber growth with the direct-to-consumer business, with total subscribers reaching 235 million. The company also touted the start of its ad-supported tier on Disney+, borrowing a strategy from Netflix. At the time, then-CEO Bob Chapek said it was a “key part of our total real estate advertising portfolio, and advertiser interest has been strong.” Chapek has since been ousted and Robert Iger has returned as Disney CEO. On Wednesday, investors will want additional details on the company’s long-term growth strategy.
Pepsi Co (DYNAMISM) – Pre-opening reports, Thursday, February 9
Wall Street expects PepsiCo to deliver EPS of $1.65 per share on revenue of $26.83 billion. That compares to the year-ago quarter where earnings were $1.53 per share on $25.25 billion in revenue.
Keep an eye on: There are plenty of reasons to be optimistic about Pepsi’s revenue and earnings outlook over the next 12-18 months. Although macroeconomic headwinds such as high inflation and supply chain disruptions have impacted the company’s margins, the snacks and beverages giant has done a solid job of overcoming the difficulty of asserting itself as a game of “safety and value”, thanks to its solid execution. This included raising its prices in some areas, while limiting its production to offset inflationary effects. In the last quarter, management raised its earnings guidance for fiscal 2022 and for 2023. Not only is full-year revenue expected to grow 12% from a previous guidance of 10%, but the company also increased full-year earnings growth to 10%. %, against 8%. The company’s price management has been applauded by Wall Street. The company’s investments in new brands, while adapting to new trends, have begun to bear fruit. The still believes there is plenty of room for growth in its core snacks and beverages business, while also expecting unit volume to continue to grow by the mid-digit for beverages over the course of the year. coming quarters and beyond. On Thursday, investors will want to see if Pepsi will maintain that level of confidence to say its initiatives are working.
PayPal (PYPL) – Reports after closing, Thursday, February 10
Wall Street expects PayPal to earn $1.20 a share on revenue of $7.39 billion. That compares to the year-ago quarter where earnings were $1.11 per share on revenue of $6.92 billion.
Keep an eye on: Has the market turned too negative on PayPal? It’s worth wondering if the fintech pioneer can still pay investors to be patient, thanks to slowing growth amid growing competition, which have been the company’s two main hurdles. The market expects the company to grow its revenue by 8% in 2022, which is not the growth rate investors expect and falls short of PayPal’s all-time high rate. double-digit growth. The company is also suffering not only from weak consumer spending in the US economy, but also from slowing global growth. That said, the valuation has become more attractive. The stock is trading at 12 times the EV/EBITDA multiple, which is also well below its historical average of 22. In other words, it’s possible that all the bad news and downside expectations have been taken into account in the action. The company is taking steps to right-size its business, recently announcing plans to cut its workforce by 2,000 employees, or about 7% of its global workforce. On Thursday, investors will want to know how much the company’s cost-cutting initiatives will create value over the next 12 to 18 months, without sacrificing growth.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.