Investor Spotlight: US earnings week five preview

Wall Street stocks have commenced the new year in roaring fashion. Despite this, S&P500 companies remain poised to deliver negative earnings growth for the fourth quarter. In this week’s Investor Spotlight, we review the Q4 earnings period, and look ahead to three stocks reporting this week: Uber, Walt Disney, and Pepsi Co..

S&P 500 is on course to deliver negative EPS growth

As the earnings period approaches its end, S&P 500 companies are all but certain to deliver negative earnings growth for the fourth quarter. According to data compiled by FactSet, EPS growth is set to contract by -5.3%. The biggest falls are likely to be recorded by the highly cyclical consumer discretionary and materials sectors, along with the telecommunications sector.

Last week, it was the heavy-weight tech sector that dominated the news flow. Apple, Amazon, Alphabet, and Meta all reported, what proved to be a mixed set of results for the quarter. Meta’s shares flew as the company announced better-than-expected revenues, lower cost and capital expenditure guidance, and a fresh buyback scheme. But Apple, Amazon, and Alphabet mostly underwhelmed, in large part due to softening consumer demand.

IT stocks overall are expected to report a 10.6% contraction in earnings for Q4.

Despite the lukewarm corporate results, the S&P 500 added to its solid start to 2023, in large part off the back of Thursday’s US Federal Reserve decision. Traders interpreted the Fed’s messaging as less hawkish and subsequently priced in only one more hike from the central bank before rate cuts at the end of this year.

The S&P 500 gained for the week and tested technical resistance around 4150, before pulling back after strong US jobs data on Friday night.

US 500 weekly chart

What to watch in the week ahead

After more than 20% of the S&P 500’s market cap was reported on Friday alone, the earnings period is beginning to near its end. A significant number of companies will report results, however, with Uber, Walt Disney, and Pepsi Co amongst the highest profile.

• Uber

Uber reports on Wednesday night (AEDT) as is expected to show meaningful topline growth for the full calendar year. After a horror 2020 and 2021 due to COVID-19 restrictions, analysts forecast Uber to report revenue growth of 82% in 2022 and 46.7% for the fourth quarter.

The company is expected to remain in a loss-making position, however. EPS for Q4 is tipped to be -0.18 - an increase of 30.59%, but still some way from being a profitable enterprise. Investors will be tuned in to what rate the company expects to grow in the future, especially as the pandemic ceases to be a headwind for it.

Analysts remain broadly positive on Uber stock. Out of 47 surveyed analysts, 42 recommend a buy and five a hold. The consensus price target is at a hefty premium of $45.76.

From a technical standpoint, Uber’s share is still in a downtrend. But the reversal in growth stocks to begin 2023 appears to be flowing through to Uber, with the charts suggesting a possible reversal in momentum. The weekly RSI is moving in a positive direction, while the price has put in three higher lows. Going into the trading week, Uber is testing resistance at $33, which if broken, could open a run toward $38 per share.

Uber weekly chart

• Walt Disney

Walt Disney Co. delivers its results on Thursday morning (AEDT). Of equal fascination for investors, this quarter will be the executive shake-up that Disney experienced in Q4, which saw CEO Bob Chapek replaced by his predecessor and mentor, Bob Iger.

There are concerns about Disney’s strategic direction, as the company’s earnings slump amid higher operating costs, driven in large part by significant investments in the competitive streaming market. Disney’s theme park business is expected to be a tailwind for profits owing to the rollback of global pandemic restrictions. EPS is tipped to drop by 26% for the company's first quarter to $0.78.

The broker community remains upbeat about the prospects for Disney overall. 24 out of 30 analysts suggest a buy, while the remaining six recommend a hold. The price target is $125.32.

Disney's share price remains in a downtrend. However, there are tentative signs of a bottoming process emerging. Price has broken trendline resistance, with the next key level at $110 per share. If that breaks, a run toward $120 could be on the cards. Support appears to be around $100 and $85.

Walt Disney weekly chart

• Pepsi Co

Pepsi Co. reports on Thursday night (AEDT) and before Wall Street’s opening bell. The company’s results will be treated as a key barometer of the strength of US households, as a slower economy and cost of living pressures risk slowing demand.

Analysts are forecasting EPS of $1.65 per share, or earnings growth of 7.65% for the fourth quarter. The results are tipped to be driven by solid revenue growth of 6.34%. As usual, the key point of interest for investors will be the guidance Pepsi provides, as fears persist about the potential for a US recession in the year ahead.

Brokers are lukewarm on Pepsi shares. It holds a consensus “hold rating”, with 11 recommending that action, 12 suggesting a buy, and two recommending a sell. The consensus price target remains at a premium at just shy of $190 per share.

Pepsi's stock is in a long-term uptrend. However, the price is moving toward the bottom of its trend channel. Trendline support appears around $165, with a confluence of support levels at the low $160s. Solid resistance looks to be around $178 per share.

Pepsi weekly chart