Earnings Week: Apple, Amazon Lead 160 S&P Firms Reporting

Key Takeaway

• 160 S&P 500 companies, including tech giants Apple and Amazon, set to report in the busiest earnings week, potentially impacting market dynamics.
• McDonald's and Coca-Cola aim for growth amidst challenges; McDonald's seeks to break from a slump with an analyst price target of $340.
• Amazon expected to continue its strong performance with over 160% EPS growth forecasted; Apple faces scrutiny over AI efforts and competition in China.

Earnings Season Peaks

This week marks a pivotal moment in the earnings season, with approximately 160 S&P 500 companies scheduled to report their results. High-profile names such as Apple, Amazon, McDonald's, and Pfizer are among those on deck, setting the stage for potential market shifts. So far, over 200 S&P 500 members have reported first-quarter earnings, with an impressive 80% surpassing expectations, according to FactSet data. However, tech giants like Meta Platforms and IBM have faced challenges post-earnings, highlighting the mixed outcomes within the tech sector.

Key Reports to Watch

McDonald's Earnings Anticipation

McDonald's is expected to showcase single-digit earnings and revenue growth, with Barclays analyst Jeffrey Bernstein highlighting the company's potential for a turnaround. Despite a year-to-date share decline of over 7%, Bernstein's optimistic outlook is supported by McDonald's global growth and significant cash return capabilities. Historical data from Bespoke Investment Group notes McDonald's consistent earnings beat over eight quarters, though shares typically remain flat on earnings days.

Coca-Cola's Steady Performance

Coca-Cola's earnings and revenue are projected to remain stable year over year. The focus will be on organic sales growth, with JPMorgan's Andrea Teixeira forecasting a 4.9% increase. Despite facing gross margin comparisons from the previous year, Coca-Cola is expected to continue its strong track record of beating analyst estimates.

Amazon's Continued Momentum

Amazon, with a year-to-date rally of 18%, is anticipated to report significant earnings per share growth. Analyst Joseph Feldman predicts continued sales and profit growth, driven by online spending and AWS stabilization. Amazon's history of exceeding earnings expectations and achieving substantial gains on earnings days sets a high bar for its upcoming report.

Pfizer's Challenges and Opportunities

Pfizer is forecasted to report declines in earnings and revenue, amidst recent pressure on its shares. Despite challenges, Pfizer's recent FDA approvals and vaccine developments offer potential for recovery. Historically, Pfizer has a strong track record of beating earnings expectations, though its stock performance on earnings days has been mixed.

Big Tech's AI and Cloud Computing Spotlight

The resurgence of the Big Tech trade, fueled by Microsoft and Alphabet's strong earnings, underscores the impact of artificial intelligence and cloud computing investments. Alphabet's achievement of a $2 trillion valuation highlights the sector's robust growth prospects. Upcoming earnings from Amazon and Apple will further test the market's appetite for tech stocks, with Amazon expected to benefit from AWS and online sales, while Apple faces scrutiny over iPhone sales and AI advancements.

Street Views

• Jeffrey Bernstein, Barclays (Bullish on McDonald's):

  "MCD offers unique liquidity, size & scale within the industry, coupled with strong fundamental growth across the globe, and a return of significant cash, while maintaining relatively modest balance sheet leverage & significant real estate ownership, the latter generating outsized rental income, which we believe is underappreciated."

• Andrea Teixeira, JPMorgan (Neutral on Coca-Cola):

  "Organic sales growth will be the key metric to watch for... However, that’s below a consensus of 7%... She also said the company 'faces a relatively tough comparison on gross margins as last year as there was about 70 bps of more discrete benefits within cost of sales that will be lapped, although we still see solid margin expansion working though the puts and takes.'"

• Joseph Feldman, Telsey Advisory Group (Bullish on Amazon):

  "We expect continued double-digit sales and profit growth in 1Q24 — reflecting the strength of online spending gains from expanded merchandise and faster fulfillment and stabilization (and growth) of AWS."