The earnings season for the June quarter gets rolling this week, with reports for several of the largest U.S. banks due Friday morning.
Contrary to some expectations, equities performed well in the first half of 2023. The S&P 500 added about 16%, the Nasdaq Composite index rose nearly 32% on the backs of the index’s megacaps (almost all tech stocks), and the Dow added 3%. Inflation continues to be a concern for investors who fear a slowdown in economic growth if prices continue rising.
We’ll get our first look at second-quarter results before markets open Thursday morning when these three firms report quarterly earnings.
Over the past 12 months, the share price of packaged food giant Conagra Brands Inc. (NYSE: CAG) has fallen by about 6.8%. For the year to date, however, the stock is down nearly 15%. The company beat earnings expectations when it reported third fiscal quarter results in April and met revenue estimates. Free cash flow rose to nearly $327 million ($0.68 per share), and Conagra is due for a dividend increase.
Of 16 analysts following the stock, 10 have given the shares a Hold rating, while another 6 rate the shares a Buy or Strong Buy. At a current price of around $32.90, the upside potential based on a median price target of $40.50 is 23.1%. At the high price target of $46.50, the upside potential is 41.3%. Both the median and high targets were lower than in the prior quarter.
The consensus estimate for fiscal 2023 fourth-quarter revenue is $3.0 billion, down about 2.9% sequentially and up by about 3.1% year over year. Adjusted earnings per share (EPS) are expected to come in at $0.29, down 21.8% sequentially and down 9.2% year over year. The current estimates for the 2023 fiscal year that ended in May call for EPS of $2.75, up 16.4% year over year, on sales of $12.31 billion, up 6.7%.
Conagra stock trades at a multiple of 12 times expected 2023 EPS, 11.5 times estimated 2024 earnings of $2.86, and 11 times estimated 2025 earnings of $2.98 per share. Conagra’s 52-week range is $32.30 to $41.30. The company pays an annual dividend of $1.32 (yield of 3.97%). Total shareholder return over the past 12 months was negative 3.34%.
Delta Air Lines
Since posting a year-to-date low in late March, Delta Air Lines Inc. (NYSE: DAL) stock has jumped more than 53%. Over the past 12 months, however, shares have soared 63%. Like virtually every other airline, Delta is reaping the benefits of high demand for travel following the pandemic. Since February 2020, Delta’s stock is down about 15.5%, so there’s still a ways to go to get the stock back to a pre-pandemic levels. The stock boasted a compound annual growth rate of around 13% prior to the pandemic compared with the current rate of negative 5.1%. Keeping costs in line–especially fuel costs–will only add to the stock’s current luster.
The stock is a near-unanimous Buy, with 20 of 21 analysts’ ratings of Buy or Strong Buy. The lone holdout rates the shares a Hold. At a current price of around $48.70, the upside potential based on a median price target of $55.00 is 12.9%. At the high price target of $71.00, the upside potential is about 45.8%. The median price target is higher than it was three months ago, but the high target is $10.00 lower.
For the second fiscal quarter of 2023, the consensus revenue forecast is $15.46 billion, up 21.2% sequentially and up 11.9% year over year. The airline is expected to post EPS of $2.36, up a whopping 845.2% sequentially and up 63.9% year over year. For the full fiscal year, analysts are currently forecasting EPS of $6.13, up 91.7%, on sales of $56.86 billion, up 12.4%.
Delta’s stock trades at a multiple of 7.9 times estimated 2023 earnings, 6.6 times estimated 2024 earnings of $7.35, and 5.8 times estimated 2025 earnings of $8.42 per share. The stock’s 52-week range is $27.20 to $48.81. The company has suspended its dividend payment, and its total return for the past 12 months was 63.51%.
Snack food and soft-drink maker PepsiCo Inc. (NASDAQ: PEP) has added 7.4% to its share price over the past 12 months, including a gain of 9.1% in the past three months. Call option volume on the stock is double its usual volume, with the $190 contract the most active, followed by the $185 call option. The company’s secret sauce has been its ability to maintain margins by raising prices aggressively. Through May, PepsiCo had raised prices by 16% and increased its profits by 18%, even though sales volume fell.
Of 21 brokerages covering the stock, 10 have given the shares a Buy or Strong Buy, and another 9 have given the stock a Hold rating. At a current price of around $184.40, the upside potential based on a median price target of $200.00 is 8.5%. At the high price target of $220.00, the upside potential is 19.3%. Both targets have risen since April
Second-quarter revenue is forecast at $21.73 billion, up 21.8% sequentially and up 7.4% year over year. Adjusted EPS is forecast to rise sequentially by 30.7% to $1.96, and an increase of 5.4% year over year. For the full 2023 fiscal year, analysts currently expect PepsiCo to post revenue of $90.97 billion, up 5.3%, and EPS of $7.96, up 7.8%.
PepsiCo stock trades at a multiple of 25.2 times expected 2023 EPS, 23.1 times estimated 2024 earnings of $7.96, and 21.5 times estimated 2025 earnings of $8.55 per share. The stock’s 52-week range is $160.98 to $196.88. PepsiCo pays an annual dividend of $5.06 (yield of 2.75%). Total shareholder return for the past year was 9.96%.
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