Amazon Attacks Pharmacies, as McCormick Sets Up PepsiCo's Earnings
Plus, why earnings and their expectations are on our mind.
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* Stocks are moving higher, recovering from yesterday’s decline
* Margin expansion at McCormick & Co. sets the table for PepsiCo’s results
* Amazon: UPS’s Investor Day and its latest attack on pharmacies
* Why earnings and their expectations are on our mind
Stocks were moving higher this morning after yesterday’s across-the-board decline for the major market averages. Despite that modest setback, with three days left in March, the major US market benchmarks are tracking for their fifth consecutive win, and we’ve seen a number of portfolio holdings continue to advance as well.
Quarterly results out this morning from McCormick & Co MKC, showed pricing-driven revenue gains, but also expanding margins driven by the combination of past price increases and falling input costs.
We see this as an indication of what PepsiCo PEP is likely to deliver when it reports its March quarter results on April 23 as its margins benefit from the same combination of factors. Our thinking has been PepsiCo once again started the new year with a conservative outlook and margin expansion would be one way for it to lift its 2024 outlook.
The market is digesting UPS’s UPS Investor Day, and we’ll be listening to what it says about digital shopping growth between 2023 and 2026. Our gut says the company will paint it in a positive light, a positive for our shares of Amazon AMZN and to a lesser extent Costco COST and Mastercard MA.
Sticking with Amazon, we could learn about the impact of its Big Spring Sale that ran from March 20 through March 25, an event that could help it clear revenue expectations for one of its seasonally weaker quarters. What we did hear from Amazon is today it launched same-day delivery of prescription medications in New York City and the greater Los Angeles area, its latest attack on the pharmacy industry.
Our thinking is the company’s logistics are a competitive weapon it can leverage against CVS CVS, Walgreens Boots WBA and the like, driving low-hanging fruit for share gains and revenue.
Earnings and Expectations
Following yesterday’s parade of Fed heads, there are none expected to speak until Fed Governor Christopher Walker tomorrow night. That lack of potentially sobering commentary today likely means the melt-up in the market we are seeing will carry through to the close even as the market once again flirts with being overbought.
Our plan coming into this week was to be mindful of the channel the S&P 500 is within, recognizing what we learn on Friday will set the stage for how we kick off 2Q 2024.
As we approach the Easter weekend and companies close their 1Q 2024 books, our eyes and ears will turn to March quarter earnings pre-announcements, good or bad, but we will also be watching for fresh signs for consumer spending, corporate cost-cutting, and AI-related investments. What we and others will be looking to gauge is whether 1Q 2024 earnings growth will repeat their 4Q 2023 upside surprise.
As of now, data from FactSet puts 1Q 2024 EPS growth at ~3% year over year, potentially the third straight quarter of EPS growth on that basis. Given the current P/E multiple of 21.4x consensus 2024 EPS for the S&P 500 that is already expected to rise more than 10% compared to 2023.
With that multiple knocking on the door of recent highs established in the last few years, further upside for that market benchmark will be tied more to stronger-than-expected EPS growth than multiple expansion.
As we discussed in yesterday’s video, we will continue to target companies with far faster earnings growth prospects in the coming quarters for the portfolio and the Bullpen.
