After a successful cost-cutting programme, PepsiCo has been able to save almost $1 billion since 2012, defending its margin and return on invested capital. This year the company needs to show investors it can deliver positive to-line growth again, which has not been seen since the full year 2014. Analysts are looking for modest 1.4% revenue growth in 2017.
A potential upside surprise currently not modelled by analysts — or even an element of management's own expectations — is the weaker US dollar as the European Central Bank and other central banks have taken hawkish tilt. If the USD stays weak throughout the year, it could make a meaningful revenue growth contribution.
Source: Saxo Bank
PepsiCo reports second-quarter earnings on Tuesday at 1000 GMT, with expected Q2 earnings per share estimated to be $1.40, up 4% year-on-year, and revenue seen at $15.6 billion, up 1% y/y. The stock is currently on our quant model's global Top 40 list, driven by above-industry average yield and return on capital.
JPMorgan: are share buybacks enough to sustain momentum?
All US systemically important banks, such as JPMorgan Chase, Goldman Sachs and Citigroup, passed the Federal Reserve's annual stress test, and consequently boosted their plans to return capital to shareholders through more aggressive share buybacks.
Given that banking stocks are trading at record levels, it may be questionable whether this is the best way to return capital to stockholders. In any case, it was enough to lift sentiment, and, together with more hawkish central banks and a subsequently rising yield curve, banks have been the best-performing industry in the past week.
JPMorgan weekly share price
Source: Saxo Bank
JPMorgan is slated to report Q2 earnings on Friday at 1100 GMT. Analysts expect EPS of $1.60, up 12% y/y, and net revenue of $25.5 billion, up 2% y/y. All banks in the US have a negative total score in our quant model, dragged by lower-than-industry average yields, but also higher valuations. Of the major US banks, only Citigroup has valuation metrics below the global industry average.
US 10-year generic yield
Citigroup: weaker USD and stronger EM provide tailwind
Since February 2016, when commodities — particularly oil — bottomed out, sentiment has strengthened globally and especially in emerging markets. The US dollar's rally has led to global central banks indicating that they will begin tightening monetary conditions. As a result, Citigroup has delivered a total return of 70% since January 2016 compared with 49% for the S&P 500 Financials Index and 38% for the MSCI World Banks Index (USD).
Strong momentum combined with cost controls have resulted in Citigroup having the strongest performance among its peers in the Fed's annual stress test, which should pave the way for higher yield to shareholders going forward.
Citigroup weekly share price
Citigroup is scheduled to report Q2 earnings on Friday at 1200 GMT. Analysts expect EPS of $1.22, down 1% y/y, and net revenue of $17.5 billion, down 1% y/y, which we believe is a bit too pessimistic given the backdrop in emerging markets in Q2. Citigroup has the third worst total score in our quant model among US banks in the S&P 500.
Below are the 30 most important earnings releases in the coming week, with earnings and revenue estimates.
Source: Companies/Saxo Bank
Soft-drink vending machines. PepsiCo revenues could get
a boost from the weaker USD. Photo: Shutterstock
— Edited by John Acher