Equity update: Meta, Pepsi and more

Meta’s continued rebound hinges on engagement and ads

Sam North, analyst at investment platform eToro, says: “Meta, up over 30% year-to-date, reports their earnings after the market closes on Wednesday. Having recovered from a near 80% decline after peaking in August 2021, it has since rallied as much as 500% to new all-time highs. After such a strong resurgence, earnings will have to be good or investors will start to fall back. So, what is worth keeping an eye on?

“First and foremost, analysts are eager to see if Meta can sustain its growth trajectory in user engagement across its platforms, particularly Facebook and Instagram. With these platforms reaching maturity, we need to ask the question: can Meta maintain its impressive gains in user activity, which have been driving solid growth in ad sales volumes? Of particular interest is whether the firm can uphold ad pricing, especially considering the moderation in average ad pricing declines seen in the latter half of 2023. Investors are also keen to assess the effectiveness of Meta’s investments in ad technology, including artificial intelligence, and how they have contributed to advertiser returns on ad spending.

“Financially, Meta appears robust, boasting a strong balance sheet with $47 billion in net cash and a substantial increase in operational cash generation to $71 billion in 2023. Despite the elevated capital investment, capital spending decreased in 2023, leading to a significant rise in free cash flow to $44 billion. The declaration of a quarterly dividend of $0.50 per share earlier in 2024 indicates the company’s confidence in its financial position. However, Meta’s plans for share repurchases and acquisitions may be constrained by ongoing FTC antitrust oversight.

“To keep the recent strong run going, Meta needs to control the risks. The potential for disruptive technologies like TikTok to divert user attention, coupled with regulatory scrutiny on data privacy and usage, poses challenges. Additionally, Meta’s heavy reliance on online advertising exposes it to downturns in ad spending, which could occur during economic recessions. As such, investors will be closely monitoring how Meta addresses these risks and navigates potential regulatory hurdles in its pursuit of sustained growth.

“Dip-buyers would love the opportunity to get in should we retrace to the previous all-time high of around $385, which would roughly be a 20% move lower from where we currently trade. However, a good report and not much will stop us from trading above $500 once again.”

Reckitt looks to get 2024 to sparkle and shine after Q1 headache

Adam Vettese, analyst at investment platform eToro, says: “To say Reckitt Benckiser has had a tough year would be a significant understatement with the price plummeting almost a third since February off the back of poor Q4 results and litigation facing their baby formula brand. With that said, many shareholders may well have been bracing for impact this morning but in fact the results offer a timely reprieve.

“Even when consumers are tightening their belts, Reckitt’s array of consumer staples in well-known brands are still well in demand with consumers even upgrading to premium versions as smaller luxuries take the place of bigger, more extravagant purchases. Sales jumped despite price increases showing strong brand loyalty to the likes of Finish, Dettol and Nurofen and the increase is coming not only from price but volume also.

“More buybacks are on the way in July and provided legal issues do not bring too much more trouble to the door, investors could see value at the current levels with the price 38% away from its 2024 high which was only at the end of February.”

Pepsi beats with top and bottom line, despite Quaker recall

 
Adam Vettese, analyst at investment platform eToro, says: “Pepsico has delivered a solid set of results today given the backdrop of high inflation and the recall of its Quaker cereal products around the turn of the year tied to potential salmonella contamination. That issue saw volumes plunge 22% at its Quaker Foods division. While Pepsi has already confirmed the closure of the factory at the centre of that problem, some question marks may remain for investors over the size of further fallout before operations normalise. Shares in the company were little changed in pre-market trading.”
 

AB Foods rewards shareholder after another strong earnings update

Mark Crouch, analyst at investment platform eToro, says: “This is another very strong earnings report from Associated British Foods. The British multinational food processing and retailing company reported a 39% jump in first half profit and expects to deliver significant growth in all of their operating sectors.

“ABF’s jewel in the crown Primark, delivered strong sales revenues and improved margins. Disruption that had hindered supply chains earlier in the year seems to have subsided and the business has pushed ahead with their store expansion programme and increased roll out of click & collect service.

“Grocery, ingredients, sugar and agriculture arms all enjoyed increased profitability and as a result, shareholders have been rewarded with an interim dividend increase of 46%.

“Despite UK CPI rising at its slowest rate in over two years, a recent ONS report confirms UK retail sales in March showed zero growth, a worrying sign that higher costs of goods and services are weighing heavily on consumers.

“However, these results are testament to AFB’s resilient and diversified business model, and further proof for their shareholders they are well insulated from economic threats.”