Wall Street Breakfast: The Week Ahead

Jul. 10, 2022 7:28 AM ET9 Comments
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Economic reports in the week ahead

The earnings season fires off with big reports due out from PepsiCo (NASDAQ:PEP), Delta Air Lines (DAL), and Taiwan Semiconductor (TSM) before a wave of reports from major banks like JPMorgan Chase (JPM), Wells Fargo (WFC), U.S. Bancorp (USB), and others. Investors in the banking sector will be watching to see if the decline in mortgage originations and refinancings is offset by higher revenue from credit lines. The corporate calendar for the week includes investor events for Dave & Buster's Entertainment (NASDAQ:PLAY), Ferroglobe PLC (NASDAQ:GSM), Suncor (NYSE:SU) and Pure Cycle Corporation (NASDAQ:PCYO) - while Amazon (NASDAQ:AMZN) Prime Day and competing online sales will dominate attention in the retail sector. Inflation talk will also be front and center, with the consumer price index and producer price index reports both expected to be just as strong for June as they were for May.

Earnings spotlight: Monday, July 11 - Greenbrier (GBX), PepsiCo, PriceSmart (PSMT).

Earnings spotlight: Tuesday, July 12 - AngioDynamics (NASDAQ:ANGO).

Earnings spotlight: Wednesday, July 13 - Delta Air Lines (DAL) and Fastenal (FAST).

Earnings spotlight: Thursday, July 14 - Taiwan Semiconductor Manufacturing (TSM), JPMorgan Chase (JPM), Morgan Stanley (NYSE:MS), and Conagra (CAG).

Earnings spotlight: Friday, July 15 - PNC Financial (PNC), BlackRock (NYSE:BLK), Citigroup (C), PNC (PNC), State Street (STT), Wells Fargo (WFC), U.S. Bancorp (USB) and UnitedHealth (UNH).

IPO watch: Nano Labs (NA) is expected to start trading on July 12. Nano Labs makes ASIC chips for crypto mining machines and some metaverse-related computing applications. COVID-19 test marketer Virax Biolans Group (NASDAQ:VRAX) is scheduled to debut on the market on July 14. Watch Hillstream Biopharma (NASDAQ:HILS) and TPG (TPG) with IPO lockup periods expiring to free up more shares to be sold.

SPAC watch: Shareholders with ACE Convergence Acquisition Corp. (ACEV), FoxWayne Enterprises Acquisition Corp. (FOXW), Global SPAC Partners Co. (GLSPT), Brilliant Acquisition Corporation (BRLI), HPX Corp. (NYSE:HPX), and Chavant Capital Acquisition Corp. (CLAY) all meet during the week to vote on extending the deadline to close their respective SPAC deals.

Dividend watch: Some of the notable companies forecast to boost their dividend payouts next week include Goldman Sachs (GS) to $2.50 from $2.00, Marsh & McLennan Companies (MMC) to $0.595 from $0.535, Morgan Stanley (MS) to $0.775 from $0.70, State Street (STT) to $0.63 from $0.57, Molson Coors (TAP) to $0.42 from $0.38,Bank of New York Mellon (NYSE:BK) to $0.37 from $0.34, Conagra (CAG) to $0.3375 from $0.3125, and Ryder (R) to $0.62 from $0.58. Amid the market turmoil, money manager Adviser Investments recommends financially sound companies that are likely to continue lifting payouts. The firm's dividend strategy holdings include Microsoft (MSFT), Apple (AAPL), Costco Wholesale (COST), JPMorgan Chase (JPM), Nike (NKE), Procter & Gamble (PG), and PepsiCo. "Those well-capitalized companies that continue to increase their dividends through recessions are the companies you want to own," noted analyst Josh McCourt.

Amazon Prime Day: Consumers will be put to the test next week with Amazon (AMZN) holding its two-day Prime Day event, Target (TGT) running its three-day Deals Day event, Best Buy (BBY) having a Black Friday in July sale, Macy's (M) holding a Black Friday in July event and Walmart (WMT) already offering high levels of markdowns. Jefferies estimated that Prime Day will contribute $8.1B to gross merchandise value and $4.7B to sales, which represents a 6% tailwind for GMW and 4% boosts for sales. "We see Prime Day helping to boost Prime adoption, especially in international markets, which have lower membership penetration and 3 new countries participating in 2022 Prime Day," previewed the firm. Prime Day has helped drive incremental Prime Membership adoption in the past. Earlier this year, Amazon raised its Prime fees in the U.S. in March to $14.99 a month from $12.99 and to $139 a year from $119. The price increase is expected to drive ~$2.8B in incremental Prime subscription revenue from existing subs throughout the year. The read-through on inventory levels and discounting will be key as investors assess the outlook for the retail sector in Q3.

Eyes on inflation: The week ahead is inflation central, with the consumer price and producer price reports both due in. The consumer price index report is expected to show a 1.0% month-over-month and 8.7% year-over-year rise in prices for June. Core CPI is expected to held steady from the previous month with a 0.6% gain. Despite the strong headline numbers anticipated, JPMorgan thinks economic reopening inflationary pressures for certain service prices faltered somewhat in June. Airline fares are expected to be flat following three consecutive double-digit increases, and lodging-away-from-home prices are forecast to decline modestly. The producer price index report is expected to show a 0.8% month-over-month rise for the second consecutive month, due in part to strong energy prices. Core PPI is forecast to increase 0.4% month-over-month.

Airlines earnings preview: Delta Air Lines (DAL) kicks off the earnings season for the airline sector with its report arriving on July 13. The expectation is that Delta will issue guidance at the lower end of its prior range due to operational issues and cost pressures. Across the industry, the latest data reads have indicated no meaningful cracks in demand, but investors may be looking for confident tones on earnings conference calls. Bank of America think if demand were to slow, the industry can quickly cut capacity to meet demand. The firm heads into the earnings season with Buy ratings on Delta, Southwest Airlines (LUV), and Alaska Air Group (ALK) due to stronger balance sheets and higher margins than peers.

PepsiCo earnings preview: PepsiCo is scheduled to report Q2 earnings on July 12 to consensus expectations for revenue of $19.5B and EPS of $1.74 to be reported. JPMorgan forecast PepsiCo will report organic sales growth of 8.6% vs. 7.7% consensus. The firm expects PepsiCo to echo many of the themes the firm has heard from consumer packaged goods companies at recent conferences on consumer spending holding up even with prices higher. PEP is said to be a preferred name for investors seeking earnings compounding with low volatility and a favorable risk/reward with PEP trading at a slight discount to Coca-Cola (KO). Wells Fargo and Evercore ISI are also positive on PepsiCo into the report, with both firms pointing to strong scanner trends. Meanwhile, Stifel suggested the company may be interested in making an acquisition of a smaller beverage player to build on a successful acquisitive track record that has included purchases like Sodastream and Rockstar Energy in recent years.

Corporate events: Watch all week for updates from three-day World Orphan Drug Congress USA healthcare event. Some of the companies with key presentations that could spark a share price reaction include Tonix Pharmaceuticals (TNXP), Vaxart (NASDAQ:VXRT), bluebird bio (BLUE), Rocket Pharmaceutical (RCKT), Regeneron Pharmaceuticals (REGN), and Avrobio (NASDAQ:AVRO). Dave & Buster's Entertainment (PLAY) will hold a conference call to report combined results for D&B and Main Event on July 12. Ferroglobe PLC (GSM) will also host a virtual Investor Day, which will include a comprehensive review of the business and its current activities. Suncor (SU) and Pure Cycle Corporation (PCYO) have investor events scheduled for July 13. Shareholders with Healthcare Realty Trust (NYSE:HR) and Healthcare Trust of America (NYSE:HTA) vote on the planned merger of the two companies on July 15. Earlier in the month, proxy firm ISS recommended cautionary support for the deal. Read more about the events next week that could impact shares prices in Seeking Alpha's Catalyst Watch.

Stock splits: The Alphabet (GOOGL) 20-for-1 stock split will become effective after the close of the market. There is some speculation that the stock split could lead to the tech giant being added to the Dow Jones Industrial Average.

Barron's mentions: The publication churned out a list of the top dividend stocks to hold during a recession after pointing out that dividend stocks have historically declined less than the broad market during periods of economic downturn. While dividend payouts can be suspended or slashed during recessions, it was noted that even in the sharpest and deepest recession in modern history, S&P 500 dividends only fell by 3%. Johnson & Johnson (JNJ), Coca-Cola (KO), Colgate-Palmolive (NYSE:CL), Apple (AAPL), Costco Wholesale (COST), JPMorgan Chase (JPM), Nike (NKE), Procter & Gamble (PG), and PepsiCo (PEP) are mentioned as some of the dividend elite. Watsco (NYSE:WSO) also gets attention this week as a stock that looks attractive on a valuation basis. The air conditioning distributor is called a stable business that features consistent earnings and sales, and should be attractive to investors looking to play defense while benefiting from the heat. Watsco (WSO) trades at 17.8X estimated 2023 earnings per share, which is a 14% premium to the 15.6X multiple of the S&P 500 Index, but Watsco is observed to be growing faster than most companies and usually trades at a premium of almost 50% to its five-year average.

Sources: EDGAR, Bloomberg, CNBC, Reuters

This article was written by

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