STBA - Stocks To Watch: Investors Prep For Inflation Data And Q2 Earnings Rush

2023-07-08 10:30:00 ET

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The latest update on inflation in the U.S. will drop on the lap of investors, with June CPI report scheduled to be released on Wednesday. Economists forecast headline inflation to fall to 3.0% from 4.0% in May and core inflation to be reported at 5.0% from 5.3% in May. A CPI surprise could reset expectations on the direction of the Federal Reserve. At publication time, traders were pricing in a 90% probability that the Federal Reserve will raise rates by 25 basis points at the meeting later July 25-26. The earnings season kicks off with major banks JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) some of the heavyweights stepping into the earnings confessional. The readout on what major banks say about deposit flows and loan growth is also anticipated to have an impact on regional banks' stocks. Some analysts have warned that large banks' earnings have peaked as net interest income is likely to continue to decline, credit costs are gradually normalizing and increasing, and expenses are pressured by inflation. EPS growth is also being hurt as banks position for likely regulatory changes by adding liquidity, increasing debt capital, and several holding back on share repurchases. Outside the banking sector, companies due to spill numbers include Delta Air Lines (DAL) ( preview ), UnitedHealth Group (UNH) ( analysis ), and PepsiCo (PEP) ( analysis ). Looking at the earnings season as a whole, there have been 62 negative EPS preannouncements issued by S&P 500 corporations compared to 39 positive, which London Stock Exchange Group computes is an N/P ratio of 1.6 for the S&P 500 Index. This compares to a long-term average of 2.5 and prior four-quarter average of 2.0.

Earnings spotlight: Monday, July 10 - Helen of Troy (HELE), WD-40 Company (WDFC), and PriceSmart (PSMT).

Earnings spotlight: Tuesday, July 11 - Byrna Technologies (BYRN).

Earnings spotlight: Wednesday, July 12 - MillerKnoll (MLKN) and AngioDynamics (ANGO)

Earnings spotlight: Thursday, July 13 - PepsiCo (PEP), Delta Air Lines (DAL), and Conagra Brands (CAG).

Earnings spotlight: Friday, July 14 - UnitedHealth Group (UNH), JPMorgan Chase (JPM), Wells Fargo (WFC), State Street (STT), BlackRock (BLK), and Citigroup (C).

Volatility watch: Short interest on both Coinbase Global (COIN) and Arhaus (ARHS) is at more than 20% of total float. Options trading volume is elevated on Nikola (NKLA) and FingerMotion (FNGR) once again. The judge in the settlement hearing over AMC Entertainment's (AMC) plan to convert preferred equity units (APE) could issue a ruling during the week.

IPO and spinoff watch: No new offerings are expected to be priced next week as the IPO market cools off from what was a burst of activity in June when five IPOs raised $1.3B in aggregate proceeds to mark the most active month for IPOs since May 2022 when $1.1B in proceeds was raised. CAVA Group (CAVA), which had the splashiest debut of the bunch, will have its quiet period expire on July 10 to open up analysts to post ratings. The quiet period also ends on Azitra (AZTR) and BranchOut Food (BOF), which are both down from their IPO pricing levels. Skyward Specialty Insurance Group (SKWD) and MGO Global (MGOL) are also on watch with blocks of shares coming off their IPO lockup expiration.

Dividend watch: Companies forecast to boost their quarterly payouts include Marsh & McLennan (MMC) to $0.65 from $0.59, State Street (STT) to $0.69 from $0.63, New Jersey Resources (NJR) to $0.415 from $0.39, and Cummins (CMI) to $1.66 from $1.57. See Seeking Alpha's list of Quick Dividend Stock Picks.

Retail sales: Amazon (AMZN) will hold its Prime Day event over a 45-hour period on July 11-12. New deals will drop every 30 minutes during select periods throughout the event, with deep discounts on top products from the hottest brands. The e-commerce giant previewed that deals will be offered on products from Lancôme, Kérastase, Peloton Interactive (PTON), Victoria's Secret (VSCO), Yeti (YETI), The Drop, and Sony (SONY). The shopping event will also include new Amazon-exclusive deals from D'Amelio Footwear, OPI, and Alo Yoga. Amazon (AMZN) is also expected to offer deals on its Amazon Echo devices and Eero mesh Wi-Fi systems. The Prime Day sales will simultaneously take place in Australia, Austria, Belgium, Brazil, Canada, China, Egypt, France, Germany, Italy, Japan, Luxembourg, Mexico, the Netherlands, Poland, Portugal, Saudi Arabia, Singapore, Spain, Sweden, Turkey, the United Arab Emirates, the U.S., and the U.K. Amazon is expected to hold a separate Prime Day event this summer in India. Within the retail sector, Walmart (WMT) will also hold Walmart+ Week from July 10-13 and Target (TGT) Circle Week runs from July 9-15. Other retailers, such as Best Buy (BBY), Newegg (NEGG), Nordstrom (JWN), and Wayfair (W), will also run big price specials as they look to protect market share. JPMorgan forecast Prime Day will drive incremental revenue of ~$5B, which would be up +13% year-over-year from the ~$4.4B of incremental revenue Amazon disclosed last year. The firm thinks Amazon should be well-equipped for the elevated demand of Prime Day, and believes the event should also help AMZN right-size inventory ahead of heavier demand around the holidays. Monness Crespi Hardt analyst Brian White noted Prime Day follows shortly after the FTC filed a complaint against the retail giant for deceptive digital tactics around Prime. White believes Amazon (AMZN) is well-positioned to benefit from digital transformation and leverage a leaner cost structure, but warns that regulatory headwinds are strengthening, and the darkest days of the economic downturn are ahead.

Corporate events: Daimler Truck (DTRUY) will hold its first Capital Markets Day as a standalone company on July 11. Deutsche Bank expects the German trucking giant to provide a tech update that includes profitability indicators for diesel versus electric trucks as well as a roadmap until 2030. An announcement of a buyback plan is seen as a potential share price catalyst. Sprinklr (CXM) will hold an Investor Day event on July 12, with top executives expected to provide an overview of the company's market opportunities, new product innovations, various use cases, and Sprinklr's financial outlook. Notable events in the healthcare sector during the week include Phase 3 topline data being reported by Journey Medical Corporation (DERM) and Phase 3 PK data from Fortress Biotech (FBIO) on the safety of DFD-29. The 2nd Annual RNA Therapeutics Summit will include participation from Sarepta Therapeutics (SRPT), Avidity Biosciences (RNA), and Ionis Pharmaceuticals (IONS), while ProQR Therapeutics N.V. (PRQR) will participate in the RNA Editing Summit. See a detailed list of key events for next week in Seeking Alpha's Catalyst Watch .

Quant ratings: Stocks with recent quant rating changes include Pure Storage (PSTG) to Strong Buy from Hold, Embraer (ERJ) to Buy from Hold, and Karyopharm Therapeutics (KPTI) to Strong Sell from Hold. See the stocks with the very highest rated Seeking Alpha Quant Ratings.

Box office preview: Disney's (DIS) Indiana Jones and the Dial of Destiny is looking for a strong second weekend to take its two-week tally over $120M. Sony's (SONY) Insidious: The Red Door could challenge the Harrison Ford film for the top spot over the weekend. Both films had a solid start to the weekend, with box office hauls of more than $5M on Thursday.

Barron's mentions: While the focus in the financials sector this week will be on the earnings reports of major banks, the publication makes the case that some smaller banks may be value picks. In what is described as a classic case of throwing the baby out with the bath water, small banks with thriving businesses have seen their share prices fall sharply since the Silicon Valley Bank collapse. However, it was noted that small banks have seen their deposits remain stable, revenue increase, and loan volumes hold steady as customers from various industries seek money to grow their businesses. That has all added up to a boost in profits for some of the underappreciated players. The list of recommended small bank stocks includes Axos Financial (AX), Bread Financial Holdings (BFH), First Financial Bancorp (FFBC), OFG Bancorp (OFG), Preferred Bank (PFBC), and S&T Bancorp (STBA).

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