Daily Rundown: July 13

CHRIS VERSACE: Good morning, Action Alerts Plus members. Let's begin today's rundown tackling the data point of the day, and by that I mean the June producer price index. Simply said, the data came in better than expected across the board for both headline and core PPI. Paired with yesterday's softer-than-expected June CPI data, it reinforces the view that progress on the Fed's efforts to tame inflation has resumed.

Now, we are seeing the market welcome that with open arms, based on how the S&P 500 and other broad market indicators closed yesterday. And, of course, as markets open today, they are also trending higher. Now, I don't necessarily want to be a wet blanket. But as we discussed yesterday, the inflation data over the last 20 months has really jumped around quite a bit at times, showing some progress, retreating, coming in hotter than expected, and, at times, stalling.

Our thinking is the Fed is going to be on this same page that we are on this. And by that I mean it will look for further confirmation that inflation is waning in the upcoming data. And that is what will determine if there is a second rate hike to be had in the last four months of this year.

Now, let's move over to some of our individual positions. Yesterday, we got the first round of results from Amazon's Prime Day. Data from Adobe Analytics puts the first day at around $6.4 billion for US online sales. And that's up about 6% year over year.

Parsing the data, we saw that shoppers leaned heavy into discounts for appliances, toys, apparel, and electronics. And based on those categories, it appears there was at least some pull forward for the back-to-school shopping season and perhaps even the year-end holiday shopping season.

Now, today, we're going to look for additional data on how Prime Day fared on its second day, July 12th. When we aggregate all of the data together, it will let us if Amazon is poised to hit the expected sales target from the full two-day event of around $12.9 billion overall, with about $8 billion in the US. Now, based on the data from Adobe Analytics, we would say that, so far, things are looking pretty good on that front, especially here in the US.

And as we get this final round of data, we'll also be eyeing the category insights to see if consumers were pulling demand forward for other categories in anticipation of, as something that we've been discussing quite a bit with you, the resumption of student debt payments that kick back in October and, on average, are expected to be around $400 per month. This morning, we saw earnings from PepsiCo, and the company delivered simply a great quarter, a beat-and-raise one. And as we digest the company's earnings call, we're going to be looking to fine tune our $205 price target with an upward bias.

As we read the earnings press release this morning, two things really stood out to us. First, sales in the quarter were led by pricing, which also led to nice operating profit margin expansion in the quarter. As you know, we've been thinking about that, that 2022 price increases would become margin levers. And certainly Pepsi's report confirms our thesis. And we expect this to play out as well when Chipotle reports its quarterly results later this month.

Now, back to PepsiCo, its pricing strength led to its organic revenue growth forecast being upsized at 10% for all of 2023. And that's up from the prior forecast of 8%. When we pair this with margin improvement prospects ahead, we are likely to see EPS expectations move higher as well as Wall Street price targets.

Now, the second thing that we noticed in PepsiCo's earnings press release was something that we commented that we would be watching. And by that, I'm talking about the dollar and currency exchange. As part of PepsiCo's revised outlook, it hiked its core constant currency earnings growth to 12% this year, up from 9%.

To us, this sets the stage for what we're going to hear in the coming weeks, which, as we discussed in a note with you earlier this week, the fall in the dollar should be positive for a number of our holdings, like PepsiCo, that have a meaningful exposure to international markets. Again, we'll have more formal comments once we reviewed and digested PepsiCo's earnings conference call in full.

And let's end today's rundown answering one of your questions. Yesterday, shares of Elevance saw some pressure, and we've gotten some questions about our $550 price target. So let's talk about that price pressure. It stemmed predominantly from Wall Street firms cutting their price targets that were, candidly, higher than ours, from around $572 to over $600 to about $535 to $575, essentially bookending our $550 price target.

Now, the catalysts for those revisions were higher-than-expected costs. And while we can't speak to what those other Wall Street firms were thinking, what their underlying cost expectations were, I can tell you that when UnitedHealth reports tomorrow, cost factors as well as demand factors are things that we will be watching ahead of Elevance reporting its quarterly earnings results next week on July 19.

That'll do it for today's rundown. JD will be back tomorrow with Sarge Guilfoyle, discussing big bank earnings and much more. Thanks for watching.