Two of the biggest economic events that remain for 2022 hit the calendar next week, with the November CPI report and Federal Reserve meeting having the potential to set the tone for the remaining three weeks of the year. While a mild CPI print is not anticipated to jolt the Fed away from its hawkish stance, a flat reading or surprise to the upside could reset expectations for investors out in front of their skis for betting on an inflation peak. While the earnings calendar is razor-thin for the week, key events for Yum Brands (NYSE:YUM), Pfizer (NYSE:PFE), J.M. Smucker (SJM), Volkswagen (OTCPK:VWAGY) and Centene Corporation (NYSE:CNC) will keep investors on their toes.
Earnings spotlight: Thursday, December 15 – Adobe (ADBE).
FOMC preview: The Federal Reserve will hold a two-day meeting of its policy-making committee with expectations high that the central bank will fire off an interest rate hike of 50 points. While recent readings from the labor market continue to be strong, the housing slowdown appears to be spreading into manufacturing and given economists differing opinions on how high the terminal interest rate will go. Trading on the federal funds futures contract indicates almost an even split between a 25-point or 50-point interest rate increase at the February meeting. Bank of America thinks Chairman Jerome Powell is likely to push back once more against the idea of a dovish pivot. Powell could reiterate his comments from a speech last week when he noted wage inflation plays a large role in core services inflation ex-housing and the only way to bring inflation back towards the target rate is to slow down the labor market. Outside of Powell’s speech, the summary of economic projections will be closely watched with the median forecast for 2023 forecast to move up by 50bp to 5.125%. What about 2024 and 2025? BofA thinks the dot plot will point to 100bp of cuts each in 2024 and 2025.
Healthcare watch: A busy week is ahead for the healthcare sector. Pfizer (PFE) will webcast its Near-Term Launches + High-Value Pipeline Day event on December 12. The event will include Pfizer business executives and scientific leadership providing updates on the company’s potential near-term product launches and key high-value pipeline programs. The FDA Advisory Committee will meet on December 13 to review the NDA for Cytokinetics’ (CYTK) omecamtiv mecarbil. Shares of CYTK have been volatile in the past after omecamtiv mecarbil developments. December 14 is the FDA action date on Zai Lab’s (ZLAB) adagrasib. Shares of ZLAB have been active before off adagrasib developments. The ASH Conference will include drug data presentations from a large number of companies with the potential to reset expectations. Legend Biotech Corporation (LEGN), GlycoMimetics (GLYC), Roche (RHBBY), AZN, Merck (MRK), and Bristol-Myers Squibb (BMY) are some of the companies to watch.
One business become two: The business split of Fortune Brands Home & Security (NYSE:FBHS) is effective on December 15. Following the separation, Fortune Brands Innovations (FBIN will be the ticker) is expected to be a brand, innovation and channel leader in the home, security and commercial building markets. Meanwhile, MasterBrand (MBC will be the ticker) will be aimed at driving efficiency and flexibility across the enterprise, transforming it into a streamlined, tech-enabled business able to deliver for the unique needs of each customer. The two new businesses are attracting attention from analysts. Fortune Innovations has long-term targets for organic sales CAGR of 6% to 9%, operating margin of 20 to 22% operating margin, and EBITDA margin of 23% to 25%. By segment, FBIN expects water to grow 7-9%, outdoors 7-9%, and security 3-6%. FBIN expects its end markets to outpace the overall repair and remodel market and its brands to outpace its end markets through innovation, digital/brand investments and M&A. Meanwhile, MasterBrand (MBC) has long-term targets for revenue CAGR of 4% to 6% and operating margin of 14% to 16%. MBC is noted to have gained share in recent years including quickly building a $150M imported stock cabinet business (Mantra) to fill a gap in the market following the implementation of tariffs in 2019. MBC has improved its manufacturing flexibility, which allows it to shift production of brands between factories and better align costs with demand.
Yum Brands investor day preview: Yum Brands (YUM) will hold what will be a closely watched investor event for the restaurant sector. Heading into 2023, Yum Brands has been named a top pick at both Cowen and Evercore ISI. Cowen thinks the event could be a positive catalyst for Yum stock as management highlights the upside for Taco Bell in the U.S. and the China reopening. The restaurant operator’s commentary on battling inflation headwinds and labor shortages will also be key highlights and set a tone for the sector as a whole. Heading into 2023, Yum Brands has been named a top pick at both Cowen and Evercore ISI. Cowen thinks YUM’s diversified, asset-light business model positions the stock favorably as inflation remains elevated. Key 2023 catalysts are expected to be the Taco Bell U.S. business and the reopening in China. Evercore ISI believes Yum Brands stock has been hindered by negative earnings revisions due mainly to currency swings, ongoing uncertainty about and an under-appreciation for the underlying improvement at Pizza Hut U.S. and the Taco Bell brand. The firm sees the potential for Yum’s core operating profit growth to exceed the high single-digit algorithm in 2023 helped by a potential phasing out of zero-COVID policies in China in the second half of 2023.
Corporate events: Pfizer (PFE) will webcast its Near-Term Launches + High-Value Pipeline Day event on December 12. Pfizer business executives and scientific leadership will provide updates on the company’s potential near-term product launches and key high-value pipeline programs. Yum Brands (YUM) will hold a key investor day event on December 13 with a focus on the growth potential and strategies for the KFC, Taco Bell, Pizza Hut and the Habit Burger Grill chains. Other key events scheduled for the day include the Eli Lilly & Co. (LLY) guidance call, Terex Corporation (TEX) Investor Day, Arthur J. Gallagher & Co. (AJG) investor meeting, Ligand Pharmaceuticals (LGND) Analyst Day, Denbury (DEN) CCUS business outlook event, Graham Holdings (GHC) Investor Day, and QuidelOrtho (QDEL) Investor Day. Also of high interest, J.M. Smucker (SJM) will host its 2022 Investor Day event on December 14. A live Q&A session with CEO Mark Smucker and CFO Tucker Marshall is scheduled. Food companies are being watched closely to see if pricing power can continue to offset volume declines in key categories. On December 15, Krispy Kreme (NASDAQ:DNUT) will hold an investor day event with presentations scheduled and a Q&A session with members of the management team. Details on the company’s strategic vision and long-term growth goals, as well as 2023-2026 guidance are expected. On the same day, the spinoff of MasterBrand from Fortune Brands Home & Security (FBHS) will also be effective and Ericsson (ERIC) will hold a Capital Markets Day event. Hillenbrand (HI) will also host its investor day, which will include a detailed overview of the company, its growth strategy, its transformation journey, and financial targets. Read Seeking Alpha’s Catalyst Watch for a more complete list of the week’s big events.
Notable conferences: The conference schedule slows down with just the UBS Power Infrastructure Conference and Imperial Capital 19th Annual Security Investor Conference standing out.
Box office: The global box office has a tentpole movie hitting screens with Disney’s (NYSE:DIS) Avatar: The Way of Water having the potential to generate big numbers through the holidays. The James Cameron film has been tracking north of $150M for its opening weekend, with some industry watchers saying a $175M haul is in sight. The 2009 original grossed $2.9B at the global box office and after a few re-releases currently stands as the highest-grossing film of all time. Counting Avatar and the other late 2022 releases, Comscore forecast the U.S. box office to end the year at $7.2B to mark a big jump from the $4.5B tally in 2021, but stand well short of the +$11B levels seen from 2015 to 2019. Theater-related stocks such as AMC Entertainment (NYSE:AMC), Cineworld (OTCPK:CNNWQ), Cinemark (CNK), IMAX (IMAX), Marcus (MCS), Reading International (RDI), Cineplex (CGX:CA) and National CineMedia (NCMI) could use an Avatar surprise to the upside.
Barron’s mentions: CVS Health (NYSE:CVS) is the subject of the cover story this week with the publication making the case that investors should not give up on the stock even though the company’s big bet on primary care has not come to pass yet. While the lack of progress on the primary-care front has made the stock difficult to evaluate, the ultimate goal of making retail pharmacy into something that becomes a point of access into the healthcare system is still said to be in play. On the valuation front, CVS shares trade at the bargain level of 11X earnings expected over the next 12 months, noted to be an attractive entry point for investors willing to bet the company’s long-term plans will deliver impressive results.
Sources: EDGAR, Bloomberg, CNBC, Reuters