Power Lunch - Next Level, and Is The Worst Over? 7/11/23

Episode Date: July 11, 2023

A judge just shot down the FTC’s attempt to block the Microsoft-Activision merger. But the UK’s regulator is still holding things up. We’ll explore what it means for both Microsoft and the fate of future deals.Plus, 3M has been one of the biggest drags on the Dow so far this year, as it faces litigation and potentially huge costs. But is the bad news already priced into shares? We’ll ask an analyst who just upgraded the stock. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunge alongside Kelly Evans. I am John Fort. And coming up, deal unlocked for Microsoft and Activision. A judge shoots down the FTC's attempt to block the merger, but the UK regulator still holding things up a little. What that means for Microsoft and for the future of mega mergers. Plus 3M has been one of the biggest drags on the Dow so far this year. The company facing litigation and potentially huge costs on a couple of press. But is the bad news already priced in?

We will ask an analyst who is upgrading the stock. John, thank you. And first, let's get a check on the markets. We see the Dow leading the way with a two-thirds percent gain up 228 today. S&P up 14 to 44. The NASDAQ is green as it approaches a NASDAQ 100 rebalance on July 24th. It's adding 26 points. Now we're also watching shares of Amazon as it is prime day. I think the beginning of two days. It's kind of like a Fed meeting. That's Noble. We'll get to that in a second. Amazon is slightly higher. It's a 52% this year. We'll have more on Prime Day and what it tells us about the consumer and the economy coming up. On to shares of Novo, down 3.5% today. Reuters reporting the majority of WeGOV patients stop taking it within just 12 months. That's different than what a lot of previous reports indicated. European regulators are meanwhile looking into whether OZMPIC is tied to suicidal thoughts. Elsewhere, shares of WD40 are soaring after the company beats on earnings despite negative currency effects. And it's increased its share buyback, 18% jump for a name that feels like a good barometer perhaps of the U.S. economy, John. All right. We begin with positive news.

for Microsoft and Activision, a federal judge denying the FTC injunction request. Steve Kovac wheeling in here with more. Steve, this is over, basically, isn't it? I mean, I know it's not technically over, but come on. Effectively. And look, are David Faber reporting, the CMA bit in the UK, those regulators, who already rejected the deal, Faber reporting just last hour, that it looks like they're going to accept it.

Microsoft has made some sort of offer of a divestiture. What that is, we don't know yet. But it really seems like Faber saying this could be done as soon as Monday, John. And this is a vertical merger, meaning that Microsoft is making the argument. It's a huge gaming industry. You got mobile gaming, got console gaming, PC gaming, et cetera. And it's not in our interest to hold call of duty back from other platforms. We need to make money off the thing.

It would be financially irresponsible. That's why I said. Not argument one. True or not. Yeah, exactly. That's what I said with Kelly last hour was it would just the dollars and cents don't add up. And the FTC attempted to have a Harvard economist expert come in and prove the opposite. But in the judge's ruling, there's literally a whole section dedicated to this guy where she says, basically, you fudge the numbers. And it does not add up.

And what you're alleging FTC is not going to happen. There's also a bit about the cloud, which is what the CMA ruling exclusively focused on. They didn't even bother with this whole console market argument. They ended up dropping that. And so on the cloud, it's such an early platform. And by the nature of the way Activision isn't even on any of these subscription services, so the judge says, look, Microsoft, you know, they're fine here. It's such a small market.

It's not going to be anti-competitive at all. So a clear win, at least here in the U.S. for Microsoft. Steve, stick around. Let's bring in William Kovassik. For more, he's a former FTC chairman, currently a global competition professor of law and policy at George Washington University Law School. Bill, it's great to have you back. What does this mean for the administration's hopes to block more mega mergers? If you want to establish a new frontier of enforcement and accomplish durable change, you've got to win a critical mass of cases.

And this is the latest example of how the agency has failed in a very visible matter to extend the frontiers. And for the reason that Stephen was just mentioning, the court rejected the commission's basic approach. it emphasized very strongly how the parties had offered a suitable solution. And I think this underscores how companies that, with some foresight, can anticipate possible problems and offer a fix are going to be able to get that argument in front of a judge, and judges will listen very sympathetically. Bill, it seems to me that this was a test case in Lena Kahn's sort of big as bad world, right? in the sense that this was a vertical merger. This wasn't ever a case where it was just a company getting bigger in one particular space

where it was already dominant. So does this just have significance for those who are afraid that big is bad always? What does this mean for the likes of Adobe Figma, where it really is sort of a big tech company in one area looking to get bigger by swallowing a small arrival? I think you underscored a key point before, which is that it does, open up the path, I think, for more vertical mergers to be accomplished. This was a big priority of new leadership to establish effective enforcement dealing with vertical mergers. It also was an effort to show that firms that acquire a variety of different capabilities in what is sometimes

being called a tech ecosystem have better ability to forestall entry and expansion by other firms. To bring out this is a theory of harm. I think we saw in Meta Within and now in Microsoft Activision, that those arguments are going to be extremely hard to establish, either because the theory is speculative and the evidence is hard to gather, or it's really pushing the boundaries of what courts have become comfortable with before. So this really casts a shadow over the effort to crack down heavily on vertical transactions, non-horosomal transactions, and to establish the suggestion that big tech firms will not be allowed simply to buy as freely as they did before. Bill, Steve, I have a question for you about Amazon, since we know that's the FDC's next

big target, they're likely going to file an antitrust case against Amazon, maybe before the summer ends. How do you think this impacts their argument there? I think that it gives them confidence, first of all, that if they mobilize their resources and bring the first team to bear on the commission's case, that they have more than a fighting chance of success. So the inability of the agency to prevail in these cases, I think emboldens their opponents, gives them more confidence that we can fight this battle effectively. Second, I think it underscores how the theories of harm are not going to be successful unless they're backed up with fairly powerful evidence. And yes, in Amazon's case, the FTC will point to past experience that suggests a pattern of exclusion,

but that past experience also involves behavior that arguably provided good things for consumers. So I think that in general, this probably gives Amazon a greater sense of confidence that it can prevail in whatever challenge comes its way. Bill, let me test out a concept on you because I think it's important for the market. This is a big potential green light for AI companies, whether private or small public companies that have business in AI in the sense that there is no clear dominant player in that space yet. And this opens up the possibility that in alphabet, that of Microsoft. that it could actually buy them because Lena Kong's been, her theory here has been defanged. I think that this opens the door to those kinds of transactions. That is, it demonstrates how hard litigated challenges are good to be to prosecute successfully by the agencies.

And again, what we had, I think, very skillfully in this case, and we've seen in others, is that the merging parties anticipate possible problems that come forward with solutions, So that a company that anticipates those problems offers the solutions and then is willing patiently to litigate the case to a close, either in federal district court or elsewhere, that they're going to have a good chance of succeeding because we've seen again and again judges are worried about the quality of the evidence, about speculation, about a future that's hard to predict. I think that this gives companies greater assurance that they can succeed, especially if they're willing to identify potential troubles, bots, identify a solution, even if the agencies don't like the solution, the judges are going to listen, as the judge did so clearly in this case. You were mentioning passages of the opinion that are important. Notice how the judge attached a lot of significance to the commitments that Microsoft CEO made in the courtroom, where she recreates part of the dialogue and says they have

made a commitment under oath to provide access to these crucial gaming products. I take that is a credible indication that they're going to behave in a competitive manner in the future. Interesting that that is so important. And what is said in the courtroom is expected to then be basically gospel in action. Steve, Activision shares are still about $3.5 below the sale price. Why do you think that is any more detail on what this small divestiture in the UK might be? It's got to be or likely going to be related to cloud because the CMA only focused on that cloud bit of this transaction. So I've been struggling to figure out since David reported that. what could they possibly divest that would appease regulators that they're not going to suddenly

become this dominant force in cloud gaming? Very good question. I wish I had an answer for you on that, but clearly it's going to be small and inconsequential because, look, UK is the odd man out here. And, you know, the last thing the UK would want is for Microsoft to sort of pull out of the country or carve out the country or that's just a bad look. And I mean, remember when the CNA first put their decision rejecting the deal. What was the messaging from Activision to Microsoft? UK is closed for business. No one, no country wants that

moniker out there. Especially given, they're in a tough economic time as it is already. Yeah, exactly. Inflation, struggles post-Brexit, difficult business environment. So this would seem as though they're probably, and I think that's what the reporting indicates, more likely than not to play ball.

Exactly. And it looks like just the fact that they pause that litigation and are open to talking, it really seems like there's some movement there and it's going to happen quick. And cloud gaming is not a thing. No, it's not. ever used it? It's a horrible experience. This is a big win for Satya and Della and Brad Smith

over at Microsoft because we remember. And Phil Spencer. Yeah, and Phil Spencer, but really, 25 years ago, Microsoft didn't know how to win in court. Yeah, true. Now they do. Mr. Smith knows that it went in court now. You don't want to mess with him. Steve, thanks very much, Steve Kovac and our, our thanks to you as well, Bill Kovassik. Don't miss a first on C&BC interview either with Activision Blizzard CEO Bobby Kotech, live from Sun Valley tomorrow at 3 p.m. Eastern on closing bell. Coming up, the U.S. Senate holding a hearing on the PGA and LiveGolf merger. What this says about the broader geopolitical landscape for corporations next.

Plus prime times, Amazon kicking off its 48-hour sale. But how does the platform plan to win new subscribers as other retailers try to steal its thunder? Plus today's power call, 3M up more than 4% on a bullish call from B of A. It's helping the Dow. They say their legal woes are easing. Power Lunch will be right back. Welcome back to Power Lunch. a key Senate subcommittee holding its first hearing into the controversial PGA live golf merger this morning.

The PGA tour defending the deal with the Saudi-backed live golf league, but the subcommittee's chair and critic of the deal, Senator Richard Blumenthal of Connecticut, said the hearing is necessary to expose Saudi sports washing. This hearing in our investigation is ultimately not about golf. We're here because we're concerned about the PGA tour's deal. in terms of what it means for an authoritarian government to use its wealth to capture American institutions. Here with us now to discuss the impact of that hearing and more. Anthony Coley, a CNBC contributor.

He most recently led public affairs at the U.S. Department of Justice, served at Treasury, Deputy Assistant Secretary in the Office of Public Affairs. So let's talk Gulf, Saudi Arabia, anti-government. I mean, what direction ultimately, the fact that Randall Sevenson stepped down from the board the PGA over this, I thought was pretty damning. It's a notable development, I think. So, Kelly, I have consulted in the private sector on a number of these type of M&A deals that have a Washington nexus to them.

I'm not convinced that this one gets over the finish line, certainly not anytime soon. I think there are two things that are going on here. First, is it's not just Richard Blumenthal who has concerns, the Democratic chairman of this committee, Senator from Connecticut. There is also bipartisan concern from everyone ranging from Josh Holly, the conservative senator from Missouri to Mitt Romney, the more moderate senator from Utah. So there are a lot of things that Congress can do. They could consider revoking the tour tactics and status, any number of things. But the most important thing that happened today was this on the record admission from the tour that DOJ is looking at this deal.

We all thought that was the case, the Wall Street Journal and other outlets reported on this earlier, but I spent some time at DOJ, as you noted, Kelly, and I know the people in the antitrust division. These are folks who will be fair, but they will absolutely be scrupulous. Here's what I'm confused about in light of the discussion we were just having about their failed attempt at the FTC to block this mega business merger. What is the basis by which the DOJ can get involved here? Is it about anti-competitiveness, or is it about the... Saudi influence, which seems to be what Blumenthal was excited about, over sports. I think it's...

You know what I mean? So what is the mechanism by which we're supposed to watch for them to block something? I think is more the anti-competitive concern. And that's why, based on public reporting, we know that DOJ was already looking at the tour before this even proposed agreement came into the picture. Right. But it seems like one of those cases where the politicians get more mileage out of hating this deal.

than actually killing it. So, yeah, it's not going to happen anytime soon, but if we go into, you know, a couple of years from now and there's a change of power in Washington and, you know, somebody back in power who likes golf and Saudis, then maybe it goes through. Maybe so, but this is why I specifically mention Mitt Romney when I was talking to Kelly.

I would keep an eye on him and some of the more moderate Republicans to see where they ultimately land on this deal. But do you think it's going to go through? Does it look like it's pointing in that direction right now? So it's certainly headed in that direction. I still have some. I don't see it happening, certainly not anytime soon. And I would pay particular attention to what DOJ in the Antitrust Division.

The last thing I will say about this on Antitrust, everyone talks about Jonathan Cantor, the head of the antitrust division. And he, of course, is somebody who cares a lot about. anti-trust law. But I would also point out that at the various highest levels of the Justice Department is the Attorney General. And people don't realize that he cares deeply about antitrust policy. He wrote about it in college. He taught antitrust law at Harvard Law School. So he cares a lot about antitrust issues. This, I guess, also raises the issue of foreign ownership of American assets. We were talking about this when it comes to real estate in Florida a couple of

weeks ago. And now, you know, China very much back in the spotlight with Yellen's trip ending and perhaps relations with China in the U.S. being on a more stable footing. Is that the right way to read this? China seemed really eager for, you know, Yellen's trip to look better than Blinkins and we didn't have Biden saying anything about dictators this time. That's exactly right. last time we talked about, we left about this the last time. The most important thing that happened with Yellen's trip there is just the lines of communication are open again with China. When I was at the Treasury Department and the Obama administration, we had S&D, the strategic economic dialogue where every year in either Beijing or Washington, D.C., the leaders of both

of these countries would get together and talk about the biggest issues. facing these two large economies. That hadn't happened since 2016-2017. So on that score, Yellen's trip was successful. I suspect the other thing that she did there, in addition to raising some of the concerns that you just mentioned, I suspect she probably gave her Chinese counterparts a bit of a preview into what some of the details of these new policy about out.

outbound investments are going to look like. We talked about this last week, Kelly, where we mentioned that they would be narrowly tailored, where we believe they're going to be targeted to industries that are specifically focused on the national security interest of the United States. I suspect that we're going to see some movement there publicly before the end of the summer. Really? And what, you know, again, would this be something you think is already expected or, you know, kind of signaled ahead of time? I think it's expected, based on conversations I've had both with people inside the government, but also with people, businesses, you know, I work for the private fund industry for a while.

They have been on the receiving end, and they have had conversations with a lot of high-ranking government officials about what to expect in these rules. So I think this is going to come to, we're all going to know what the end results of these regs are pretty simple. All right. Anthony, thanks. Good to see you again. Good to see you. Anthony Coley. All right ahead on the show, parlaying a dangerous game, multi-leg wagers growing in popularity. Why? Well, huge payouts if you win and the sports books love them because you tend not to. We will discuss when Power Lunch return. Welcome back to Power Lunch. Let's have a look at the bond market where yields are falling ahead of tomorrow's important inflationary.

The CPI report, Rick Santelli, in charge. Chicago, what do you got? Yes, I'll tell you what, John Ford, it's really fascinating, of course, as traders prepare for tomorrow's CPI, followed by the following session where it's the producer price index or PPI. If you look at the intraday of three-year, and I picked three-year because we had three-year note auction, $40 billion today. Boy, investors just couldn't get enough three years.

As a matter of fact, the dealers only ended up taking around 10% of that auction, which means the buffet table was completely devoured by investors. that intro of three and open the chart up towards February. And you can see on March 8th, it had a high yield cycle close of four and three quarters. It failed to take that high yield close out, which puts it in more of a buy mode as it was evident by investors at the auction today. And if you add a two year in on that, John Ford, you can see why the short maturities really have turned interest rates lower over the last several sessions. Because it was a failure at 507 for two years, there was a failure of four and three quarters for three year to take out

those fall high yield closes, which is huge in technicals. And if you look down the curve, you can see 30-year bonds are now on pace for their fourth yield close above 4%. We need to monitor that as the yield curve has changed, and all those flatteners are getting reversed out. And finally, the dollar index. With interest rates going down, you'd expect the dollar to be lower. And indeed, it is delivering. If you look at this chart, we're on pace. for a two-month low close in the greenback. Kelly, back to you. Thank you, Rick. Let's turn to oil now, which is about to close WTI up. About 2%, Pippa Stevens. A couple of things driving those, including, like Rick was just talking about, the weaker dollar,

which does support crude because it makes it less expensive for foreign buyers. We also have hope for more stimulus from China to jumpstart their recovery. We also have some new data showing that Russian exports might finally now be dropping. Rebecca Babin over at CBC Private Wealth. said that's a catalyst today. And given that, you know, Russian production has held up, and that was such a kind of counterintuitive fact since people thought that initially after that invasion, it would have fallen off a cliff right away. Then we also finally got the latest short-term energy outlook from the EIA, and they slightly revised up demand while reducing

production. They see U.S. output at about 12.65 million barrels per day this year. So all of that supporting oil, but, you know, we've seen this before. It's been bouncing around this level for a while. So whether or not it holds ahead of tomorrow's CPI print, we shall see. All right. PIPA, thanks. And now let's get to Courtney Reagan for the CNBC News Update. Of course. Hi, John. NATO leaders agreed to let Ukraine join the military alliance, just not right now.

They said the country would be allowed in when, quote, allies agree and conditions are met. The NATO chief said the alliance reaffirmed Ukraine will eventually become a member, and leaders agreed to remove a requirement for a membership action plan. That takes out one step of the process. Before attending the summit, Zelensky blasted NATO for failing to set up a timetable for his country to join. Vice President Kamala Harris announced a new plan that would reduce child care costs for hundreds of thousands of Americans today. Under her proposal, families who are part of the Child Care and Development Block Program would be limited to paying no more than 7% of their income. There will be a 45-day comment period.

The Department of Health and Human Services hoped to make the change official by next spring. And Taylor Swift is too big for Ticketmaster. Again, thousands of fans were locked out of the site because of technical issues when trying to secure tickets to six shows in France. Ticketmaster says it will announce a new on sale time soon. I didn't get my tickets here on the U.S. either, Kelly, back over to you. People were trying. Was it Mexico where they were like, oh, if you didn't get a ticket, go to her tour stop there and a plane plus their ticket would be cheaper than doing it here? I don't know.

I had heard the same in countries like Venezuela as well. I mean, people are trying to do everything they can to see her. She's a showstopper. I guess I'm just not going this year either. Courtney, thank you. Still ahead on Power Lunch, 3M's triple threat. The company dealing with two massive lawsuits and a restructure, but Bank of America says the worst is priced in,

and now is the time to buy when Power Lunch comes back. Welcome back to Power Lunch. Shares of 3M are trading higher after an upgrade to neutral from Underperform at B of A. It's been a tough year for the stock, as the company has faced multiple laws. lawsuits related to potential faulty earplugs sold to the U.S. military. They also just made a $10 billion settlement with U.S. water providers over a group of chemicals that produced that were found in water supplies. The firm now, B of A, that is, see several near-term catalysts for the stock. Here to explain

is the analyst behind the call, Andrew Obin, senior industrials analyst at BFA. Andrew, good to see you. And, you know, we may talk about eliminating the downside, but how much upside really might there be in a stock like this? Sure. Let me walk through our thesis, and we can talk about some of the parts valuation. So look, the thesis is that on June 22nd, 3M settled the first set of lawsuits relating to PFAS. And I think the important thing is that the settlement was for less money. It's a big number, but it was less money than the street expected. And more importantly, it was more comprehensive than the folks expected. And it's important because it allows you to sort of try to figure out they have more lawsuits. But what you can do now,

you can sort of try to estimate a base case what these lawsuits related to PFAS would look like. The second point is that we're also optimistic about the Combat Arms settlement, which is the Earplex settlement. Right. 3M is starting to settle. And from that perspective, I think chances of that settlement sometime in the second half are going up, particularly because I think the CEO is personally involved in the mediation. And what our analysis shows is that with notable exception of Bayer Monsanto, once companies start to settle, stocks tend to stabilize and eventually go up. And then two more things operationally. 3M has had tough time operationally. So we think things are getting better.

They had a big restructuring plan. So we think going to the year end, numbers look better. We are above consensus. the key consumer electronics business is now bottoming. And finally, the company is spinning out its health care business, roughly third of the company. So that's going to happen towards the end of the year, early next year. That's a big chunk of the company. And we think that gets revalued to a more normalized multiple.

So if you know some of the part, yeah. I mean, you look at the chart, it's bad, right? Like it hasn't been where it is in more than 10 years. So how much of this is just trying to catch the bottom here because all of the bad news is priced in? How much rebuilding is there really to do to get this back to where it was? Let me see. The peak was way back in early 2018, I think. Yeah.

So we actually, we downgraded the stock back in, I think, 21. So the thing is the company itself is still. healthy, right? They still have best in class product. The engineering talent is still there. But we think the lawsuits have taken a ton of bandwidth away from the management. So our sum of the parts is not particularly challenging. Now, the issue is, and the reason it's in neutral, is because the number of lawsuits is quite high. So all in our some of the parts assumes, so they settled for, you know, 10 billion. So we're thinking there is another 40 billion of settlements. We think actually there is upside to these numbers, meaning they could settle for less.

But the core business right now is maybe valued at 10 times EBITDA, which is not challenging. And I said the most important thing, if you look at history, once companies start settling, right, you can start figuring out what the number is, and it's the uncertainty that the market helps. Now, would we like to get more visibility on how much these things settle for? Yes. Would we like to see better execution? Yes. What about structure here? Are there more things?

I mean, this is a very kind of complicated company. It does a lot of things. Are there more things likely to spin out as the turnaround attempts here continue as they navigate through these legal waters? Or are they even likely to perhaps get acquisitive in a way that could depress the stock price? Yeah, they're not going to get acquisitive because, you know, this is going to eat up a lot of companies' cash flow.

They can do smaller acquisitions. But they don't have to raise capital, but these settlements, particularly the next couple of years, will get up a lot of free cash flow. But, you know, 3M is a very interesting company because it's not a true conglomerate in a sense that all the technologies are very much interconnected. You can't separate health care because the value streams from a regulatory framework had to be separate. 3M is not a company that you can easily break up. Andrew 3M is also in industrial, and the industrials are at an all-time high today. Why is that? What does that tell you? Yeah, look, the thesis on industrials, there is this tug-of-war between near-term slowdown,

which we all expect but yet to come. But I think fundamentally, what the market is believing is that there is this industrial renaissance. And near-term, there probably are headwinds, but longer-term, the market is buying into the thesis that, look, American manufacturing is. back and we probably are going to face the best KAPEX cycle of our professional lifetimes. Wow. Is that already priced into the stocks then? So we are trying to balance near term versus long term, which is always tricky. These are big, big cycles, right? So if you have a long-term horizon, no, but near-term,

obviously, macro creates volatility, right? Stocks don't go straight up. Unless they're AI stocks for short periods of time. That is correct. Thank you. Thank you so much for having me. Amazon Prime Day officially underway. That means other retailers are going to be offering their own deals to compete for your hard-earned dollars. Who's primed to beat Amazon at its own game?

Well, we will discuss on the other side of this break. It is time for today's tech check. Amazon shares up today as the e-commerce giant kicks off Prime Day. It's annual, sometimes twice a year, midsummer shopping event, but it's hardly alone in offering steep discounts to shoppers this week. Rivals like Target and Walmart are among a long list of sellers trying to cash in on the shopping holiday Amazon invented. Joining us now to discuss the growing importance of this week is Jerome Mardis, Director of Consumer Research at the London Stock Exchange Group, which I guess you're required to call LSEG now, which is not to be confused with the LSAT. Okay. So, yes, Amazon is in this to grow prime subs. Why are the others participating in Prime Day and discounting merchandise? I mean, do we have inventory issues? Do they just not want to lose market share? What's the game here? It all comes down to the scale and exposure and the ability to really try to gain those new shoppers and make them become repeat loyal customers. Still, in terms of dollar revenue,

Well, Amazon is the one that has the highest amount. Last quarter, they reported about a 15% growth in membership revenue, and LSAG is currently expected it to grow to 10.2% for the current quarter. Now, that is much stronger than Costco's 6.1 and Walmart's 1.2% growth. So as you can see, Amazon has been doing a really good job in maintaining that revenue level. But overall, no, the event is all about the scale, the exposure, and trying to gain those new shoppers. But it seems that that game has changed somewhat, that retailers are more focused on the cost of loyalty, right? Free shipping, there are more conditions on that now.

If you're shopping at Costco, they want to check your card, et cetera. So are certain perhaps retailers in danger of giving away too much and hurting margins? Absolutely. Even Amazon could be argued, when you look at their operating margin, that's only 2.5% significantly lower than the industry. and that's where a lot of the debate comes in, right? Whether what's the business structure of AWS and e-commerce together? And the CEO has said it himself. It all comes down to the value of what they're learning about the consumer

and sharing that across the various departments. Now, if you think about it, Amazon is sitting on massive amounts of consumer behavior data from pre-pandemic, during the crisis and post-pandemic. If you combine that with the future market expectations for tech and AI. Now that can explain the market implied growth rate of 40.7%, which is about four times the industry average. So although Amazon might have been a pandemic darling and the stock might have taken a hit last year, year to date, it's still up 55%. That's impressive. So does anybody else

have an implied growth rate that high or are they just kind of head and shoulders above the rest? The other ones would be actually the competitors within the tech industry, but not necessarily a retailer. When it comes to this week, and when we look at the retailers, the one to really watch is Walmart. That's the one the analysts pulled by LSEC are the most bullish on. And the reason being because of the convenience and the value of proposition, which is what the consumer wants right now. And regardless of the member's income, they still believe that a lot of people want that and they still have room to grow. In fact, out of the three, Target, Walmart and Amazon, Walmart has the highest e-commerce growth estimate of 17.5% for the current quarter. So because of that, analysts are bullish that Walmart will not only beat earnings estimates, but also post a positive surprise for this quarter.

It's interesting, especially because Walmart's getting more consumers for grocery right now when people are looking for deals. That's already slim margins. how much can they afford to give away on Amazon's Prime Day? We'll see. Absolutely. Jerome, thanks so much. We appreciate it. Drone Martis coming in today.

Newell brands, meanwhile, one of the best performers on the S&P after being initiated as a buy at Cannacord. The firm says better days are ahead for the maker of Rubbermaid, Yankee candles, and other products after a 30% drop to start the year. We're trading calls of the day in three-stock lunch next. Welcome back to Power Lunch. I'm Christina Parsnebless. shares of cloud computing from VMware are up about 5% on news that EU regulators plan to clear Broadcom's $61 billion acquisition of VMware.

In the past few Broadcom analysts calls that I've joined Broadcom CEO Haught Tan promised investors the deal would pass by the year end. And now many reports are saying that the EU, or I should say EU antitrust regulators, are planning just that. But that doesn't mean it's completely in the clear. The UK as well as US regulators are still investigating if the acquisition would lead to weaker competition and lead to less innovation and drive up the cost.

cost of computer parts and software. Keep in mind that Broadcom agreed to buy VMware back in May 2022 as part of a push to turn the semiconductor group into a diversified tech company, ranging from chips to cloud computing services. But this could be good news for it. The stock, though, Broadcom is down ever so slightly, but Broadcom. I should say VMware up about 5%. Kelly. Indeed. Christina, thanks. A big newsday for deals. Christina Parts in Evelace. Let's move on now to three-stock lunch, taking a look at some of the biggest calls on Wall Street today. We'll start with JPMorgan's upgrade over at Jeffries to a buy from hold. They're kind of getting with the program here, stating the banking giant is best in class, giving its strong earnings potential.

Share slightly higher today, up nearly 10% for the year. Sylvia Jablonsky is here. She is CEO and CIO of defiance ETFs. She's got our trades today. Sylvia, how can you not be a buyer of JPM? Hi, Kelly. Yeah, great point. How can you not be a buyer of JPM? I agree. You know, they boosted their outlook by 11% to that 165 target. J.P. Morgan is very much the fortress of banks. You know, they have a strong balance sheet over a trillion dollars there. They've opened up more accounts than they ever have historically just because of all the regional bank issues. So they had 1.8 million new accounts, new customers.

You know, they've essentially held up well in the storm of regulatory issues and banks falling. Their net revenue is about 40% year-over-year-up. And I think that, you know, when we think about diversified portfolios and if you've held tech and sort of benefited there and are looking to kind of broaden out the scope, you know, this is kind of that quality growth name that we're talking about and it looks cheaper than it has before. All right. What about Zillow surging more than 10% today after Piper Sandler upgraded the stock to overweight from neutral, liking the stock's optionality as a key driver? Zillow up more than 60% this year. Does the stock have more room to grow? Are higher interest rates going to pose a problem? So this is actually a super interesting stock. I think, you know, if you look back to 2021, their biggest revenue generator, I buying, essentially crashed and they had to reorganize the entire company.

Everything sort of fell apart. And that actually made for a better picture here. So what Zillow is doing and why I think they still have growth potential is that they're now going to invest in AI. So they're going to have these interactive types of scenarios where you can. virtually visit a home. You can, you know, work with CHAPGBT to ask questions about that home, the history of the home, 3D pictures, things like this. So I think it's going to better the home purchasing experience. And, you know, the macro backdrop is looking a little bit better. We're getting closer towards the end of rate hikes. We hope that mortgage rates start to come down.

At least they've become a little steadier. And, you know, you still have that supply issue in lots of parts of the market. So I do think that Zillow has room to run. There's a lot of forecasts out there that 2024 should be a 40% year of growth for Zillow. All right, finally, near and dear to my heart. Newell brands up 9%. Canacord says it's a buy. The stock has had an ugly first half, though, down 25%. Their firm's argument is the better days are ahead for the consumer goods company, but do you agree?

No, this wasn't actually at the top of my list, but when I looked into this company a little bit more, it does look like management fully understands what their issues are and they're looking to resolve them. So they fix some of their supply chain and efficiencies. They've laid off, you know, unnecessary workforces. they actually a year ago had about 70% more brands under their umbrella than they do now. So they've sort of figured out that you're better off focusing on rubber made and, you know, Sharpie and things like that that bring in 90% of the revenue, the top 25 of those types of brands, rather than trying to have this, you know, kind of do it all mentality.

And we'll have to see how that plays out in earnings. You know, the stock is well 50% off of its all-time high. You know, the school year starting, a lot of people are going to be buying some of the goods that they have. So it's something interesting to look at. But I think that, you know, the cost cuts that they did are going to play out over the course of the transition year. Well, it would be quite the turnaround story. If so, it's funny that now you're looking at it that way. Sylvia, thanks for your time today weighing out on all these stocks.

We appreciate it. Thanks. Sylvia Jablonsky. The stocks, sometimes the leftovers are still good. All right, still ahead. Parlaying the odds. Sports betters are losing more often as they chase riskier bets. But that's helping the online sports books get onto the.

fast-track to profitability. We've got that and many more stories to get to when Power Lunch comes right back. Just five minutes left in the show. A bunch more stories you need to know. Let's get right to it. We just talked about Amazon Prime Day, the home of free two-day shipping for Prime members, but some other big retailers say they are raising spending thresholds for free shipping as delivery costs surge. 41% of retailers listed shipping costs as their biggest challenge in 2022, according to an industry survey, often costing 10% or more of an online order's total value. The average free shipping requirement is now 64 bucks compared to 52 in 2019, according to Narva.

Do we still know if the business model works? I mean, how many years has it been? How much disruption has it caused? And yet, they're still bad. It reminds me of Uber. It's like, after all this time, are they finally getting it to work and at what cost? And we're still trying to answer that for online retail. The advantage is, I guess, if your shipping is more efficient than your competitors, so it costs you less, right?

From where the item is to where you need to get it, if that distance is shorter, that's why Amazon's been working so hard at smaller warehouses closer to people's homes. The returns are still a huge issue that we're grappling with. It feels like we're still in early days of this, unbelievably. Could concerts be making inflation worse? Beyonce, Taylor Swift, Harry Stiles, they're all making these huge amounts of money on recent tours, but those high ticket prices are also driving up everything in the ecosystem of their stops, hotel costs, concession prices, even the salaries for venue workers. Yes, good.

I agree. None of this is stuff that you have to buy for the most part, right? People want to go out and live their lives. Get your discounts on Prime Day now so you can spend that money on Taylor. It's not driving inflation. It's moving the money around. That's why Red Book sales is. Giving it to Taylor and ticket master.

Giving it to the workers who support Taylor, okay? Or whoever your preferred Artiste is. A lot of it to Taylor, though. Okay, it's not just merchants getting hit with higher shipping costs. It just got more expensive to send a letter to the U.S. Postal Service, hiking the price of forever stamps by $0.66 each starting this week. That's the third price increase in just the past year, which the Postal Service says is to help offset inflation.

When's the last time you bought stamps? I buy them for Christmas because I sent out Christmas cards. I'm doing the math because there's about 130 people on this list, times 66. Is that almost $100? Just in postage costs, let alone whatever minted charges for all the rest of it. So I don't know, it's, it feels like there's so little traditional mail sent anymore, but that when the cost of it approaches a dollar, a letter, you start to think about, you know, you start to think twice about it, I guess.

I mean, but you're going to go see Taylor Swift. No, no, no, no, no, no. I'm going to be saving my money for the Christmas car. Courtney Reagan is, though. In Venezuela. But she can't. So now she's going to send the Christmas cards. Add more people to her list this year.

Shares of Draft Kings are up 10% this week and get this, 150% so far this year. Now, a big reason is that sports, the people who are betting can't resist parlias. My husband always rails about this. People think they're going to get bigger payouts, but they lose more often. That's why Draft Kings is doing so well. Draftflation. Contessa Brewer has more details, Contest. So you think betters are going to wise up?

Well, you know what? They just like it. They like walking away with more money when and if they win. draft king's prospects for turning a profit, Kelly, are increasing because of, among many other reasons, Parlay bets. They become increasingly popular across sports betting. We've seen the amount of wagers devoted to Parle's increase because gamblers wager on a series of outcomes in order to win, and then if they do, they walk away with more money. Sportsbooks like it, of course, because they are more profitable wagers. Deutsche Bank analyst Carlos Santorelli said in a recent note,

that he believes parleyes are a big reason that Draft Kings has improved its hold or the percentage the company makes off every dollar wagered. And Draft Kings is outperforming the broader industry when it comes to its improvement in hold. So there you're seeing some of the drivers behind why Draft Kings thinks it will hit profitability by the end of the year. We just heard from Jeffrey's analysts that that could be a break-even second quarter when they report earnings. So we'll have to watch that and see, Kelly. Gotta love the options market. Do you ever parlay?

I never bet. I don't either. I don't either. John and I are single-handedly trying to destroy the entire basic model of sports betting and draft kings and all the rest of the rest of it. I don't think you're not going to do it. You cannot dissuade the fanatics out there. No, you can't. You're absolutely right.

It's so right. You'll never get to know how much money they lose. Thank you, Contessa. Quick programming note, NFL Commissioner Roger Goodell will join us in an exclusive interview from this week's Sun Valley conference. We will talk about sports betting TV rights so much more Thursday at 2 p.m. Eastern. All right. Thanks for watching. Power. Closing bell starts right now.