September 15, 2024 | Read Online

September 15th - The Week Ahead

A Big TV Merger, plus could Boeing go High Yield?

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The Week Ahead Of Us 🔍

Welcome back!

Here's a look at earnings this week.

Tuesday: Ferguson
Wednesday: General Mills
Thursday: Fedex, Lennar, Darden Restaurants, FactSet, Vinfast

Futures are unchanged as we get ready for the first Fed rate cut on Wednesday: Pundits generally believe the Fed will cut by 25bps, while several market participants are projecting a 50bps cut. Current odds per CME are roughly 50/50 between 25bps vs 50bps. We're in the 25bps camp, but we'll learn a lot more this week.

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The Main Stories 🔍

Satellite-TV Merger Talks between Dish and DirecTV are on. News broke on this potential merger Friday evening. DirecTV is owned by AT&T and Private Equity Sponsor TPG. They would become a massive pay-TV giant should this deal consummate. Regulatory concerns are likely limited due to the fact that these businesses are slowly dying due to the push to direct to consumer streaming. The amount of US satellite TV viewers are down a whopping -15% y/y!

This comes just as news was released Saturday morning that the Disney vs. DirecTV battle was coming to an end and a deal was reached so DirecTV's 11.3mm customers could continue their access to Disney's content library. DirecTV users thankfully got to watch College Football and the NFL this past weekend.

Nike has too many consultants: Bloomberg had a great story on how the strategy of Nike's Consulting CEO hurt the brand. Basically, CEO John Donahoe followed a statistical and lower risk strategy when releasing new shoe lines, taking fewer risks on new types of shoes. Once some of the newer brands that weren't "as innovative" started losing their appeal, things started trending down for Nike. Additionally, shoes were removed from wholesale stores in favor of direct-to-consumer offerings. This hurt Nike's in-store presence among casual shoppers who were normally buying their shoes. Of course, On Running and Hoka are among some of the newer upstarts that have been able to steal share as well.

Will Boeing go High Yield? Boeing could be heading towards High Yield status (no offense to High Yield Harry). Moody's is assessing whether a potential downgrade is appropriate should a drawn-out labor strike take place. Boeing has over $45B in net debt…and would be quite the fall to HY if Moody's pulls the trigger. On Friday, 33k Boeing machinists rejected a new labor contract that would've increased their wages by 25% over 4-years. This won't impact airline flights, but will shut down production of new jets. The Union's initial demand was a pay raise of 40% over 3 years.

More Headlines 🍿

It looks like the Private Credit ETF game is on - while Apollo announced last week that they're looking to create the first Private Credit ETF in collaboration with State Street, it looks like a 2nd ETF filing has quickly hit the tapes. The BondBloxx Fund is looking to race into the market now as well
The Big Winners From Private Credit's Boom Are Becoming Clear: The "Haves" vs. the "Have Nots" are becoming clearer with big winners like ICG, Ares, Blackstone, Apollo, and Goldman Sachs dominating the rest of the fragmented industry with one-stop-shop solutions.
Moberg Pharma shares were down over -60% on Friday after lowering expectations following a disappointing phase 3 trial. Their clinical trials focused on curing nail fungus was a popular FinTwit stock with the $MOB.ST ticker driving some Big Ls on FinTwit, plus some victory laps
Elon Musk's SpaceX just won a big contract with United Airlines. Starlink, a part of SpaceX which provides low orbit satellite communications signed an extensive deal with United Airlines to provide passengers with free in flight wifi. This will go live in late 2025
OpenAI is out with an offering that can supposedly "reason like a person." The ChatGPT creator released a new series of models named the o1 and o1-mini designed to take on more challenging tasks
AI startup CoreWeave is in talks for a $23 Billion sale, which would allow existing shareholders to sell between $400-500MM. CoreWeave's valuation has surged over the past year, up from $7B in December 2023
The S&P 500 is surviving the slide in Big Tech shares due to the "other 493" stocks outside of the Mag 7 catching up
Uber is partnering with Waymo to bring autonomous driving to Austin, TX and Atlanta, GA. The news comes a year after the pair partnered in Phoenix, setting aside past legal battles over allegations of IP theft
Junior Bridgeman, a former Milwaukee Buck and a successful entrepreneur, is a buying a 10% stake in the Bucks for a $4B valuation. He's quite the success story, with a full rundown here. He's quite the successful restaurant franchise owner, owning over 160 Wendy's franchises and over 118 Chilis franchises
Credit card delinquency rates are on the rise and just hit a 12-year high at 10.9%
An interesting piece from Kyla Scanlon: How Dating Apps Contribute to the Demographic Crisis. Scanlon observes, "The consumers and the company have competing goals. The dating apps want you to continue paying into perpetuity because your subscription (and subsequently, your inability to find love) is how they make money."
Norfolk Southern CEO fired for 'consensual relationship' with railroad's chief legal officer. Alan Shaw is married (as of now) with four kids

Earnings Corner 📜

Adobe (ADBE) reported earnings that beat estimates. Revenue of $5.41B was up 11% y/y (vs. $5.37B expected), and EPS was $4.65 (vs. $4.53 expected). However, mgmt. guidance fell short of expectations, with Q4 revenue projected at $5.50B-$5.55B (vs. $5.61B expected) and EPS at $4.63-$4.68 (vs. $4.67 expected), due to stiff competition and weak demand in a challenging economic climate. The stock fell 10% in extended trading Thursday.

Kroger (KR) reported earnings that beat estimates, while missing on revenue. Revenue of $33.9B was up 1.3% y/y (vs. $34.1B expected), and EPS was $0.93 (vs. $0.91 expected). Mgmt. noted margin expansion, increased customer visits, and digital sales growth as key earnings drivers, while reiterating Kroger's commitment to its $24.6B acquisition of Albertsons. Kroger raised its FY comparable sales growth outlook to 0.75%-1.75% (vs. 0.25%-1.75% previously) and held EPS projections at $4.30-$4.50. The stock rose 5.5% Thursday.

RH (RH) reported earnings that beat estimates. Revenue of $830MM was up 3.6% y/y (vs. $825MM expected), and EPS was $1.69 (vs. $1.56 expected). The home furnishings company attributed outperformance to increased customer demand and margin expansion. Mgmt. lowered its FY demand growth outlook to 8%-10% (vs. 12%-14% previously) and revenue growth to 5%-7% (vs. 8%-10% previously), citing challenging industry conditions given mortgage rates remain elevated. The stock rose 25.5% Friday.

M&A Transactions💭

FANCL (TKS: 4921), manufacturer and seller of cosmetics and health related products, has reached a definitive agreement to be acquired for $1.0B by Kirin Holdings Company (TKS: 2503).

Yangzijang Shipbuilding (SES: BS6) reached a definitive agreement to acquire 34% of Tsuneushi Group for $116.9M.

Recorded Future, developer of threat intelligence analytics software, has reached a definitive agreement to be acquired for $2.65B by MasterCard (NYS: MA). Qatalyst Partners advised on the sale.

NeuroAdvanced, operator of a medical services company, has reached a definitive agreement to be acquired for $110.13M by Nihon Kohden (TKS: 6849).

Battea Class Action Services, provider of intelligence and claims management services, has reached a definitive agreement to be acquired for $670.0M by SS&C Technologies (NAS: SSMC). Keefe, Bruyette & Woods advised on the sale.

Ad-Tech Medical Instruments, manufacturer of intra-cranial monitoring devices, was acquired for $110.13M Nihon Kohden (TKS: 6849).

Base Resources, a mineral sands producer, was acquired for $251.89M by Energy Fuels (TSE: EFR). Azure Capital advised on the sale.

DB Schenker, provider of freight management and contract logistics, has reached a definitive agreement to be acquired for $15.85B by DSV (CSE: DSV).

Jaypee Healthcare, operator of a hospital, was acquired for $16.6B by Max Healthcare Institute (BOM: 543220). Max Healthcare Institute (BOM: 543220) acquired 64% of the company with the transaction putting the implied enterprise value at $25.49B.

NSX Enterprise, operator of an online sports betting and iGaming company, has reached a definitive agreement to be acquired for $350.0B by Flutter Entertainment (NYS: FLUT).

Private Placement Transactions💭

ZeroAvia, developer of zero-emission aviation powertrain, raised $150.0M of Series C venture funding led by Sustainable Impact Capital, Airbus Group, and NEOM Investment Fund at a pre-money valuation of $534.0M.

The New Shop, operator of a chain of convenience retail stores, raised $137.5M of venture funding led by METAVISIO.

F2G, developer of a biotech drug designed to treat novel therapies, raised $100.0M of venture funding led by AMR Action Fund and Intermediate Capital Group.

World Labs, developer of an AI platform, raised $230.0M of venture funding led by Radical Ventures, Andreessen Horowitz, and New Enterprise Associates at a pre-money valuation of $900.0M.