November 03, 2024 | Read Online

November 3rd - The Week Ahead

A Top Economist thinks the Fed is cutting too quickly, plus the Earnings Season latest

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The Week Ahead Of Us 🔍

Welcome back! Hope everyone enjoyed the 25-hour day. All eyes are on this Tuesday's U.S. presidential election, which seems like a toss up. So get strapped in folks, it's going to be a crazy week.

Futures are slightly lower to start the week, but we have another busy round of earnings coming up:

Monday: Berkshire Hathaway, Vertex Pharmaceuticals, Palantir, Zoetis, Constellation Energy, Marriott International
Tuesday: Apollo Global Management, Super Micro Computer
Wednesday: Qualcomm, Arm Holdings, Gilead Sciences, MercadoLibre, CVS Health, TPG
Thursday: Arista Networks, Airbnb, Duke Energy, Motorola, Transdigm, Monster Beverage, Hershey, Moderna, Warner Bros. Discovery, Carlyle Group, DraftKings, Rivian

Here's a look at economic data this week. The big event next week (outside of the Election) is the Fed meeting on Thursday. They are broadly expected to cut rates by 25bps from current levels of 4.75%-5%.

Thursday: Fed Meeting, initial jobless claims, and September consumer credit
Friday: Nov. consumer sentiment

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Earnings Corner 📜

Amazon (AMZN) reported earnings that beat estimates, with revenue of $158.9B up 11% y/y (vs. $157.2B expected) and EPS of $1.43 (vs. $1.14 expected). AWS and advertising drove growth, with both units' sales up 19%. Capex was up 81% y/y, as mgmt. continues to invest heavily in cloud and AI infrastructure, expecting spending to hit $75B for FY 2024. The stock was up 6.2% at Friday's close.

Intel (INTC) reported earnings that beat estimates, with revenue of $13.28B down 6% y/y (vs. $13.02B expected) and EPS of $0.17 (vs -$0.02 expected). The troubled chipmaker is undergoing the most serious restructuring in the company's history, with mgmt. announcing plans to cut headcount by 16,500, as well as reducing its real estate footprint. The stock was up 7.8% at Friday's close.

Peloton (PTON) reported earnings that beat estimates, with revenue of $586MM down 1.6% y/y (vs. $574.8MM) and EPS of zero dollars (vs. -$0.16 expected). The quarter saw a new mgmt. team cut operating expenses by 30%, improving on last year's Q1 net loss of $159.3MM (-$0.44 per share). Peloton raised its 2025 EBITDA guidance to $240-$290MM (vs. $200-$250MM previously). The stock popped 29% on the announcement, before surrendering most of those gains to close up 6.3% Friday.

Bristol Myers Squibb (BMY) reported earnings that beat estimates, with revenue of $11.89B up 11% y/y (vs. $11.28B) and EPS of $1.80 (vs. $1.49 expected). The outperformance was led by the blockbuster blood thinner drug Eliquis, with mgmt. raising its 2024 adjusted EPS guidance to $0.75-$0.95 (vs. $0.60-$0.90 previously). The stock was up 3.1% at Friday's close.

Comcast (CMCSA) reported earnings that beat estimates, with revenue of $32.1B up 6.5% y/y (vs. $31.8B expected) and EPS of $1.12 (vs. $1.06 expected). Mgmt. noted that it is considering spinning off its cable networks, including Bravo, CNBC, MSNBC, and others. The stock was up 3.1% at Friday's close.

Altria Group (MO) reported earnings that beat estimates, with mgmt. announcing a new plan to cut $600MM in costs over the next 5 years. The stock was up 6.8% at Friday's close.

Chevron (CVX) reported earnings that beat estimates, with mgmt. returning $7.7B to shareholders in the quarter. The stock was up 2.9% at Friday's close.

ConocoPhillips reported earnings that beat estimates, with mgmt. raising its FY output projections, driving the stock up 4% at Friday's close.

Apple (AAPL) reported earnings that beat estimates, with revenue of $94.93B up 2% y/y (vs. $94.58B expected) and adjusted EPS of $1.64 (vs. $1.60 expected). While a one-time European tax charge weighed down net income, mgmt. reported that iPhone sales were up 6%. According to Tim Cook, iPhone 16 sales have started off stronger than either the iPhone 14 or 15. The stock was down 3.2% at Friday's close.

Robinhood (HOOD) reported earnings that missed estimates, with revenue of $637MM up 36.4% y/y (vs. $658.2MM) and EPS of $0.26 (vs. $0.26 expected). Mgmt. explained that the miss was due to Wall Street analysts not factoring in the firm's incentives spending and 1%-3% match on new customer deposits. Equity and crypto trading volumes on the platform rose 65% and 112%. The stock was down 15% at Friday's close.

Uber (UBER) reported earnings that beat estimates, with revenue of $11.19B up 20% y/y (vs. $10.98B expected) and EPS of $1.20 (vs. $0.41 expected). However, Uber's gross bookings of $40.97B missed estimates of $41.25B, disappointing the street. The stock was down 8.9% at Friday's close.

Mastercard (MA) reported earnings that beat estimates, with revenue of $7.4B up 13% y/y (vs. $7.3B expected) and EPS of $3.89 (vs. $3.74 expected). Elevated consumer spending drove sales growth, but mgmt. also disclosed that European Commission had requested documents for an investigation of anti-competitive behavior in the EU. The stock was down 1.2% at Friday's close.

Regeneron Pharmaceuticals (REGN) reported earnings that beat estimates, with revenue of $3.72B up 10.65% y/y (vs. $3.67B expected) and EPS of $12.46 (vs. $11.71 expected). However, sales on the new high-dose Eylea eye disease drug significantly lagged expectations, coming in at $392MM (vs. $415-$425MM expected), due to increased competition from biosimilar variants. The stock was down 8.8% at Friday's close.

Eaton (ETN) reported earnings that beat estimates, while also raising FY projections, but the stock fell 2.3% at Friday's close.

Exxon Mobil (XOM) reported earnings that beat estimates, with mgmt. returning $9.8B to shareholders in Q3 and raising its Q4 dividend to $0.99 (vs. $0.95 previously). The stock was down 1.57% at Friday's close.

Linde (LIN) reported earnings that beat estimates, but weak performance in the industrials segment drove the stock down 3.4% at Friday's close.

Merck (MRK) reported earnings that beat estimates, with strong performance from its top-selling cancer drug Keytruda, but its HPV vaccine continued to disappoint, as revenue was down 11%. The stock was down 3.2% at Friday's close.

Today's Headlines 🍿

Unemployment held at 4.1% but the rate of job growth was worse than expected. The US added 12,000 jobs in October, much lower than expectations of 100k, but likely due to hurricane related noise and a Boeing machinist strike
Apollo's Torsten Slok is concerned about the Fed cutting too quickly. Slok noted how the Fed started raising rates over months ago and there still hasn't been a slowdown (remember, the most recent GDP number was 2.8%). Slok argues the following 1) consumers locked in low rates in 2020 & 2021 so the recent run in rates doesn't affect them 2) there's a large structural boom due to AI and data center spending and 3) fiscal policy is running at a 6% budget deficit, which counteracts monetary policy efforts
Here's the latest on what Warren Buffett is up to, as Berkshire Hathaway has amassed a $300B cash fortress. Buffett has been cutting his stakes in stocks like Bank of America and Apple, although he still owns ~70B of Apple stock. Berkshire was a massive net seller in the quarter, selling over $36B of stock and only buying $1.5B of shares in 3Q.
Nvidia will replace Intel in the Dow Jones Industrial average. In the past year, Intel has dropped 39%, while Nvidia has surged 170%. The swap reflects this tectonic shift in the semiconductor industry
CBS & Sony are fighting over Jeopardy and Wheel of Fortune ratings declining. Sony argues that CBS has been failing to bring in top-dollar advertising deals, and that recent restructurings and layoffs have impacted gameshow operations. Notably, CBS holds distribution rights of these shows into perpetuity, which gives them a ton of leverage in this spat
Comcast is looking to spin out its cable networks division - this doesn't include the broadcast network NBC or the 36 million subscriber streaming service Peacock, but includes networks such as Bravo, E!, Syfy, USA, MSNBC, and CNBC
KKR predicts that the growing demand for data centers to support AI and cloud computing will drive global spending in the sector to $250 billion annually. The United States leads in data center development, with its infrastructure consuming approximately 16 to 18 gigawatts of power, significantly more than Europe and Asia, which each use about 6 gigawatts. To put this into perspective, 1 gigawatt of power is sufficient to supply over 850,000 average US households
OpenAI is officially adding search to ChatGPT. After testing a prototype in July, Sam Altman's firm has officially positioned itself to compete with Google (Alphabet fell 1% after the news), Perplexity, and parent Microsoft's Bing
The UK Treasury has announced plans to increase business rates for large distribution warehouses utilized by online retailers like Amazon, aiming to support traditional high street shops. This new tax structure will impose a higher rate on properties with a value exceeding £500,000, set to take effect in the 2026-27 fiscal year
There was a Financial Times story highlighting how Carvana turned things around: Carvana's market capitalization has amazingly risen from $1B to $50B over the past 2 years, with the turnaround catalyst coming via a Moelis led restructuring. With creditors demanding a pound of flesh, Moelis and Carvana Management were able to negotiate lenders into taking a $1.3B haircut. Most notably, this restructuring didn't involve equity warrants at all (which occasionally happens in restructurings), leaving all the upside to Carvana equity holders as opposed to their ceiling-capped creditors
TGI Friday has officially filed for bankruptcy. It's been a bad year of restaurant bankruptcies, with the famous brand joining the likes of Red Lobster and Hooter's, who have both filed this year
Mubadala and KKR among groups that have held talks of investing in UK data firm 9fin at a $500mm valuation. Founded in 2016, the credit markets intelligence platform regularly breaks leveraged finance news. The Company has $25mm in ARR but is unprofitable due to heavy investments in staff and technology. The Company previously raised $23mm in a Series A round back in 2022.
The Franchise Group, the owner of brands such as The Vitamin Shoppe and Pet Supplies Plus, is preparing to file for bankruptcy imminently. Last year, B. Riley organized a $2.8B buyout led by founder and Fmr. CEO Brian Kahn
Salesforce Founder Marc Benioff is in talks to sell Time Magazine for $150mm, much less than the $190mm price tag he paid back in 2018. The valuation haircut reflects industry wide challenges for legacy media struggling to evolve into digital-only operations against fierce competition from TikTok, YouTube, and other social media giants
The WSJ did a deep-dive profile on Amy Hood, Microsoft's CFO who is responsible for their $64B AI spending spree. Hood, a Blue Devil and GS alum, has been tasked with balancing Microsoft's lofty ambitions (and Satya Nadella's dreams for the company) with financial realities. As CFO, she has been instrumental in recent acquisitions like GitHub and Activision Blizzard, and drove the push to invest in OpenAI back in 2019
Nerds Gummy Clusters have done a cool $800mm in sales this year, a massive jump from $40mm in sales back in 2018. Ferrara Candy Company, who acquired the brand from Nestle back in 2018, worked hard on a Nerds company that wasn't messy to eat, driving a 20x increase in revenue since launching the brand in 2020

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M&A Transactions💭

ShareFile, developer cloud storage, file sharing, and collaboration platform, was acquired for $875.0M by Progress Software (NAS: PRGS). Jefferies and Barclays advised on the sale.

The UK Portfolio of Credit Cards of Sainsbury's was acquired by NewDay for $941.17M.

Revere Medical, provider of comprehensive healthcare services, was acquired for $245.0M by Rural Healthcare Group. Centerview Partners advised on the sale.

Medallion Midstream, provider of midstream services, was acquired for $2.6B by ONEOK (NYS: OKE). RBC advised on the sale.

i3 Energy (LON: I3E), an oil and gas company, was acquired for $325.0M by Gran Tierra Energy (ASE: GTE). EV/EBITDA was 4.12x and EV/Revenue was 9.5x.

Bericap North America, manufacturer of plastic closures, has reached a definitive agreement to be acquired for $122.0M by an undisclosed investor.

Ascent Corporation, provider of operations and infrastructure management catering, reached a definitive agreement to be acquired for $185.0M by Lincoln Rackhouse.

AES Brasil, engaged in the production, transmission, and commercialization of energy, was acquired for $1.25B by Auren Energia (BVMF: AURE3).

William Penn Bancorp (NAS: WMPN), an independent community financial services provider, has reached a definitive agreement to be acquired for$127.0M by Mid Penn Bancorp (NAS: MPB). EV/Revenue was 6.56x. Keefe, Bruyette & Woods advised on the sale.

Croud, operator of a digital marketing agency, was acquired for $234.66M by ECI Partners. GP Bullhound advised on the sale.

Private Placement Transactions💭

Newmo, developer of ride-sharing service platform, raised $111.73M of Series A venture funding from Hirac Fund, Eight Roads, and GMO Venture Partners.

Evommune, provider of treatments that address the underlying causes of inflammatory diseases, raised $115.0M of Series C venture funding led by RA Capital Management and Sectoral Asset Management.

BETA Technologies, operator of an electric aerospace company, raised $318.0M of Series C venture funding led by Qatar Investment Authority.

Insider, developer of an online marketing platform, raised $500.0M of Series E venture funding led by General Atlantic.