Weekly Research Briefing: A New Day
The sun rose once again this morning. It didn't care who anyone in my town voted for in November. It did its job and still filled the sky with amazing colors of red, orange, purple and blue for everyone to see. All with a great half moon overhead and the hummingbirds getting an early start on their cold breakfasts.
The good news for the markets over the weekend was that the incoming administration did not bring in a set of broad immediate tariffs placed on all foreign traded goods. And so, the guardrails of the markets remain in place. Treasury yields are cheering as they move sharply lower in response. And equities are joining in by jumping higher while moving back toward all-time highs. This all followed a better than expected set of CPI numbers last week as housing and insurance prices surprised to the downside. Further feeding investor appetites has been a strong set of earnings releases by the biggest banks and some other key companies. While the U.S. financial stocks are leading the U.S. indexes higher, don't think that this is only a U.S. thing. Check out the equity indexes in Germany, the U.K., and Tel Aviv which are also making new highs.
While the press will be focused on every move at the White House, investors will be diving in on earnings for the next 2-3 weeks trying to find who has the best leverage to the uptick in the economy and business sentiment. While the Mag-7 will still see good numbers, there are likely thousands of companies, public and private, who will see big margin jumps from their upticks in revenues. Expect the number of winners to broaden out significantly this year if the new economic trends persist. And after three years of little equity stock issuance, 2025 could see a flood of new offerings as private owners have names to sell and stock participants are hungry for anything new to fill their portfolios.
Fueling the markets are expectations that the pendulum is about to swing off of its clock...
Investor Stan Druckenmiller: I’ve been doing this for 49 years, and we’re probably going from the most anti-business administration to the opposite. We do a lot of talking to CEOs and companies on the ground. And I’d say CEOs are somewhere between relieved and giddy.
(TradeTheNews)
And you heard more of the same excitement from the big bank calls last week...
"There has been a meaningful shift in CEO confidence, particularly following the results of the U.S. election. Additionally, there is a significant backlog from sponsors and an overall increased appetite for dealmaking supported by an improving regulatory backdrop. The combination of these conditions should spur further activity in 2025." — Goldman Sachs Chairman & CEO David Solomon
"The U.S. economy has been resilient. Unemployment remains relatively low, and consumer spending stayed healthy, including during the holiday season. Businesses are more optimistic about the economy, and they are encouraged by expectations for a more pro-growth agenda and improved collaboration between government and business." — JPMorgan Chase CEO Jamie Dimon
"Now in terms of sentiment and things of that variety, clearly, there's a lot of positivity. Our client base is excited. I think there's a lot of momentum clearly in our pipelines that we can see has not yet translated into elevated loan growth at this point." — US Bancorp Senior Executive VP & Head of Finance John C. Stern
A strong economy with few credit risks and plenty of optimism has sent financial stocks to all-time record high prices...
(Stockcharts)
The banks have started off the Q4 earnings season with very strong results...
"The Firm concluded the year with a strong fourth quarter, generating net income of $14.0 billion. Each line of business posted solid results." — JPMorgan Chase CEO Jamie Dimon
"We finished with a very strong fourth quarter. Our net income was up nearly 40% to $12.7 billion, and we exceeded our full-year revenue target. We entered 2025 with momentum across our businesses." — Citigroup CEO Jane Fraser
"We finished 2024 with a strong fourth quarter. Every source of revenue increased, and we saw better-than-industry growth in deposits and loans. We also ended with strong capital and liquidity, enabling us to return $21 billion of capital to shareholders in 2024." — Bank of America CEO Brian Moynihan
Even Delta Air Lines added 10% to its market cap through better than expected earnings...
@TheTranscript_: $DAL President: "across the spectrum, consumer leisure very strong. Demand across corporate is very strong. Unit revenues in the fourth quarter, as we pointed out, our sales in the fourth quarter, up 10% on corporate sales. Those trends are continuing into the first quarter"
The biggest name in chip manufacturing did not disappoint on earnings...
Taiwan Semiconductor Manufacturing Co. projected quarterly sales and capital expenditure ahead of analysts’ estimates, fueling hopes that spending on AI hardware should remain resilient in 2025.
The main chipmaker to Apple Inc. and Nvidia Corp. foresees spending $38 billion to $42 billion on technology and capacity this year, or up to 19% more than analysts anticipated. It predicted revenue of $25 billion to $25.8 billion in the March quarter, as much as 6% above projections. Shares in TSMC rose the most since October, and the projected spending helped fuel a rally among US and European chip equipment companies including Applied Materials Inc. and ASML Holding NV.
$200b market cap robotic surgery leader also jumped to all-time new highs after reporting stronger earnings...
For the quarter ended Dec. 31, Intuitive Surgical expects revenue to jump 25% to $2.41 billion, beating the FactSet consensus estimate of $2.2 billion.
The company said it anticipates full-year revenue of approximately $8.35 billion, marking a 17% increase from the prior year and sailing above analysts’ calls for $8.15 billion.
The company is a pioneer in minimally invasive surgery, which is performed using smaller cuts than traditional surgery...
The Intuitive Surgical website claims more than 76,000 surgeons have been trained on da Vinci systems and have completed more than 14 million procedures.
In its preliminary report, the company said it placed 493 da Vinci surgical systems in the fourth quarter of 2024, compared with 415 systems in the previous year.
Of the 493 surgical robots, 174 were the company’s fifth-generation da Vinci systems, which received FDA clearance in 2024 and are slated for broader release in mid-2025.
Even the very conservative industrial supplier, Fastenal had positive things to say about business trends...
"Now zooming back out, we remain encouraged heading into 2025. The PMI is still sub-50, underlying business activity remains slow, and the start of January was impacted by New Year's and winter storms. The latter disrupted business activity in our Southern U.S. regions, reflected in our needing to cancel 6% of our truck routes through January 10. On the other hand, regional leadership cites broadening post-election customer optimism for 2025. We continue to sign new business at a strong rate, with our contract base growing double digits, including up 12% in December." — Fastenal Senior EVP & CFO Holden Lewis
$80b market cap industrial 3M saw accelerating revenue growth in its fourth quarter sending its stock to the highest level in three years...
Comparable sales, which exclude the sale of some discontinued chemical products, grew 2.1% year over year, the fastest growth rate for the company in recent history.
Positive growth is what investors want to see. It hasn’t been easy for 3M lately. In the first quarter, organic sales grew by about 1%, the first positive reading in four quarters. In the second quarter, organic sales grew by about 1.2%. In the third quarter, organic sales grew 1%.
Looking ahead, 3M expects comparable sales to grow by about 2.5%, although foreign exchange will drag that rate down a little. 3M sells a lot of things overseas and the U.S. dollar has been strong lately.
Last week's Philly Fed data confirmed what Fastenal, MMM and others are witnessing...
@KevRGordon: Wow. Philly Fed Manufacturing Index jumped from -10.9 in December to +44.3 in January (the highest since April 2021) … largest monthly swing since June 2020
The Atlanta Fed is now pointing to a Q4 GDP estimate that our newest U.S. Treasury secretary will love: 3%...
Just when the investing world has written off the luxury goods companies, Richemont puts up a shiny set of figures...
The results not only sent its stock +18% to new all-time highs, but it fired up the entire list of luxury goods companies (Hermes, LVMH, Dior, Ferrari, to name a few). China remains a weak link, but investors were more concerned that the rest of the world was slowing down to high end purchases.
"All regions showed double-digit growth except Asia Pacific. Asia Pacific sales contracted by 7%, largely the result of an 18% decline in Mainland China, Hong Kong, and Macau combined, primarily impacted by continued weak demand in Mainland China."
Many more earnings releases to come in this shortened week...
(@eWhispers)
Expect a few more earnings calls to be added to your list next quarter if this IPO barometer is any indication...
(Goldman Sachs)
Morgan, Merrill and Goldman are about to light a big candle, and the financial world is watching closely...
The global leader in pork is returning to market and owners of private assets will be holding their breath to see the reception from an IPO starved equity market. If this goes well, you know what happens next.
Smithfield Foods Inc.’s initial public offering is seeking to raise as much as about $940 million, in what would be the biggest food company listing in the US in more than three years.
The world’s largest pork producer and an indirectly-owned subsidiary of its owner, Hong Kong-listed WH Group Ltd., are both offering shares in the listing. Smithfield and the selling holder plan to offer 17.4 million shares each for $23 to $27 apiece, according to a Tuesday filing with the US Securities and Exchange Commission.
At the top of the range, Smithfield’s US IPO would be the largest by a food company since Oatly Group AB’s listing in 2021, which raised $1.6 billion, data compiled by Bloomberg show.
Of course, many times the journey of being private can be more fun than the destination of an IPO...
Goldman Sachs chief David Solomon has warned private companies to take “great caution” before deciding to go public, adding that the depth of capital in private markets has removed the need for many to list at all.
“Today you can get capital privately, at scale . . . you can also get liquidity in the private markets. So the reasons to go public, when you really reach an incredible scale, are getting pushed out,” said Solomon at the Cisco AI Summit in Palo Alto.
“If you are running a company that’s working and it’s growing, if you take it public, it will force you to change the way to run it and you really should do that with great caution,” he added...
“It’s not fun being a public company,” said Solomon. “Who would want to be a public company?”
Risks may be rising, but credit spreads remain stellar providing fuel for all types of financing activities, including M&A...
BoA Global Research: "While the concerns are numerous, [IG] investor sentiment remains bullish. IG spreads have been relatively range-bound so far in January (+1bps YtD) and are trading just 6bps off the cyclical tights from November. Credit spreads are ultimately a reflection of risk. With many risks on the menu, we continue to expect moderately wider IG spreads in 2025."
(@neilksethi)
Morgan Stanley talked about the pent-up activity about to be unleashed in the M&A markets...
"Pipelines in the M&A product are the highest in 7 years. So that is really encouraging. Now some of this will be dependent on how things roll out in the first couple of months of the incoming administration and how things feel on a cross-border basis. But the pent-up activity that we're seeing is starting to release." — Morgan Stanley Co-President Edward N. Pick
And as it unwinds: The biggest M&A deal of the last two weeks is a big win for its private equity and debt owners...
Including the assumption of debt, Constellation on Friday valued the cash-and-stock deal for the privately held Calpine at $26.6 billion.
The value of power generators has soared in the past year due in large part to artificial intelligence. Tech companies are adding new data centers amid a boom in demand for AI computing, and those facilities require massive amounts of electricity.
Constellation is the largest producer of nuclear power in the U.S., and Calpine is one of the largest generators of electricity from natural gas and geothermal sources...
Private-equity firm Energy Capital Partners and a group of co-investors agreed to take Calpine private in 2017, paying $5.6 billion in cash. Including debt, that deal’s value was $17 billion. Energy Capital Partners and other large investors have agreed to not sell their Constellation shares for 18 months, according to Constellation.
In other M&A, this S&P 100 buys a Russell 1000 for $14.6 billion in cash...
Johnson & Johnson has struck a $14.6bn deal to buy neuroscience drugmaker Intra-Cellular Therapies, the US pharmaceutical company said, marking the biggest biotech buyout in more than a year.
New Jersey-based Johnson & Johnson said on Monday that it agreed to pay $132 a share for Intra-Cellular, valuing the company’s equity at a nearly 40 per cent premium to its closing price on Friday.
Intra-Cellular develops treatments for central nervous system disorders — including major depressive disorder, generalised anxiety disorder and Parkinson’s disease — a field that has historically proven tricky for drug developers because of the complexity of the brain and the high rate of clinical trial failures.
And the private markets move in to buy a $5b+ carve out from GFL environmental...
Apollo Global Management Inc. and BC Partners agreed to acquire a controlling stake in GFL Environmental Inc.’s environmental services unit, in a deal that values the business at C$8 billion ($5.6 billion) including debt.
The consortium is set to buy a 56% stake in the business, while GFL will own the remainder with an option to repurchase from Apollo and BC Partners within five years, according to a statement on Tuesday that confirmed an earlier Bloomberg News report. The transaction is expected to close in the first quarter.
The stake sale will generate about C$6.2 billion in cash proceeds for GFL, which plans to use as much as C$3.75 billion for debt repayment and as much as C$2.25 billion for share repurchases.
GFL has become one of North America’s largest waste management companies in recent years by rapidly acquiring rivals. The debt used to finance that growth has become a concern for investors, prompting the company to begin looking for buyers for less profitable businesses.
Here a S&P 500 company is trying to buy a Russell 2000 company for $5b+...
Cintas, a maker of workplace products, said it made a $5.1 billion offer for smaller uniform supplier UniFirst that has been rebuffed multiple times. The company went public with its offer Tuesday morning after it said UniFirst’s board refused multiple times to engage further on any deal talks. The Wall Street Journal earlier reported on the proposal.
Cintas proposed acquiring all of UniFirst’s outstanding common and Class B shares for $275 apiece, in cash, according to the letters delivered to UniFirst’s board in recent weeks. That would peg UniFirst with an equity value of about $5.1 billion. (The total deal value is roughly $5.3 billion, the letters delivered to UniFirst’s board say.)
The offer price is a more than 60% premium to where UniFirst shares ended trading Monday. The stock closed at $169.33, giving the company a market value of roughly $3.1 billion.
Cintas has a market value of over $74 billion.
One more in the services space as a S&P 500 company is buying a direct Russell 1000 competitor...
Paychex Inc. agreed to acquire rival payroll processor Paycor HCM Inc. for about $4.1 billion in cash, including debt...
The deal brings together two major players in the market for human-resources software and services, a fairly fragmented market experiencing recent consolidation. Automatic Data Processing Inc. agreed in October to acquire WorkForce Software...
Paycor’s cloud-based software helps small and medium-size businesses automate and streamline their human-capital and payroll needs and is used by more than 30,000 customers in all 50 US states, according to its website. Rochester, New York-based Paychex offers human resources, employee-benefits, insurance and payroll services to more than 745,000 customers in the US and Europe.
And in another very complimentary deal, two Russell 2000 companies are going to merge...
Getty Images Holdings Inc. agreed to acquire rival stock-photo provider Shutterstock Inc. in a deal that would create a combined company worth about $3.7 billion including debt...
The deal bring together two of the biggest providers of licensed visual content in the US as artificial intelligence upends the content-creation market and cell phone cameras dilute the value of stock photos. It will marry Getty Images’ immense library of photos, illustrations and videos with Shutterstock’s huge searchable platform that lets contributors upload their content...
The pairing will also be an early test of how amenable the Trump administration’s incoming antitrust overseers will be of mergers among leading players in fairly concentrated industries, after the Biden administration blocked high-profile deals in the supermarket and airline industries. While this transaction is likely to draw intense scrutiny, it underscores how dealmakers are optimistic that regulators will have a lighter touch—at least in certain sectors.
I bet you are not using ChatGPT as much as the CEO of Nvidia is...
"I have ChatGPT on all the time, and I’m constantly asking it questions and working with it to solve problems. You really have to learn how to interact with AI, and as you know, prompting has a real art to it. There’s both an art and a science to effective prompting. The way you interact with people, and now the way you interact with AI, is something you’re going to have to learn." — Nvidia CEO Jensen Huang
If you are looking for a new podcast listen, here is a sweet one...
This new one is definitely one of my favorite Acquired episodes. And a must listen for anyone doing research on the sticky mess over at Hershey right now.
The Complete History & Strategy of Mars Inc.
M&M’s, Snickers, Milky Way, Double Mint, Ben’s Rice, Pedigree, Whiskas, VCA, Banfield… all the brands you know, owned by the company you know nothing about: Mars, Incorporated. And Mars itself is 100% owned and deeply intertwined with the Mars family, who are currently the second wealthiest (and perhaps first most secretive!) family in the United States. Tune in for one of the 20th century’s most incredible entrepreneurial stories across candy and pet care, and one that’s all the more incredible because it’s so little-known!
Finally, take a few minutes to look through this stack of sports photography...
Some incredible shots in here. Some which you have already seen on a front page, and others that have never crossed your eyes, but should have.
The World Sports Photography Awards is the world’s biggest and most prestigious sports photography competition. Across the four editions, thousands of professional and semi-professional sports photographers from around the world have submitted more than 22,000 images in 24 sporting categories with the winning images gaining global media coverage.
Nothing has the power to encapsulate the emotion and endeavour of sport like a photograph. The World Sports Photography Awards celebrates the very best in sporting imagery and the incredible photographers who capture these moments. Moments that contain whole stories within them.
World Sports Photography Awards
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DISCLOSURES
The author has current equity ownership in: LVMH and J.P. Morgan & Chase Co.
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