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- 👉 Week in Review: 10/15/23
👉 Week in Review: 10/15/23
Acquisition after acquisition!
Happy Sunday, everyone.
Before we jump into things, I wanted to share a few images I found on Twitter (X) over the weekend.
The above image shows in blue the price of the Nasdaq (QQQ) while the red illustrates the number of companies who are experience new 52-week high stock prices. It’s very weird to see such a small amount of companies experiencing 52-week highs while the price of the Nasdaq moves higher — this isn’t bullish.
This image shows that a recession should land soon — with the shortest lag being only 4 months with the longest lag being 16 months. We’re due. This also isn’t bullish.
Portfolio Updates:
There’s not much to share here just yet — I’m working on a Q4 Update / Watchlist post for this week, so stay tuned!
Week in Review — Too Long, Didn’t Read:
Delta is expecting continued domestic demand throughout the holidays, JPMorgan Chase’s provision for credit losses plummeted, Progressive reported their best quarter in over two years, Microsoft closed their $69B acquisition of Activision Blizzard, Exxon Mobil announced their $59.5B acquisition of Pioneer Natural Resources, higher for longer remains the Fed’s strategy, shelter costs continue to prop up inflation, and consumer sentiment plummets despite continued reports of “resilience.”
Key Earnings Announcements:
Delta is expecting continued domestic demand throughout the holidays, JPMorgan Chase’s provision for credit losses plummeted, and Progressive reported their best quarter in over two years.
Delta Airlines (DAL)
Key Metrics
Revenue: $14.6 billion, an increase of +13% YoY
Operating Income: $2.0 billion, an increase of +36% YoY
Profits: $1.1 billion, an increase of +59% YoY
Earnings Release Callout
“We generated record September quarter revenue, with total revenues 13 percent higher than the September quarter of 2022.
With this performance, we expect to deliver a record September quarter unit revenue premium to the industry, reflecting the strength of Delta's diverse revenue streams and continued brand momentum.”
My Takeaway
There are a few considerations we learned about during this quarter — starting with domestic demand. Delta expects domestic travel demand to remain “steady,” which Wall Street assumes to be about +10% growth YoY.
With that being said, in September Delta notified investors that their scheduled maintenance costs were no longer “stepping down” during the second-half of this year, and instead picking up speed. These investments largely surround fleet health and reliability, expanded network scope, and a higher mix of new parts.
Wall Street doesn’t expect Delta to be the only airline company experiencing these 2H23 investments at the moment, a potential massive free cash flow hit to the entire industry into 2024.
To me, Delta is the only airline stock I’d ever own — if I actually was somehow convinced any airline stock was worth owning. At the end of the day, the company’s margins are best-in-class, their balance sheet is continually being deleverages, and their partnerships / loyalty are unmatched.
However, I’m not a shareholder and don’t plan to be.
JPMorgan Chase (JPM)
Key Metrics
Revenue: $39.9 billion, compared to $41.3 billion last year
Profits: $13.2 billion, an increase of +35% YoY
Earnings Release Callout
“Currently, U.S. consumers and businesses generally remain healthy, although, consumers are spending down their excess cash buffers. However, persistently tight labor markets as well as extremely high government debt levels with the largest peacetime fiscal deficits ever are increasing the risks that inflation remains elevated and that interest rates rise further from here.
Furthermore, the war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships. This may be the most dangerous time the world has seen in decades.”
My Takeaway
I say this every quarter — I’m no expert on bank stocks. With that being said, a few things from JPM’s earnings jumped out at me:
I don’t own bank stocks, but if I did — this one would be the one I’d choose. Jamie Dimon (JPMorgan Chase’s CEO) is certainly worth listening to.
Progressive (PGR)
Key Metrics
Revenue: $4.6 billion, an increase of +20% YoY
Profits: $369.3 million, compared to -$684.4 million last year
Earnings Release Callout
I’ve actually never seen this, but inside of the earnings release the company shared the following…
“The Company has no additional commentary regarding September’s results.”
So there’s no earnings release callout for this one.
My Takeaway
Progressive, the insurance company we all see commercials of while watching our favorite TVs shows, reported strong premiums across all business segments. Specifically, they grew by +34,400 policies across the entire business month-over-month.
Their “combined ratio,” which is essentially how much profit the company made on their premiums, is the most profitable it’s been since January of 2021 — a massive improvement from last year’s quarter.
One of our subscribers brought this company up to me earlier this year given it’s incredible stock performance over the last decade. After doing some light research, I’ve also become a fan of the stock.
Stay tuned for more insights on this soon — as I’ll likely open a position before the end of the month.
Investor Events / Global Affairs:
Microsoft closed their $69B acquisition of Activision Blizzard while Exxon Mobil announced their $59.5B acquisition of Pioneer Natural Resources.
Microsoft Closes their $69B Activision Blizzard Acquisition
The biggest-ever acquisition in the video game industry gives the maker of Xbox consoles a more formidable position against rivals — vaulting it from 5th to 3rd place globally, behind Nintendo and Sony.
The nearly 22 months it took to close the deal reflected concerns from rivals and government regulators that Microsoft could use its growing collection of games to lessen competition.
We’re eager to see how Microsoft might now fold their largest video game titles including Call of Duty, Diablo, and Overwatch into subscription bundles — perhaps like a Netflix for video games?
Exxon Confirms Acquisition of Pioneer (PXD) for $59.5B
Exxon Mobil’s (XOM) acquisition of Pioneer Resources would combine Pioneer’s 850,000+ acres with Exxon’s 570,000+ acres in the Permian Basin of Texas and New Mexico. According to Raymond James, the Permian Basin is on the of the most prolific and economically attractive basins outside of the Middle East.
Exxon’s acquisition of Pioneer would be the company’s largest acquisition since 1999 when they acquired Mobil — hence the name Exxon Mobil. According to the company, the Pioneer acquisition would more than double the amount of barrels of oil and gas drilled per day in the Permian basin — resulting in more than 1.3M / day.
“This deal is valued at a much lower multiple than what we would have seen if we had this conversation pre-Covid, five years ago, and certainly 10 or 15 years ago. So, it’s a good deal for Exxon from a historical valuation perspective.”
— Pavel Molchanov, Managing Director for Raymond James
Major Economic Events:
Higher for longer remains the Fed’s strategy, shelter costs continue to prop up inflation, and consumer sentiment plummets despite continued reports of “resilience.”
Fed Meeting Minutes — September
Federal Reserve officials at their September meeting were on the fence as to whether any additional interest rate increases would be needed — however, the minutes released Wednesday showed one more rate hike would seem likely.
While there were conflicting opinions on the need for more policy tightening, there was unanimity on one point — that rates would need to stay elevated until policymakers are convinced inflation is heading back to 2%.
“A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted.”
Consumer Price Index — September
The consumer price index increased +0.4% on the month and +3.7% from a year ago, above respective forecasts for +0.3% and +3.6%. Core CPI increased +0.3% on the month and +4.1% on a 12-month basis, both exactly in line with expectations.
As expected, shelter costs were the main catalyst for this month’s increase. The index for shelter, which makes up about one-third of the CPI weighting, accelerated +0.6% month-over-month and +7.2% year-over-year.
Energy costs rose +1.5%, including a +2.1% pickup in gasoline prices and +8.5% in fuel oil, and food was up +0.2% for the third month in a row. Vehicle prices were mixed, with new vehicles up +0.3% and used down -2.5%.
“Just because the rate of inflation is stable for now doesn’t mean its weight isn’t increasing every month on family budgets. That shelter and food costs rose particularly is especially painful.”
— Robert Frick, corporate economist with Navy Federal Credit Union
Consumer Sentiment — October
Consumer sentiment fell -7% in October after two months of very little change. Assessments of personal finance fell by -15% primarily over substantial concern over inflation. One year forward business expectations plummeted by -19%.
Nearly all demographic groups posted setbacks during the month, reflecting the continued weight of high prices across the board.
Despite how consumers are feeling, a laundry list of reports have been released over the last several days suggesting the US economy has more juice left in it. The International Monetary Fund on Tuesday updated its economic outlook and raised its estimate of the growth rate in GDP this year to 2.1%, an increase of +0.3 percentage points from this summer, while also raising the 2024 number to 1.5% from 1.0% earlier.
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Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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