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- [00:01]
Ann Berry
Tonight's State of the Union address will likely shine a light on nuclear power. So we take a look at one star stock in alternative energy. The latest at Constellation, Henry Schein, FactSet, AMD and Warner Brothers. Our sprint through the earnings deals and merger drama all moving the market today. And barely perceptible product differences. Sprints for distribution, headline domination and now aggressive price cuts. No, not the news cycle for the major LLMs, but the latest in the eerily similar war of the GLP1s. We break it all down for Tuesday, February 24th. It's Brew Markets Daily and I'm Ann Berry. More market details to come. But first, a major player drops a product and all its investors cheer. Then a competitor goes incrementally better and panic sets in. Then major player one drops an even better update and investors take a victory lap. And then a competitor pops up, ups the ante and the roller coaster starts all over again. So is this OpenAI versus Google's Gemini versus anthropic? Well, on any given day it could be. But today it's the latest in the GLP1 wars and they're not too dissimilar with The Novo Nordisk versus Eli Lilly versus Pfizer. News Roundabout. Well, just yesterday Novo's share price dropped 15% to a four year low. And that was in reaction to disappointing phase three trial results for its next gener obesity drug CAG sema. To get all these syllables out, well, investors were underwhelmed by the drug which showed 20% weight loss results just below Eli Lilly's Zeppelin at 23.6%. So these are not vast, vast differences. Well, today Novo announced plans to slash the monthly list prices of its popular obesity and diabetes drugs in the United States by up to 50% starting next year. The obesity injection Wegovy and its new pill counterpart, plus Novo's diabetes treatments, the Ozempic shot and the oral drug Rebelsus will have the new lower list price of $675 per month starting on January 1, 2027. Well, that's a significant drop from the $1,027 to $13.50 per month the drugs are currently listed for. The price cuts target insured patients whose out of pocket costs are linked to list prices. So that would include folks with high deductible health plans or co insurance benef lines. And its timing coincides with new lower Medicare prices going into effect for Novo's obesity and diabetes drugs next year under the inflation Reduction Act. Well, the move could help Novo compete better with Eli Lilly which has now outrun Novo to hold the majority share of the blockbuster GLP1 market. Despite Novo's first mover status, Lilly's more effective drugs and earlier push into the direct to consumer space for distribution have allowed it to take the lead and all without significantly lowering the US list prices of its medicine reasons. So this is just my one person's view. If as a company you've exhausted the ways to compete outside of price, you've exhausted the ability to get ahead in product benefits or in meeting customers where they are, or in marketing and brand awareness. And if you find yourself in the spot where dropping prices is now all you've got left to fight with, then you better be sure you're going to win. Because once those price cuts are there, they tend not to be reversed and often the whole sector loses if demand doesn't down slow, suddenly expand. Which is why I think Novo is down today by more than 2%. Eli Lilly also ticked down over the course today while they think about their pricing reaction. So this is not going to stop anytime soon. It feels to me like this is just the start of a new chapter with pricing at the core of it. We still need to hear from Pfizer what they're going to do next, so we're going to keep on watching. Well, coming up, we break down one star among energy sector stocks and that's Constellation, the non fossil fuel player, plus Henry Shine of FactSet, some nuggets less covered names, plus Paramount's new salvo in the battle for Warner Brothers. But first, a word from our sponsor, Charles Schwab. Trading at Schwab is powered by Ameritrade, bringing you an expanding library of education with even more ways to sharpen your trading skills. Access new online courses, insightful webcasts, articles, engaging videos and more, all curated just for traders.
- [04:25]
John
Plus guided learning paths with content designed to fit your unique interests and no sifting to find exactly what you need. So you spend your time learning to trade brilliantly. Learn more@schwab.com trading well, several companies in
- [04:38]
Ann Berry
the energy sector report earnings this week, everything from oil and natural gas to electricity. So today we're going to cover earnings from Constellation Energy, which operates a portfolio of natural gas, wind and hydroelectric facilities and is the largest operator of nuclear power plants in the United States, which frankly is a sector that has sort of become the one du jour, which also why the company says it's a leading provider of carbon free electricity. But we'll get into the numbers from the earnings and discuss why the company despite releasing the numbers, decided not to have an earnings call to discuss them today. We'll talk about that in a moment. But John, give us some background on Constellation first.
- [05:18]
John
That's right. Constellation Energy ticker CEG on the Nasdaq has a market cap of $110 billion. Now, a little background. In 2022, Constellation was spun out of Exelon Corporation, which is the country's largest electric utility company by customer count. So now Constellation stands as a publicly traded power generation business that supplies electricity to those local utilities like Electron. So some of those local utilities include Baltimore gas and electric, VG&E Ohio Edison, or the one I grew up with, Potomac Energy Power Company. Good old Pepco. So anyone listening might be getting their energy from Constellation.
- [05:55]
Ann Berry
Well, let's take a quick whiz through the numbers. Revenue came in at $6 billion for the fourth quarter, handily beating expectations. And for the full year, 25 came in at $25.5 billion. Again, that's operating re. And then when you take a look at the earnings per share came in at on an adjusted basis at $2.30, getting a pretty good beat. John beat consensus by 5 cents. And so the market reaction was the shares were up nearly 6% at points today. But here's what's really interesting. The company released its numbers. It's how we got to be able to survey those. Right there, the company released its annual report, its 10k, excuse me, which is the annual filing that's made with the sec. And it also put out a press release, but it did something which isn't usual, actually. Typically, and we see this every day, we talk about earnings. Right. The company will post its earning documents. Exactly the kind of thing we've talked about. The press release, the numbers and then the SEC filing. And then as soon as possible afterwards, they try to control the narrative. Yes, right. By having an earnings call. So they do a webcast or an in person meeting and have a dial in so that people like you and me and the analysts are able to figure out what the context is that management wants to provide as a voiceover to the numbers that have been posted. But Constellation decided not to do that. They wrote in lieu of a fourth quarter call today, the company will instead host a call on March 31 to do a conversation to discuss our business and earnings outlook. So they're not providing guidance today. Right. Which is pretty important, at least not with any voiceover. They're not doing the look backwards with the context that you'd normally expect to get for all of this and they're punting. And I was you and I are talking about it was in why are they punting? And I think there's a couple of things. It feels to me as though they're waiting to see if the executive the White House might come out with more executive orders. We've got the State of the Union tonight. They've just closed on this big end acquisition last month, which we'll talk about. So we need to see what the integration looks like. And they probably want to be able to say and here's the latest on how that's going. And otherwise, like I said, it's a bit, it's a bit of a head scratch, this one.
- [08:01]
John
But it's sort of curious because every company, if they're reporting quarterly, is going to have that kind of call and like you said, get ahead of the narrative and put out the, the headlines and the sound bites that they want. So I can imagine a lot of different companies waiting for a regulatory insight or something to change in their business. So how is this different? It's, I'll be waiting for March 31st
- [08:21]
Ann Berry
and I'm going to keep, you know, I'm going to keep looking too, actually, later today after, after the bell because I actually want to see if anyone else is speculating as to what's going on or if there's just more concrete statements coming out from the company as to why they made this decision.
- [08:33]
John
But like you said, of course, there's lots of policy things happening in the country around energy. In January, the Trump administration and state officials pushed for a cap on wholesale electricity prices in the 13 state PJM Interconnection. So at the time, Constellation stock fell 16%, there was a fear that there would be aggressive potential cap and the White House was looking to lower prices for consumers. PJM agreed to extend the existing price cap through 2030. And so the shares were down. But that's a little part of the rebound.
- [09:03]
Ann Berry
Yeah. And if you take a look at that share chart, John, over the long, if you take a look at year to date, for example, you see it sort of dip down exactly in that moment as you described in January, popping back then up, down about 12% year to date, even with today's bump up by 6%. But over the longer term, it's actually done pretty well, which is consistent with a lot of these energy stocks that have rallied. As the market has said, hang on a second, all the spend on AI, all that CapEx on data centers, somebody has to power all of it. And you've seen a rally in stocks like Constellation in response to that anticipated demand. Well, there's another thing here that's going which I sort of teased at the beginning, which is that Constellation has been in acquisition mode. In January it completed the purchase of CALP and Corporation Calpine Corporation, which was America's largest independent generator of electricity from natural gas and from geothermal resources with a fleet of over 75 power plants, including some in California. And by bringing cow pine into the fold, Constellations footprint expands goes now coast to coast, the geographic footprint expands and then also together they become the largest electricity generators in terms of nuclear meeting gas and geothermal. Now in its earnings release, Constellation said in its press report the combination will quote power, the data centers, advanced manufacturing facilities and critical infrastructure that are expected to play an important role in in the age and the nation's economic leadership. So they're being really explicit about why AI is such important factor in driving that deal, right?
- [10:40]
John
Exactly. They're saying every company around here is looking for energy and we've connected to bring these two sources or multiple sources, nuclear and non nuclear, together.
- [10:48]
Ann Berry
Now can I nod out for a second? I'm so excited to nerd out because I just want to talk a little bit about how sweet timing can turn out to be when it comes to deals like this. So Constellation announced last January, so now 13 months ago, that it was going to buy Calpine. And at the time, if you look at the press release, which I did do today, Constellation said, quote, the net purchase price is $26.6 billion. Reflective and attractive acquisition multiple of 7.9 times, just under 8 times 2026. Enterprise value to EBITDA. EV to EBITDA. If you're a nerd like me, that is basically 8 times. It's the ratio purchase enterprise value, the per overall purchase price and this measure of profit, that's ebitda. So here's the nerding out piece. At the time that that announcement was made, Constellation was trading at just under 10 times EV to EBITDA. So here's what happened to those of you who wants to follow along. Don't let your eyes glaze over when you're a company and you buy another one at a multiple that trades at a lower multiple than yours and if the integration goes well and you don't mess it up and you hopefully get some synergies and that deal is often considered accretive because it means you can bring that cheaper company up to your trading level, does that, does that kind of make sense? So again Back at the time that this was announced, call it at a tennis times compared to an eight times acquisition, that is accretion, that is a two times multi, you know, two turns in terms of multiple opportunity there. Roll forward to when the deal actually closes last month. And now Constellation is trading in the high teens. Right. So if this was going to be a good deal in terms of that accretion when Constellation was trading at 10 times, it's an even better, better, better deal when it's trading up in the 17 to 18 times multiple of EBITDA. So it's a nerdy point. But do folks look out for this, look out for this when you're listening to how deals are being done and how much is being paid because this is an occasion where often time kills deals. People don't like it when it takes a year to go through regulatory review. But in this instance time is very much Constellations friend, which I found. As I said, the NER absolutely loved this.
- [12:58]
John
I enjoyed that.
- [12:59]
Ann Berry
Sure. I mean maybe you did, baby. I liked it.
- [13:03]
John
But it does, it points out also how important the regulatory process is and how demanding it can be in this
- [13:07]
Ann Berry
space, specifically because it can go the other way. You can go in the other direction too if your stock price drops and your valuation drops. And that's not a good day for you as a buyer.
- [13:16]
John
And there is a lot of regulatory oversight right now because power prices are up. I was just looking here in New York City, I know that this is an outlier, but I had one of the most expensive power bills I've ever had.
- [13:27]
Ann Berry
Yeah, eye watering.
- [13:28]
John
Yeah, eye watering, yeah. And this past October, the average residential electricity price in New York hit 26 cents per kilowatt hour. That's about 50% higher than the rest of the US but up 7.6% compared to a year ago. So there is concern the not in my backyard with data centers that if a data center is getting put in your community that your power prices are going to go up.
- [13:51]
Ann Berry
Well, so related to that, that is actually what prompted President Trump, do you remember this, to come out and say, well these big tech guys, they can go pay for their, pay for their energy themselves. And one of the things that we have seen is that a number of them have actually said, okay, then we're going to go figure out nuclear, right? So one thing that we are going to keep an eye on is oklo, which is the micro nuclear reactor company that's backed by Sam Altman because that company is seeking licensing approvals from the U.S. nuclear Regulatory Commission and there are others like it out there in the fold. And you've seen some of those share prices go absolutely through the roof pretty much for what you've described. Right. Not only is there going to be increased demand for nuclear power potentially, but there increasingly seems to be a sense that they're going to be pushes for a broader array of folks to actually go pony up and pay for those bills. So again, as we said, look, the State of the Union is being broadcast at 9 o' clock tonight. I am actually going to having to have a glass of wine. I am going to tune in and watch it because there is a tendency for that address to provide some nuggets and insights into where policy might be heading in the relative near term. If you look back at the pattern of these things, particularly under Trump administrations, they've tended actually to be pretty insightful. There've been a lot of executive orders around energy, a lot around nuclear, a lot around fossil fuels on the opposite side. So staying tuned tonight for lots and lots of reasons related to the energy sector and what it means for the markets. Let's take a break and when we come back, we'll take a spin through the headlines moving the markets today. And I will not be nerding out again in the course of the show. Vaneck believes gold is evolving beyond a short term hedge into a more durable part of a portfolio. With strong central bank demand and ongoing global uncertainty, the case for gold remains compelling.
- [15:30]
John
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- [15:39]
Ann Berry
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- [15:55]
John
Learn more@vaneck.com BrewGDX that's vaneck.com BrewGDX Full Fun Disclosures in Podcast Description
- [16:05]
Ann Berry
There it is, the closing bell, 4pm on the east Coast. The markets are wrapping up for the day and we don't have a ticker tape, but we'll throw it over to our human ticker, our producer John that's
- [16:14]
John
right, The S&P 500 and the Dow both finished up 8.10 of a percent today and the Nasdaq closed up a full percent.
- [16:22]
Ann Berry
Henry Schein 1 We wanted to shine a light on ticker HSIC. It doesn't get much attention, but it is an interesting one $10 billion of market cap in the world's largest provider of healthcare products and services to office based dental, medical and veterinary practitioners. Just as a stat, the company operates in 33 countries and distributes a whopping 1566000 plus line items per day. The complexity of these distribution businesses where Henry Schein reported earnings today, beating expectations for both revenue and profit and taking a victory lap for its highest sales growth in 15 quarters. Shares up nearly 4% today, hitting a new 52 week high and FactSet, the
- [17:01]
John
provider of financial data including earnings estimates that we and lots of investors use, is itself a publicly traded company ticker FDS enlisted on the New York Stock Exchange with a market cap of 7.6 billion. Now, along with lots of other data and analytics providers, FactSet has suffered a share price hit year to date, down nearly 20%. But the company had good news today with its stock popping more than 6% on an announcement of a new partnership with Anthropic.
- [17:27]
Ann Berry
Well, FactSet wasn't alone because Anthropic also announced new AI tools that connect with Salesforce, owned Slack with the text Preparer, Intuit, with DocuSign, with LegalZoom, with FactSet, with Thomson Reuters and with Google's Gmail. It was a busy day for Anthropic and In response Salesforce, DocuSign and LegalZoom shares all jumped 4%. So a real mover in today's news.
- [17:50]
John
Also in AI news, Meta continues its capex spree, signing up a deal with Advanced Micro Devices. That's amd just one week after Meta committed to using millions of Nvidia's processors to power its AI expansion.
- [18:02]
Ann Berry
Meta said today that its new multi year deal involves deploying up to 6 gigawatts of AMD's graphics processing units for artificial intelligence data centers and it includes a performance based warrant for Meta to acquire acquire about 10% of AMD. Well I'm having deja vu because this sounds almost exactly like the deal that open AI struck with AMD back in October, which means AMD is now looking at potentially having a ton of strategics as its owners if it hits these performance milestones. While AMD Stock was up 7% on the news in response, Meta though came down a little bit, which just shows the market getting cautious these days when it sees these CapEx numbers rising.
- [18:43]
John
And a quick update on the merger marathon that is the battle to buy Warner Bros. Discovery. Netflix granted the Hollywood stalwart a seven day period in which to explore the deficiencies of the competing Paramount Skydance bid. And in response, Paramount has upped the ante. Warner Brothers Discovery today said it has received a higher takeover offer from Paramount Skydance and if deemed superior, Netflix will have four days to improve its own previously agreed upon bid. Details of Paramount's revised bid have not been disclosed, but the Warner Brothers board said in a statement that this morning, quote, the Netflix merger agreement remains in effect and the board continues to recommend in favor of the Netflix transaction.
- [19:23]
Ann Berry
Well, I'm looking forward to seeing these bid details leak. They always do, almost always do. So I'm sure they will. So I've got the popcorn ready for that moment. Meanwhile, Netflix up nearly 2% today, another sign that Netflix investors really would prefer that this would go away and an acquisition not happen. Similarly, Paramount down over a percent, a sign that its own investors similarly wish that this deal would go away. Well, just a final thought. I want to tee up something. It's a little bit cheekily early in the week for this, but on Friday, Bill Gurley, who's a general partner at Benchmark, which is a very well known venture capital firm, he's just written a new book called Running Down a Dream. I read the book over the weekend. Full of insights and actually a lot of windows into what makes CEOs are some of the most famous public companies today, frankly wired the way they are and as successful as they are. So come back on Friday. It's going to be a good discussion. That's it for today's Brew Markets Daily.
- [20:17]
John
Brew Markets Daily is hosted by Anne Barry and produced by Jean Croteau, Taka Delatief and Emily Millard. Our technical director is Uchenawaogu, Jim Orzo is our audio engineer and the president of Morning Brew Inc. Is Devin Emery. If you have any feedback or a company you'd like us to COVID leave a comment or send an email to brewmarketshoworningbrew.com Wake up tomorrow with the Morning
- [20:34]
Ann Berry
Brew newsletter and tune in to Neil and Toby on Morning Morning Brew Daily. We'll see you back here tomorrow, same time, same place.