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Honeywell spinning off its jet sensors from its home thermostats we answer one listener's question about the breakup of an industrial giant, a viral squishy dumpling and cats. Yes, we survey what's driving revenue from 5 below to Petco and the Space X IPO, possibly the largest public offering in history, and certainly an unconventional one, with new details about next week's anticipated launch and how it's going to shake up the markets. But Thursday, June 4, it's blue markets Daily and I'm Ann Berry. More market details to come. But first, SpaceX moving closer to what could become not only the largest initial public offering in history, but also one of the most unorthodox. That's as the company plans to begin its investor roadshow this week to drum up demand if drummings needed for its expected $75 billion IPO, more than double the size of Saudi Aramco's record so far, and had a possible $1.75 trillion headline number, instantly placing SpaceX among the most valuable publicly traded companies in the world, where shares are expected to start trading on the Nasdaq as soon as June 12th under the ticker symbol SPCX. And unlike most IPOs, which keep pricing flat flexible until the very last days of launch, SpaceX has already publicly identified a $135 per share target. It's an unusual move that underscores the company's confidence in investor demand because basically founder Elon Musk is setting a take it or leave it number rather than negotiating that opening price down if investor demand softens equally, though giving up upside if demand comes in hotter. Well, another note is that the offering is structured as an all primary share sal is a fancy way of saying that the money raised will go directly into the coffers of SpaceX to fund its expansion plans, instead of the existing shareholders cashing out right away. Well, if it sounds like Musk is calling the shots to the market. It's because in this case he actually is. That's after learning a painful lesson with Tesla that he does not enjoy having limited technical voting power. This time with SpaceX, Musk will retain extraordinary control with more than 80% of the company's voting power and in what will be definitely a crowd pleaser as by one of retail investors favorite founders. Some reports indicate that as much as 30% of the SpaceX offering could be allocated to individuals, which is far above the typical levels you see in major IPOs when institutions get the lion's share of those initially placed shares. This means that if the deal proceeds as planned, SpaceX could reshape public market big tech investing in another major way, the other being its fast tracking inclusion in the NASDAQ 100, meaning that index funds like ETFs will likely have to buy into the stock even if valuation gives those fund managers pause. SpaceX going public, by the way, at a valuation north of 90 times its trailing revenue. Setting some other new records. A lot going on with this one. We're going to keep on watching. We're coming up in a moment. A spin through the headlines that are moving the markets today, including retail earnings from 5 below and Petco and a sell off in the chip sector. But first, this episode is brought to you by Liquid. John, how many times have you wanted to move your money around the market but had to wait for markets to reopen? Oof.
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And you're setting alarm clocks in advance.
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Well, in a moment we're going to answer listeners question about the breakup of the industrial giant Honeywell. But before we get there, a few headlines from the trading session today.
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That's right, starting with discount retailer five below ticker F I V E5. The company reported first quarter results that exceeded Wall street expectations and highlighted same store sales that rose 23%. Yet the company's share price is down over 12% today.
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Well, that's because executives signaled that the first quarter's strong performance was partly fueled by higher tax refunds. Those of course being temporary, Chief Financial Officer Daniel Sullivan said on the earnings call, quote unquote, we're looking at the world that our customers are living in with rising fuel costs, with very sticky inflation, with a somewhat soft labor market, and we think a piece of that pain that they are feeling wasn't felt in the first quarter purely because of tax proceeds. By the way, that note that tax refunds help the consumer along, something we heard from Best Buy as well in their earnings earlier this season.
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That's right. And there was also this the company said sales in the quarter benefited from demand for a quote squishy dumpling toy that went viral on social media. So a sales driver that may not be easily repeatable in the coming quarters. Staying with retail earnings, shares in Petco Health and Wellness company Ticker Woof are down over 8% after the company reported earnings at disappointed, coming in at a 5 cent per share loss. Say it with me, Petco is in the middle of a turnaround like so many other retailers and there were some positive traction in the recent quarter. Same store sales were up 0.7% which leadership highlighted as a return to positive sales growth.
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Well, one quick nugget from the earnings call quote we're not seeing adoption trends growing at this point, with the exception of cat. Cat singular notably. Well management specifically called out cat related categories as stronger than expected. Too bad when your stock Ticker Woof is turning out to be a bit of a dog this week. Well, finally over to semiconductors which early in the trading day saw a broad sell off led by Broadcom, which designs and makes customized artificial intelligence chips for companies like Google, Meta, Apple and Cisco, touching many corners of the tech world. While Broadcom beat quarterly earnings expectations, but its AI chip sales forecast disappointed investors. Arguably though, those expectations had been elevated. Shares in the company Ticker Avgo down over 12%. All eyes are on that one today.
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That's right, and expectations were very high. Many analysts saying that in the context this is a modest pullback after a huge run, that the bar was very high going into earnings. But it is notable that as a result of today's decline, Broadcom has erased over $320 billion in market value in one day, making it one of the biggest single stock wipeouts of the mega cap era.
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Broadcom stock nevertheless up 60% still year over year. Well, let's take a quick break and when we come back, Honeywell, a titan industry says it's looking to eliminate distractions by separating out into multiple distinct companies. So we take a look at changes happening at the industrial conglomerate.
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So John, one of my favorite moments. We got a letter from a listener.
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Yes, one of my favorites as well. Bennett wrote. Would love to hear your thoughts about Honeywell as they prepare to spin off aerospace later this year and broadly what drives these conglomerates to end up spinning off into smaller, more focused business units.
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Well, thank you for the note, Bennett, and we love that this came by email. I think actually it was sort of a real, a real note. Well, we're talking about one of the most ambitious corporate breakups in recent memory here. And by the end of this month, this industrial conglomerate, Honeywell will have become several companies. It's already partway through that process, but even more so will be complete in under a year. And one of those components actually ipoed today. So before we go there and into those constituent parts, John, kick us off with some context around Honeywell and its conglomerate state and then we can dig into some of these spin offs.
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Right. Honeywell Ticker Hon on the NASDAQ currently has a market cap value about $140 billion. And this company makes everything from home thermostats to barcode scanners to cockpit navigation systems, just across the whole gamut. But longtime investors will ultimately have exposure to four separate companies, Automation, Aerospace, advanced materials, and Quantum computing. We'll get back to that quantum in a moment. And last October, so the split has already been happening, Honeywell spun off Solstice Advanced Materials. That's currently Ticker Sols. It has a market cap of about 13 and a half billion dollars. Shares are up 60% in Solstice since they were spun off since last October. And this company produces industrial materials like pharmaceutical packaging, specialty chemicals like refrigerants used in air conditioners, and increasingly data center cooling systems and materials used in semiconductor manufacturing. The company would like you to know that they're not just like an old school manufacturing arm. They're really on the forefront of tech and part of that AI trade. Then later this month, June 29, like Bennett mentioned, Honeywell Aerospace will become an independent company and trade under the ticker hona.
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That's right. That's been pretty hotly anticipated, not least because a comp will come back to GE had split out its aerospace business. Well, Honeywell Aerospace hosted an investor day literally just yesterday and highlighted in that dialogue that it will be one of the largest publicly listed pure play aerospace and defense companies. Defense, of course, getting a ton of attention given what's going on in the Middle east and in UKRA. In 2025, just for some context, on Honeywell Aerospace, that business recorded over $17 billion in revenue adjusted EBIT. That's a measure of profit of just over $4 billion. And it's got a lot on the come. The company does have a 19 billion dollar backlog, up 20% year over year. So demand is there. And again, this is one of those companies getting a ton of attention given what's going on geopolitically at the moment.
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Absolutely. So let's look at inside that company. There's three divisions. Electronics, that's navigation systems. And this is a nugget from the deck that I see repeated a lot. 90% of global aircraft use Honeywell Navigation Systems.
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That's a big number. It's a big number.
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Big.
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There's also, because when you go into that deck, which I really enjoy doing, I love industrial businesses. I'm sort of nerd out on this stuff. There's just picture after picture of an aircraft.
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Yes.
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And there are literally dots and arrows coming out of every part of these aircraft showing where Honeywell has its equipment sitting. It's actually a very good visual way of taking in just the sheer expansion of the offerings. Absolutely.
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Because there's points at all sorts of
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different parts of the plane.
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In three different kind of planes, they had a military jet and a commercial jet. And so they touch all those different areas. The second division is engines and power systems, of course, engines and the planes and control systems. So 44% of revenue is commercial aftermarket. This is really important. Recurring high margin components for maintenance. And that was driven home in that investor day Report, Honeywell doesn't have to depend on new aircraft orders necessarily. There's an installed base. And Honeywell will continue to bring in revenue off of retrofits, modifications and upgrades.
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It's the classic razor, razor blade model. Right. People have to buy the razor and that they maybe buy it very infrequently, but the razor blade, they're buying constantly. It's a frequent repeat purchase. So industrial businesses, and there are a lot of them actually that do have a version of this model. It's always something that I look out for when I'm digging into these financials and models. Well, there's one more spin off to talk about. This is a particularly glamorous one. It did happen just today. I was watching the interview with the CEO on CNBC this morning talking about how the magic was happening. And this is Honeywell's quantum computing business. And we talk a lot about quantum on the show. We've had the CEO of Rigetti on here and we've seen that there has been White House conversation about the importance of quantum, which has driven up some increases in some of these stocks over the last several months. Well, Honeywell's quantum computing business is called Continuum, debuted on NASDAQ again today under ticker Q and T. And what Continuum does is make quantum computers that are capable of solving complex tasks that go beyond the abilities of traditional processors. So it's really focusing on developing platforms for highly complex areas like chemistry and cybersecurity and drug discovery. So it's a frontier tech. It's not yet paying off because like a lot of its comps, for the first quarter of this year, Quantino had a net loss of about 136 million doll on a very small amount of revenue, just 5.2 million, which, by the way, is a theme across these Quantum companies. You know, a lot of them are serving academic institutions. The revenue numbers aren't big. Their cash burn rate is pretty large. But again, the company looking to be part of the conversation, some would argue hype on quantum computing. And it is. Continuum was one of the companies that received funding last month from the Commerce Department, set to get 100 million bucks coming in to support their growth. So based on the IPO, market value at one point hitting $14 billion, again, 5.2 million of revenue.
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Yes, exactly.
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Disconnect for this moment in time.
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So all these spinoffs after all of them, the remaining companies. So those are the three that are being spun off, is going to be Honeywell Technologies, and that will retain its hon ticker. That's the industrial automation business, but also it holds a 49% share in Quintinium. And so that's going to give investors exposure to that quantum computing as well through hon. So why break up the conglomerate? Honeywell says it's to allow each company to focus on purpose and incentives and to attract, quote, an investor base aligned with hona's distinct and compelling investment profile. Jim Currier, the CEO of Honeywell Aerospace Technologies is quoted as saying all of the distractions that occur as part of a conglomerate are eliminated.
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You know, before I go into another example of this in industrials world, I do want to demystify this, this sort of argument somewhat. We've seen this in food and we've seen this in beverages. So we've seen food companies break themselves up from fast growing snacks to some of the more shelf stable pantry items going into other businesses. And I think this point that different investors are looking for different attributes from these companies is one really to focus on. Particularly as I think about my own investing. Which one do I think is a continuum, right, which is growth and it's not necessarily generating cash, but it's trading at a multiple that's, you know, pretty high. You have to believe a growth thesis that's going to attract a different kind of investor or part of an investor's portfolio from someone who's looking at the aerospace and defense business saying I'm going to really focus on something with a high repeat recurring razor, razor blade model in an area that you know is somewhat stable. So very different sets of investors with eyes on this.
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And is it fair to say that in the past these conglomerates were sort of ahead, you had these different business parts and then you say, well if I invest in this big conglomerate, I have exposure to different things. But now with ETFs, you can already do that kind of investing where you're exposed to different companies.
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You get your diversification through the market rather than through the company. I think that's, I think that's a great point. I think there's also a sense that entrepreneurialism perhaps dissipate once these conglomerates get to a big size. Even if you get the synergy of a common finance function or of a common IT function, You know, is the organization running as quickly as it could when there's a some level ultimately at the top of decision making and perhaps consensus building that needs to be done across a very big scale? Well, GE is the counterpart to Honeywell that folks have pointed to. They've been sort of mentioned in the same breath as companies for decades. And GE has been doing something very similar. It spun off its health care business that became GE Healthcare in 2023. GE Venova, the energy arm, spun off in 2024. That one's actually been on a complete tear. That stock just given the anticipated demand from data centers for driving AI consumption. And that leaves GE Aerospace. So the old GE was worth roughly 90 to $100 billion in late 2022. That's before all the separation to JE Aerospace alone worth more than 320 billion. GE Venova alone worth $250 billion. GE Healthcare alone about 30. So as I'm trying to do this adding up on the fly, right, this is getting to about $600 billion six times six times that stand a mere four years ago. So it just goes to show that when this thesis of separating to create value works, the sum of the parts bigger than the whole is the the finance jargon for it. When it works, it really works. So, you know, I think this is not going to stop, John. I have a sneaking suspicion that conglomerates in whatever industry it's in are going to be taking a good hard look at themselves to see if there's ways to unlock value by separating. It's going to continue as a theme. Well, we'd love hearing from you all. And so if you have a question or feedback, please do on Spotify or YouTube or Apple or ever you listen to the show, we look at all of those comments, send us an email to. I still love Getting email@brewmarkets show morning brew.com that's Brew Markets show@morning brew.com. well, it's 4:00pm on the east Coast. There's the closing bell. The market's wrapping up for the day. We don't have a ticker tape but instead we'll throw it over as always to our human ticker. Our producer John.
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The S&P 500 finished the day up 410 of a percent. The NASDAQ finished down about a tenth of a percent. But the Dow jumped 875 points, up 1 and 710 of a percent for the day.
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Well, there is a lot going on, but today was a bit of a special one for us, for our team. Today we have our 200th episode dropping, so drop us a thumbs up or something, let us know that you got this far into the show. It's an exciting moment for us.
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Yeah, you know, the first hundred I was like, wow, I can't believe we got to 100 and now we're at 200. It happened so quickly.
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It was by it, whiz by, Whiz by. And 250, I think, is going to be the big number for us. But more on that later. That's it for today's Brew Markets Daily.
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Brew Markets Daily is hosted by Anne Barry and produced by John Crateau, Tarka Villatief Avenue, Laroya and Emily Millard. Our Tentacle director is Lonnie Fiskis, Jim Orzo is our audio engineer, and the president of Morning Brew Inc. Is Devin Emery.
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Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. See you back in tomorrow, same time, same place.