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Exxon Mobil (XOM) will pay $59.5 billion in stock. (0:15) Debut of Las Vegas mega resort nears. (3:56) Packaging makers could take a hit from weight-loss drugs. (4:53)
This is an abridged transcript of the podcast.
Our top story so far
Exxon Mobil (XOM) agreed to acquire Pioneer Natural Resources (PXD) for $59.5 billion in stocks. Exxon is paying $253/share, based on its closing price on October 5.
The offer represents an 18% premium to Pioneer’s closing price on October 5 and a 9% premium to its prior 30-day volume-weighted average price.
Under the deal terms, Pioneer shareholders will receive 2.3234 Exxon shares for each Pioneer share.
The implied total enterprise value of the transaction, including net debt, is about $64.5 billion.
Exxon said its Permian Basin production volume would more than double to 1.3 million barrels of oil equivalent per day as a result of the deal, which it expects will increase to about 2 million in 2027. The company expects a cost of supply of less than $35 per barrel from Pioneer’s (PXD) assets.
In today’s trading
Stocks are up slightly as bulls go for a fourth straight session higher. But the major indexes are up less than +0.5%.
Rates are lower. ING declared that the bear bond bubble has burst with little appetite to push the 10-year Treasury yields (US10Y) back close to 5%.
The 10-year is below 4.60% but well off lows following a hotter-than-expected September producer price index report.
The PPI rate of increase in September slowed from the prior month but was still stronger than expected. September PPI rose +0.5%, compared with the +0.3% consensus and +0.7% prior.
On a Y/Y basis, the index picked up steam, rising +2.2%,the largest increase since April. That measure compared with +1.7% expected and +2.0% prior (revised from +1.6%). Core PPI increased +0.3% vs. +0.2% expected and +0.2% prior.
Liz Young, head of investment strategy at SoFi, says, “While energy was responsible for over a third of the uptick, services were pretty hot as well. This is leading to worries that tomorrow’s CPI report might be just as hot.”
Pantheon Macro’s Ian Shepherdson highlighted in the core gain that there was “a +7.0% annualized jump in the trade services component, which measures gross wholesale and retail margins, driven by an astonishing 71% annualized leap” in margins for retailers of hardware and building materials.
He says, “To be clear, PPI margins are wildly volatile, but four straight m/m increases averaging 4.8% just looks implausible.”
Among active stocks
Walt Disney (DIS) announced it would raise ticket prices at Disneyland in California and Walt Disney World in Florida. Disney said it will raise the price of a single-day admission to Disneyland for the most popular days by roughly 9%. Prices for tickets on high-demand days go up to $194 from $179. A two-day ticket goes for $310, up from $285. Multi-day passes are also increasing in price, while other tiers are seeing price increases between 3.9% and 8.9%.
J.P. Morgan upgraded CSX (CSX) to overweight from neutral. The firm sees CSX as a sector standout, with the overall expectation being that commentary on Q3 earnings calls will follow a similar tone as Q2, with management characterizing the market to be generally bouncing off the bottom but staying weaker for longer than originally expected.
HP (HPQ) outlined several financial updates and raised its dividend at its investor day, while Wall Street analysts noted that the company’s plans to return capital to shareholders are “key” for its investor base. Wells Fargo analyst Aaron Rakers said the company’s implied decision to start buying back stock again is an “incremental positive.” But that is likely offset, given that Berkshire Hathaway (BRK.A) (BRK.B) has sold roughly 23.1 million shares since September and still owns roughly 97.9 million shares.
In other news of note
The long-awaited Fontainebleau Las Vegas luxury hotel is set to open on December 13. The 67-story property is in its final stages of construction and will still need to land regulatory approvals from the Gaming Control Board before its official opening.
The huge $3.7 billion project on the north end of the Las Vegas Strip was first announced in 2005 but was disrupted by the economic collapse in 2008–2009, and the original owners declared bankruptcy. The property was then reacquired by Fontainebleau Miami Beach owner Fontainebleau Development, and Koch Real Estate Investments took over the project in early 2021.
The Fontainebleau Las Vegas will feature a six-acre elevated pool deck, which will be home to a variety of amenities, including seven pool experiences, five bars, two restaurants, and an over 2,000-square-foot gaming area. The hotel’s 150,000 square feet of gaming space will be outfitted with 1,300 slot machines and 128 table games.
Looking at materials, concerns over the impact of weight loss drugs on bottom lines aren’t limited to restaurants and food companies. Businesses involved in food and beverage containers and packaging could also get hit, according to Citi.
Citi cut prices on North American container and package companies that have heavy exposure to food and beverages, given the potential impact weight-loss drugs could have on eating habits.
Analyst Anthony Pettinari says that given the potential market for weight loss drugs, “further adoption of the GLP-1 drugs could be an existential problem for (consumer packaged goods)-exposed packagers.”
If food and beverage volume takes even a 1%–2% hit from the drug class, “it might represent half or more of packagers’ trend (volume) growth.”
And moving from the Wall Street Research corner to the corner of Threadneedle Street
The Bank of England flashed a warning about stretched valuations in global securities.
In the summary of the BOE Financial Policy Committee meeting, they specifically pointed to U.S. dollar-denominated corporate bonds and U.S. technology equities.
The FPC meets to identify risks to financial stability and agree on policy to shore up the UK financial system.
“Given the impact of higher interest rates and uncertainties associated with inflation and growth, some risky asset valuations appear stretched,” the FPC said. “Stretched risky asset valuations increase the likelihood of a greater correction in prices if downside risks to growth materialize.”
“This would have a direct impact on the cost and availability of finance for corporates globally and would affect riskier borrowers in particular.”
They note: “The risk premia on many advanced economy risky assets were around or above the middle of their historical distributions, although credit spreads for US dollar-denominated high-yield (HYG) (JNK) and investment grade bonds were more compressed than their Euro or Sterling equivalents.”
“And some measures of US equity risk premia remained well within the lower quartile of their historical distribution, driven primarily by the continued strength in the US tech sector.”
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