DPC Dash owns the Domino’s franchise for China. The company is growing its store count rapidly —32% — and is now in 20 cities. Results imply a long growth runway ahead.
6 stores now hold the top-6 positions within Domino’s global system in terms of the first 30-day sales
The average payback period of the 24 stores in these 6 new markets is expected to be all less than 12 months,
Nestle isn’t particularly worried about GLP-1 drugs. They have a low compliance rate and won’t affect most of Nestle’s products.
I think these weight loss drugs are good news for society and for people affected by these diseases. The impact on the industry might be a little bit less than maybe some believe given that the compliance rates is actually relatively low, for what we can see already from the usage of these drugs like we have a dropout rate which is close to 60 - 70%. Unfortunately, I would say, because these drugs are efficient and relatively affordable.
The other thing is that if it were going to impact the industry, Nestlé would probably be less impacted than others. It's not that we will be immune to it, but we are not that present in what is called the center of the plate because this is about reducing calorie intake, and we are not really very present in the business of calories.
If you look at our business, our main business is Coffee, not really involved. PetCare, not. Infant Nutrition, not concerned. Water, not either. Culinary, what we do is not really about calories. So where we are a little bit more exposed is certainly with Confectionery, which is a smaller category for us. And obviously, a bit in the U.S., with Frozen and Prepared meals. So we are probably less exposed than most of the industry, I would say.
Do you have a “stranded” 401k from a past job that is neglected and unmanaged? Eagle Point manages separately manage accounts for retail investors and these accounts are often an excellent fit for our long-term investment approach. If you would like to invest with Eagle Point Capital or connect with us, please email info@eaglepointcap.com.
Brookfield — September 12, 2023
The market is pessimistic about Brookfield’s real estate but the company remains optimistic. The key, according to Brookfield, is that is owns highly differentiated, irreplaceable trophy real estate with pricing power.
The other thing that we're seeing happen is those high-quality properties, they can really drive revenue in excess of inflation. So our U.S. full-service hotels increased their rates by about 18% over the last 12 months. Our U.S. multifamily properties increased rents by about 7% over the last 12 months.
The other thing we're seeing is -- in high inflation is flowing through to construction costs. So that's increasing replacement cost, it's making our existing holdings more valuable, but it's also setting up for
a really attractive future environment where we're going to have less supply to be competitive with this next fund vintage.
Combined, these factors are creating what Brookfield calls “arguably the best real estate transaction environment we've seen since the global financial crisis.”
Portillo’s — September 20, 2023
Portillo’s has a long growth runway ahead of it. Their estimated TAM has increased from 600 to 800 restaurants. They’re on restaurant 76 today.
We think 800 is our revised -- and we call this our minimum efficient market.
The focus of our growth, the low-hanging fruit because again, we're a restaurant 76 right now. So for the next several hundred, it's full-scale U.S. restaurants. That's what we're building. High revenue, high margin, fantastic returns.
Restaurants do serious volume and cash flow from day one.
When you look at Portillo's in total, $8.8 million AUVs, 23% restaurant- level margins, which includes all the noncomp, once they're in the comp base, and they've had a chance to mature were 27.5% margins.
The company expects to grow units 12-15% for about 20 years to hit its TAM. Growth will be funded internally.
We feel very comfortable with continuing to target 22% restaurant level margins
by year 3. And getting those build costs down currently gets us back to that 25% cash-on-cash return target that we feel comfortable.
Brunswick — September 22, 2023
Brunswick thinks its stock is cheap and stepping up buybacks.
Share repurchases where we continue to be more aggressive given our share price is trading at an unrepresentative low multiple despite our extremely favorable long-term outlook. Our 2027 plan includes an assumption of $150 million of repurchases each year. But as our track history has proven, it is very likely that we will exceed our annual target if valuation dislocation continues.
Note that we have repurchased [ $1.35 billion ] of shares in the last 4 years alone, representing 20% of the company's actual shares outstanding.
The company laid out plans for low double digit EPS growth through 2027.
We anticipate a 4-year revenue CAGR of mid- to high single-digits percent and an EPS CAGR of double- digit to low teens percent. Growth in each of our business units is responsible for more than 80% of the EPS growth throughout the plan with gains from modest share repurchases, net of increased debt costs, delivering the remainder $1 or so.
Two of the company’s segments have dominant market positions.
Mercury has the leading outboard market share in the U.S., approaching 50%. We also now have the leading share in Canada and the leading share in Europe and many other major markets. And if we're not #1, we're #2 and we have a plan to get to #1. So it's just a matter of time.
We are the leader, the biggest global distributor of marine parts and accessories. We enjoy about a 40% market share in the U.S. and high share in other markets as well.
Costco is seeing inflation slowing and turning to deflation in certain spots.
Most recently, in Q3 '23, we had estimated that year-over-year inflation was in the 3% to 4% range. Our estimate for Q4 was inflation in the 1% to 2% range, and it's actually trended downward during the quarter… that 1% to 2% is from the beginning to the end of the year -- I'm sorry, the beginning of the end of the quarter. But during the quarter, we saw that trending downward, if you will, a little.
And when I talk to the merchants, on the fresh side, it's flat to down a little right now on the food and sundries side. It's up a little, primarily on some of the CPG stuff.
And on big ticket -- or not big ticket, but on nonfoods, partly because of freight, which is down year-over-year in a nice way. And in some cases, some of the commodity costs on steel and the like, that's come down. So that being said, not a big change, but at least it's trending that way.
Few retailers are as excited as Costco to lower prices.
we're always pushing prices as fast as we can. We want to be the first to lower them when those things happen
Costco turns is gasoline inventory much quicker than the average gas station.
So it's still a profitable business. Our view has been, it used to be when prices -- given that we turn it so fast literally almost daily, when profits are going up -- and I'm sorry, when the price of gas is going up, the guy down the street who's turning it every 8 or 9 days is paying a little less 4 days ago. And so we make a little less and we -- when sales went down -- gallons -- the price per gallon went down, we made a little more. I think that equation, while it's still true, is not the driver of the bottom line of gas.
Everybody seems to be wanting to make more in gas, which allows us in our view to make it a little more and still be even more profitable. We've seen our competitive spread versus our direct competitors at every location on average improve over the last couple of years to now be in the, I want to say, the $0.30 range per gallon, mid-$0.30s is the average, which is up. It's an average and it can range from [ 10 to 45 ]. But at the end of the day, we feel good about our competitive position. It's increased and we're still quite profitable. Down a little bit from a year ago, but nonetheless, quite profitable.
Costco’s rank as the industry’s lowest-cost producer positions to handle inflation, dis-inflation, and deflation all from a position of strength.
at the end of the day, if there's a little disinflation, it will impact all of us. But again, I think it should be favorable with us because we'll show the -- we'll still show the best value out there.
American Express - October 20, 2023
American Express designs their products to attract premium card members.
The new Card Members we're bringing in 70% of those consumer Card Members are joining the franchise on a fee-paying product. That's a big statement to join the franchise.
The company is outperforming its peers in credit quality, which remains ahead of pre-pandemic levels. Card member spending remains strong.
Let's just talk about the U.S. consumer and International Consumer. It's still strong. We had 9% U.S. consumer spending, 6% growth on Goods & Services, 13% growth on T&E, and that continues to be very strong off a high base. And from an International perspective, we've seen 15% spending from an international card services perspective and strong both from a Goods & Services and a T&E perspective. And I think it's important that I'll remind everybody our card base is a really small piece of the overall U.S. economy. And one of the reasons we have such great credit metrics is we have a really high-quality Card Member.
RTX Corp (formerly Raytheon) — October 24, 2023
RTX announced a 9% buyback, double the amount of next year’s expected eaenings.
As we also announced this morning, our Board has approved a $10 billion accelerated share repurchase program, or ASR, which we will be initiating tomorrow. Simply put, we see a significant discount between the intrinsic value of RTX and our current stock price.
RTX timed the ASR to coincide with the resolution of their powder meatPratt & Whitney.
We had a fulsome discussion with the Board about the timing of the ASR.
And what convinced the management team and the Board that it was the right time is our confidence in the powder metal resolution and having bound the financial impact of that. We saw this as an opportune time to double down on the stock. And again, if you think about it, we bought $2.6 billion back year-to-date. This is another $10 billion at what I believe to be a significant discount to intrinsic value.
And this is the time to buy. And I think we're doubling down in terms of our confidence, confidence in the future of RTX but also confidence that we really do have our arms around the powder metal issue.
RCI Hospitality — October 26, 2023
Borrowing at 12% to buy back stock isn’t the widest margin of safety I’ve ever seen.
RCI Hospitality Holdings announced the modification of $15.7 million in debt due October 2024, extending maturities of the notes to free up more cash to buy back shares. This was the next large piece of debt set to mature for the company.
The amended promissory notes will continue to be unsecured at 12% interest, with $9.1 million due October 1, 2026, interest-only payable monthly, and $6.6 million due November 1, 2027, with monthly payments of interest and principal based on a 10-year amortization.
Eric Langan, President & CEO of RCI, said, “Using cash to buy back shares, considering their attractive free cash flow yield, continues to be highly favorable versus the after-tax interest rate on the debt.”
The lowest-income consumers are struggling the most.
We saw industry-wide that low-income consumer, which we would say is $45,000 and under, was negative [traffic] from an industry standpoint…
So I think we're just going to need to continue to keep a close eye on that $45,000 and under consumer because of the pressure that they're feeling there and make sure that we're offering value, but hopefully, the industry stays disciplined as well on pricing.
McDonald’s has increased prices 10% this year. The pace of its increases is slowing alongside inflation.
We continue to believe that our average pricing level in the U.S. business for the full year will be just over 10%… our average pricing level has started to come down in terms of the rate of increase.
California’s new $20 per hour minimum wage for fast food workers will be a short-term negative for franchisees. Long term, McDonald’s sees it as an opportunity.
This is an opportunity for us to gain share because this is an impact that's going to hit all of our competitors. We're in a better position. We believe we're in a better position than our competitors to weather this, and so let's use this as an opportunity to actually accelerate our growth in California.
Brookfield Infrastructure Partners - November 1, 2023
Management sees stronger prospective returns than at any point in many years.
the market backdrop has created a strong environment for capital deployment, with returns on new investments expected to be well in excess of our 12-15% target. Our 2023 deployment is expected to provide us with some of the best risk-adjusted returns we have seen in the last decade.
O’Reilly Automotive — October 31, 2023
The DIFM market remains extremely fragmented. O’Reilly’s distribution, scale, and cultural advantages should allow it to continue taking share for a long time.
We're roughly a $15 billion company, and I think our total addressable market, as we see it pretty conservatively, is in the $147 billion range. And so a lot's changed in my tenure with O'Reilly and in the industry. But one thing hasn't changed is the amount of market share that we have out there to take from competitors.
And as most everybody knows, the DIY side of our business with us and our larger competitors is fairly consolidated, but the DIFM side is extremely fragmented. I mean, we see our share of the DIFM side, even though that's how we founded our company, and we do a sizable almost half our revenue in DIFM, the DIFM side is incredibly fragmented.
And so we see opportunities to continue to consolidate the market, whether it be just taking share from some struggling competitors, smaller competitors, but also acquisition opportunities as well. But I still feel like we have a tremendous amount of opportunity going into the next many years.
O’Reilly’s competitive advantages allow it to confront uncertainty and volatility from a position of strength. It is an antifragile company.
There's certainly been the ability, I think, to capitalize on a lot of the volatility within the industry that came about during the pandemic.
It's pretty remarkable how the amount of parts stores in the U.S. really hasn't changed even over the decades, the ownership has. And I think, respectfully, I think that will continue to be the case. I think the stronger are going to survive and thrive and the weak will continue, especially on the independent side, to struggle. And I think the question that we had before on complexity, I think that plays in our favor as well.
Things that are disruptive is good for us. We're going to play from a position of strength. We're going to learn where we're going to work with our supplier partners and make sure we keep up with the things that are coming. And that's a little bit more of a challenge for some of the smaller players.
The non-discretionary nature of aftermarket auto parts is a big advantage for the industry. Aftermarket autoparts also create a lot of value by deferring an expensive new car purchase.
At this point, we really do think that even as a consumer in different sectors of retail might be a little bit more conservative or more pressured, we do have the benefit of being insulated from some degree of that, a significant degree, because of how nondiscretionary the products are that we sell. And because there is a value proposition for our customer to keep an existing vehicle well-maintained, repaired and on the road because of the cost of a new vehicle.
Brookfield Asset Management — November 6, 2023
BAM is well positioned to lend to real estate owners that will need to refinance in the next year or two.
Within commercial real estate, securitization markets remained slow, though issuance has started to pick up in September and October. Nevertheless, the vast pools of commercial real estate loans that are maturing over the next 12 to 24 months will face a thinner pool of capital available for refinancing. Real estate investors who lack deep relationships with large institutional investors will be looking for solutions.
BAM aims to return 90% of distributable earnings to shareholders, primarily has dividends. The company expects a sizable increase in 2024.
We believe that 2024 could be a step change year with respect to growth from an FRE and distributable earnings perspective. And so based on that, and you can deduce that the dividend growth for next year could be quite sizable. But -- and we'll get that all approved at our February Board meeting and announced it with our February results.
Davita’s business continues to normalize after a lengthy COVID-induced interruption.
Mortality continues to decline in 2023, in line with our expectations. Assuming these trends continue, we expect to return to positive volume growth in 2024 and beyond
Despite an initial dramatic reaction in the company’s stock price this fall, it does not appear GLP-1 drugs are likely to have a material impact on Davita’s economics over the next decade or more.
Simulating across these assumptions, the midpoint of our model reflects a neutral impact on 10-year dialysis growth rates with a small but immaterial impact on payer mix. We recognize this may not sound intuitive, which is why we must consider several misunderstood characteristics about kidney disease.
If we look at the approximately 16 million people in the U.S. today with CKD Stage 3 and beyond, over the next 10 years, approximately 75% will pass away, before reaching end-stage kidney disease. This compares to less than 10% of those individuals, who will ultimately progress to dialysis. Since major adverse cardiac events are the single largest cost of this mortality, the positive impact of reduced cardiac event has a much larger population to influence than the effect of timing from slower disease progression.
To better quantify the downside case on dialysis growth, we also model a scenario in which efficacy is found across all kidney endpoints in each of the flow and select trials, with 0 offsetting cardiac mortality benefits. This scenario, which to be clear, is not something we expect reflects a 0.5% annual growth headwind, over the same 10-year period based on our model. This would equate to approximately $25 million of operating income headwind per year
Management agrees the stock is undervalued, and will resume repurchases after returning to their target leverage range.
As a result, and after considering our typical set of capital allocation principles, including our view of intrinsic value, relative to current market price of our stock, we intend to resume purchasing shares this quarter
Do you have a “stranded” 401k from a past job that is neglected and unmanaged? Eagle Point manages separately manage accounts for retail investors and these accounts are often an excellent fit for our long-term investment approach. If you would like to invest with Eagle Point Capital or connect with us, please email info@eaglepointcap.com.
Disclosure: The author, Eagle Point Capital, or their affiliates may own the securities discussed. This blog is for informational purposes only. Nothing should be construed as investment advice. Please read our Terms and Conditions for further details.
This is great. Thanks!