Birkenstock Goes Public

Birkenstock Goes Public

In this issue of the Peel:

  • Like when the group chat gets leaked, everyone’s attention on Wednesday turned to the release of the latest Fed Minutes.
  • Plug Power and Adobe had a ripe day, while DaVita and Exxon Mobil experienced a share price decline.
  • We now have our latest entrant into the public markets: Birkenstock, who listed at an offering price of $46/sh but traded closer to $41/sh for the day.

Market Snapshot

Happy Thursday, apes.

Try not to get too excited, but yes, we did just have our 4th day in a row with a positive move for stocks. We understand that might make us all want to throw even more absurd bets on the table, but maybe save those for the Chiefs-Broncos matchup tonight.

But, if you had bet on equities going up already, congratulations on the payout. The Nasdaq’s modest 0.71% gain led the way, while the Russell 2k was the only major index down on the day. Large and mega-cap names led the way higher, with a big uptick from some key tech and healthcare names. That said, breadth was less present than in the past few green days, but we know when not to complain.

And, of course, assisting in that gain for stocks was declining yields for long-dated treasuries. The 10-year closed the U.S. day session closer to 4.55% when the note had opened around 4.65%. The 2-year moved in the opposite direction, gaining back over 5.0% and inverting that damn yield curve even more.

Let’s get into it.

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Banana Bits

  • Inflation is proving to have the longest hot streak since Jeremy Lin during Linsanity back in 2012, with wholesale prices outpacing expectations once again.

Macro Monkey Says

Give Us a Minute

Like when the group chat gets leaked, everyone’s attention on Wednesday turned to the release of the latest Fed Minutes. Only for the FOMC, their group chat wouldn’t get them put on the No-Fly list, as I’m sure yours would.

The Fed Minutes, for those who may be unaware, is a detailed record of what was actually considered during the last FOMC meeting, released a few weeks after the fact. It’s kind of like if you took screenshots of your own group chat and read through them a month or so later. It’s the Fed’s version of saying, “I got the receipts.”

Now, to Wall Street, it’s less of an X-ray into the social dynamics of the FOMC participants and much more of a theorized policy roadmap. Although the plans made in your own group chat will never actually come through, for the FOMC, they might actually get it done.

"... it’s less of an X-ray into the social dynamics ... and much more of a theorized policy roadmap."

And at least as it related to the September meeting’s minutes, the only plan made seems to be to simply keep doing and saying the same things over and over… and over again.

Nothing new here, but some key takeaways include:

  • Fed policy will remain restrictive until the Fed is confident inflation is on its way back down toward the 2% target.
  • Most FOMC participants foresaw that “one more increase in the target federal funds rate at a future meeting would likely be appropriate.”
  • Most members still see the primary upside risk to inflation and downside risk to growth and employment.
  • The FOMC is aware of consumer’s increased reliance on credit to maintain their spending levels.

If any of that is shocking, either you haven’t been paying attention, or I need to be fired.

Regardless, it’s the same old story and likely the reason stocks didn’t have a major reaction following the report. If anything, the mild turn higher seen post the 2 pm release tells us markets had been expecting a more downbad outlook. Perhaps the simple fact that the Fed is unsure of whether or not another rate hike is in store before 2024 (no rhyming intended) was enough to give the green light for shares to move higher.

While opinions diverged on the above, the one piece of the report that seemed to garner any kind of agreement was the need to keep policy restrictive for longer.

"... that means the Fed has no plans to slow the balance sheet reduction ..."

In addition to holding rates at levels not seen in over a decade, that means the Fed has no plans to slow the balance sheet reduction that has been going on as well, which in turn drives bond yields higher as well.

As we talked about yesterday, higher bond yields might be great for your grandparent’s IRA, but it’s not ideal if you wanna see your portfolio green every day.

But, as most of you—like me—are younger investors, maybe lower returns in the short to intermediate term could be beneficial in the long run. We’ll get the chance to buy stocks outside of the longest bull market ever seen that occurred over the last decade and have 20-40 years left on our time horizons for those buys to compound and make us all the next Warren Buffett.

Maybe down ain’t always bad. Shut up and buy.

What's Ripe

Plug Power (PLUG) ↑ 5.31% ↑

  • Driving around with a hydrogen bomb in my car has long been a dream of mine, as I’m sure is the case for everyone, but it was definitely true on Wednesday.
  • And that was on full display with Plug Power’s spike on the day, thanks to updated sales guidance. The hydrogen producer, right before its more formal “Hydrogen Symposium” conference, updated investors in saying they expect sales to reach $6bn by 2027, a solid step up from the $5.5bn priors.
  • Selling the most abundant element in the entire damn universe might seem… uhh, stupid? But, with plans to sell their hydrogen-converting technology and hydrogen-powered long haul trucks, maybe they’re onto something.

Adobe (ADBE) ↑ 3.23% ↑

  • Moving from one hype train (clean energy) to another, Adobe is the latest big tech player to announce a foray into—you guessed it—AI.
  • On Wednesday, Adobe announced updates to its generative AI tools meant to essentially be a ChatGPT for images. Even without a shred of updated financial guidance, analysts were quick to spread the hype into the firm’s share price.
  • Now, the impact from AI for the rest of this year is expected to be “modest,” but plans to soon start charging for its Firefly software should carry most of its impact in 2024 and 2025… and who tf knows what the AI picture (no pun intended) could look like then.
  • Being a big tech name, AI tools are set to have the most direct impact on companies like this, bringing the ability to dramatically expand revenue through the release of new services while also reducing costs thanks to the efficiency of the technology. Once again, it’s a win for double-whammies.

What's Rotten

DaVita (DVA) ↓ 16.86% ↓

  • Kidney dialysis is no fun for anyone… except DaVita, who happened to make nearly $12bn in the industry alone last year.
  • Studies out of Novo Nordisk demonstrated that its blockbuster diabetes/obesity drug Ozempic could potentially also be used to help patients who otherwise would’ve gone to DaVita, which dumped an ice-cold bucket of worry onto shareholders of the latter.
  • Novo Nordisk, on the other hand, was loving it. Shares rose 6.27% thanks to the same news, confirming that one stock’s trash is another’s absolute gold mine.

Exxon Mobil (XOM) ↓ 3.59% ↓

  • Along with IPOs (as you’ll see below), mega deals are back in vogue. Exhibit A this month is none other than Exxon Mobil and Pioneer Natural Resources.
  • As recently and briefly discussed, Exxon is buying the smaller (but still huge) hydrocarbon exploration and production name for a cool $60bn in equity.
  • Shareholders of Pioneer will receive 2.3234 Exxon certificates for each share of Pioneer they already hold. Naturally, Exxon’s shares fell, as with most deals of this size and nature, due to concerns over dilution.
  • But, as with most deals of this nature, the most cringe-inducing word in the history of business—synergy—is the basis of the idea. The combined company will have a nearly unmatched presence in the U.S.’s most productive hydrocarbon region, the Permian Basin. And even if it doesn’t work out, at least megadeals are cool again.

Data Peel

Thought Banana

Birken-equity

The IPO market continues to get even hotter, and traders aren’t exactly sure what to do about it… kind of like climate change.

However, instead of taking thousands of years and a whole lot of CO2 to go from the ice age to melting ice caps, it took not even 2-years for IPOs to become cool again.

And that trend was even more solidified yesterday. Just weeks after the captivating and revealing IPOs of Cava, Arm, Instacart (aka “Maplebear”), Klavyio, and others, we now have our latest entrant into the public markets game: Birkenstock.

Founded before the Declaration of Independence was written in 1774, Birkenstocks have been around since before we knew dinosaurs existed.

"... we now have our latest entrant into the public markets game ..."

Now, you can trade the German shoe manufacturer known for legendary sandals right from your iPhone. Guess Bob Dylan was onto something, and times really are a-changin’.

Shares were listed at an offering price of $46/sh, but no one was having it, with shares first trading closer to $41/sh. Unlike the other newcomers to public markets above, Birkenstock didn’t get the debut rise followed by a gradual downtrend in the days and weeks after—they just went right for the downtrend.

Bold strategy cotton, and one that insiders can’t be happy about. Getting to offload shares at a $46 price tag all but guaranteed profitability for most private market buyers. But without cost basis data, we can’t say how the $5 spread between the original and actual traded price impacted their portfolios.

"... the recent uptick in going-public activity is here to stay ..."

Still, that $41 mark gives the firm a $7.7bn valuation, not at all a bad return for PE shop L Catterton, who acquired most of the firm back in 2021.

Plus, $7.7bn is still roughly in line with the market caps of rivals Steve Madden, Crocs, and Allbirds… combined.

Not achieving their targeted $46/sh—or $8.6bn valuation—could suggest more trepidation when it comes to buying appetite for new listings. But, the simple fact that the firm IPOd suggests that the recent uptick in going-public activity is here to stay, even if less certain.

Firms are getting more comfortable with the restrictive position the Fed has put them in, and even if it won’t be perfect, going public is still the primary goal for a lot of startups, even if they are 249 years old.

The big question: Are you buying Birkenstock shares? What about their shoes? How should investors view a traditional shoe manufacturer amid DTC competitors like Allbirds and others?

Banana Brain Teaser

Yesterday —

I have no voice, yet I speak to you; I tell of all the things in the world that people do. I have leaves, but I am not a tree. I have a spine and hinges, but I am not a man or a door; I have told you all; I cannot tell you more.

What am I?

Answer

A book

Today —

Three years ago, Mad Ade was three years more than three times older than his son (Mad Ade junior). Now, Mad Ade is ten years more than twice his son's age.

How old is Mad Ade?

Shoot us your guesses at [email protected] with the subject line “Banana Brain Teaser.”

Wise Investor Says

“With very few exceptions, when you go public, you're selling a large chunk of the company at what's likely to be a low point in your valuation.” — Ben Horowitz

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team

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