Healthcare Earnings Are Down

In this issue of the Peel:

• ?? Let’s take a vibe check—how has everyone been feeling lately?
• ?? ZipRecruiter’s stock is down since it seems that no one's getting jobs.
• ?? It’s a bad time to be invested in healthcare as latest earnings were sh*t.

Market Snapshot ??

Banana Bits ??

• What’s the opposite of “the gift that keeps on giving?” Oh yeah, inflation
• A check-in on Argentina after electing controversial leader Javier Milei
• It’s a stock picker’s market as small-cap names are trading at historic lows to large-caps
• Mother’s Day brought an unexpected gift this weekend—an uptick in Coronal Mass Ejections and geothermal storms, leading to the Northern lights being spotted as far South as Delaware (more like Dela-where?)

Elon Musk Would (Probably) Use This

Want to go from Ape to Analyst - or even Astronaut - as fast as possible? Optimize your learning with Brilliant, the customized learning program designed with a first-principles perspective so efficient that even Elon Musk would (probably) say “Cool.”

Learn Effectively:

• Dive into lessons crafted by experts with more brainpower than a SpaceX rocket
• Electrify your brain with unique learning strategies proven to be 6x more effective than boring yourself with video lectures

Get Smarter Every Day:

• Replace the brain-rot of doom-scrolling on X with bite-sized lessons that actually make you feel good
• Prove to your friends and fellow apes that you’re smarter by racking up the longest Streak or winning your League

Choose Your Adventure:

• Learn anything from AI to black holes to colonizing Mars with the power to navigate to your own, personal destination
• Skip the brain-chip implant and level up to AI’s aptitude ASAP by learning math, science, or teaching yourself to program, just like Mr. Musk

Launch your brain into the atmosphere of excellence with Brilliant. You’ll join millions, but only you wise ape readers of The Daily Peel are getting 20% off your annual subscription. What are you waiting for?? Take off to Brilliance now!

Disclaimer: We obviously never actually spoke to Elon about Brilliant. As far as we know, he's still missing out and has no affiliation with the company.

Macro Monkey Says ??

Mackerel On Macroeconomics

There’s a common saying—mostly applied in the borderline-torturous segment of society that is modern dating—that goes “Don’t ask a fish for advice on how to catch fish, ask a fisherman.”

Forecasting economic developments 1, 3, and 5 years out is slightly more challenging than getting a large-mouth bass to think your worm is real, but f*ck it, let’s ask the bass for its 2025 inflation estimate.?

That’s essentially what the University of Michigan does every time it runs its Survey of Consumers. But the difference here is that, unlike fishing, the participants in this survey actually have the ability to change its outcome simply by existing.

So, let’s find out what they expect.

The Numbers

On Friday, the University of Michigan released its latest findings from the May 2024 Survey of Consumers, indicating that we’re in desperate need of the Ozempic of anxiety.

Whether it be the uptick in inflation seen recently, a slowing labor market, or Spotify raising their subscription prices, consumers’ macro outlook dove in May.

That marks back-to-back declines in sentiment in the last two survey periods, but the decline in May—with sentiment falling a not-so-nice 12.69% is the steepest drop since June 2022, when sentiment fell 14.38%.

Annually, sentiment still rose 14.2%, but that’s more due to how downbad we were back in May of last year.?

May’s decline was almost equally attributable to worsening consumer views on “Current Economic Conditions” and “Consumer Expectations,” the two primary components of the survey.

The vibe for Current Conditions fell 12.91%, with Expectations falling 12.50% alongside it. Based on the preliminary numbers, it seems that most of the data’s depression stems from a slowing hiring market.

Source

UMich specifically highlighted the above as the featured dataset of May’s report, which indicates that the jump in the monthly Expected Change in Unemployment over the next year reached its highest level since early 2011.

That’s despite the U.S. economy adding 175k jobs in April, while wages continued to outpace inflation. Umpires know all too well that “you can’t please everyone,” but it’s especially concerning when consumer data is worse than Angel Hernandez’s calls.

Inflation expectations were f*cked, too, rising almost across the board. But we’ll cut consumers some slack here as recent CPI and PCE data give them reason to worry.

1-year inflation expectations rose from 3.2% in April to 3.5% in May, a 9.37% increase. However, 3.5% is precisely in line with the long-term average U.S. inflation rate since 1990, going by CPI.

Longer term, the data was slightly better, with 5-year inflation expectations rising to 3.1% from the 3.0% expected as of last month.

This data series tends to be much less volatile, remaining in the narrow band of 2.9%-3.1% since July of 2021 with only 4 monthly exceptions.

Source

The Takeaway?

Maybe it’s the election year heating up, maybe it was the geomagnetic storm that hit over the weekend, or maybe it was just the country collectively realizing that Boston’s bound to walk away with another championship this year, but consumers are nervous.

Uncertainty among consumers could be a derivative of the Fed’s own uncertainty as well.

If the Chair of the Federal Reserve doesn’t know what kind of tends to anticipate among interest rates, inflation, and unemployment—especially after sounding confident just 5 months ago with the December “dovish pivot,” no wonder consumers are worried.

It would probably be a lot more concerning if consumers were ignoring recent changes in data and narrative, so at least we know that some of us are at least slightly paying attention.

Source?

Realistically, as long as consumers continue to not let their thoughts, feelings, and expectations impact their spending habits, we can quote the winner of America’s latest rap battle and say, “We gon’ be alright.”

What's Ripe ??

Novavax (NVAX) ??98.7%

• The American dream is alive and well, thanks to a French company. Novavax went from broke to billions on Friday on the news of a big deal with Sanofi.
• The two healthcare firms came to an arrangement allowing Sanofi to “co-commercialize” Novavax’s Matrix-M proprietary vax technology.
• Novavax will get $500mn now and up to $700mn for certain milestones. They’ll also receive up to $200mn+ royalties on Sanofi sales of their C-19 vax.

SoundHound AI (SOUN) ??7.2%

• AI hype is still hyping, as we can see with SoundHound. But this pop actually has a reason behind it. The voice and audio analytics firm crushed it in Q1.
• Stellantis and a few fine dining establishments like Applebee’s and Church’s Chicken helped drive 73% YoY sales growth in Q1, beating estimates.
• The growth in customer base also helped SoundHound boost the midpoint of their full-year revenue estimate all the way from $70mn to $71mn.

What's Rotten ??

ZipRecruiter (ZIP) ??11.3%

• It’s not just you suffering from a slowing labor market. ZipRecruiter, a large hiring platform and an all-time great of email spam, had a tough Q1.
• Although they beat on revenue, ZipRecruiter’s losses came in slightly wider than expected at $0.07/sh vs the $0.05/sh loss expected.
• More importantly, the firm noted “potential signs of stabilization in employer demand,” which is (hopefully) music to JPow and the CPI’s ears.

Unity Software (U) ??10.2%

• Losing in video games is one thing, but “losing in video games” is a new level of frustration. It’s a bad day to be a keyboard as Unity falls on earnings.
• The video game maker missed on Q1 EPS estimates, reporting a loss of $0.75/sh vs $0.67/sh. Sales fell 8% YoY to $460mn but still beat.
• EBITDA and revenue guidance for Q2 came up short as well, with the consensus expectation higher than the high end of Unity’s forecast.

Thought Banana ??

Vibe Killers

Whether a routine doctor’s appointment, a surgery, or a frenzied ambulance ride to pump the stomach of some freshman with overprotective parents, any experience with the U.S. healthcare system is always a major vibe killer.

Especially when you look at your wallet and the egregious cost of, I don’t know, staying alive.

But right now, the S&P 500 is starting to understand the plight of most Americans with healthcare causing financial ruin… specifically, ruining Q2 earnings growth.

What Happened?

First, they took my dignity by making me wear one of those open-*ss dresses, then they took my money by charging me approximately one right arm for the appointment, and then they really crossed the line by taking my gains.

Source

According to Factset data, 3 companies are responsible for nearly halving the annual growth of the index’s earnings this quarter. Specifically, Bristol-Myers Squibb, Gilead, and Pfizer can catch these hands.

The earnings misses reported by these firms became even more pathetic after realizing that, without those 3 firms, the S&P’s aggregate earnings would have grown 9.7% so far in Q1.

But, because we can’t kick out these firms as easily as that bouncer kicked you out of the bar this weekend, we’ll have to settle for the total, composite index growth of 5.4% so far.

Don’t get me wrong—5.4% growth still ain’t bad at all. In fact, according to Factset, if we do get a total blended Q1 earnings growth rate of 5.4%, this will be the fastest growth in 2-years.

Diving into the data more, Factset says that even if we excluded just one of the above firms—Bristol-Myers Squibb—Q1 earnings szn would’ve hit 8.3% annual growth.

Source?

Because I know we’re all dying to know (no pun intended), the Big 3 of Q1 Earnings F*ckery reported:

• BMY—Loss of $(4.40)/sh vs expectations for EPS of $2.05/sh
• GILD—Loss of $(1.32)/sh vs expectations for EPS of $1.37/sh
• PFE—EPS of $0.82/sh vs expectations for EPS of $1.23/sh

In aggregate, the healthcare sector has reported earnings growth so far of -25.44%, ironically the same decline in my net worth after my last emergency room visit.?

The Takeaway?

Just like how there’s always that angry/sad guy at the party while everyone else is vibing, individual sectors can experience downturns while the overall economy is still thriving.?

Further, this speaks to the magnitude of control over index-wide outcomes some of the most dominant sectors hold. Healthcare is the second-largest sector in the S&P, about half the weighting of the #1, Technology.

But can we imagine how Hindenburg-disaster-like markets would look if that #1 sector was experiencing the same trend? Obviously, this is like comparing apples to quadruple bypass surgery, but still… it could be a lot worse.

?? The Big Question ??: What will the final annual growth figure of Q2 earnings be? How will the market respond throughout the rest of Q1 earnings szn? Can we expect the same in Q2?

Banana Brain Teaser ??

Previous ??

A doctor prescribed 18 cubic centimeters of a certain drug to a patient whose body weight was 120 pounds. If the typical dosage is 2 cubic centimeters per 15 pounds of body weight, by what percent was the prescribed dosage greater than the typical dosage?

Answer: 12.5%

Today ??

Three-fourths of the area of a rectangular lawn 30 feet wide by 40 feet long is to be enclosed by a rectangular fence. If the enclosure has full width and reduced length rather than full length and reduced width, how much less fence will be needed?

Send your guesses to [email protected]

Wise Investor Says ??

“The great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you.” — Charlie Munger

How Would You Rate Today's Peel??

??All the bananas? ? ? ? ? ? ? ? ? ? ? ? ???Meh? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??Rotten AF

Happy Investing,

David, Vyom, Jasper & Patrick