Weekly Business Newsletter
Publication 4 - Microsoft Cuts Earnings, Unemployment Stays Low, and the Fed Signals Further Rate Increaes
Published Sunday, June 5th 2022
This week, Twitter Inc. stated that the 30-day waiting period for antitrust reviews by federal bodies passed, nonfarm payrolls grew while jobless claims remained low, and Fed Vice Chairwoman pledged support for further half-point rate hikes in the coming months.
Business
Antitrust Waiting Period of Elon Musk’s Proposed Acquisition of Twitter Inc. Passes
Twitter Inc. said Friday the window has closed for federal antitrust regulators to block Elon Musk’s proposed $44 billion acquisition of the social-media company, removing another barrier to the transaction.
Tesla and SpaceX CEO, Elon Musk
The company said the 30-day waiting period established under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which gives the Federal Trade Commission and Justice Department time to review a transaction for potential antitrust violations, expired for the deal Thursday night.
Mr. Musk’s proposed $54.20-a-share acquisition is still far from final, after the Tesla Inc. CEO said the deal was on hold last month until he could get a handle on the number of fake accounts operating on the platform. He added later that he remained committed to the acquisition.
Mr. Musk’s statements caused some analysts to believe the billionaire may be looking to renegotiate or scrap the deal in light of declines in Tesla’s stock price and a broader selloff of tech stocks. Twitter has said it is proceeding with the transaction.
Since Mr. Musk made his comments about pausing work on the deal, he has adjusted his financing plans for the transaction, indicating he is also proceeding with preparations for the deal to close. He committed more of his wealth to finance the purchase and signaled, in a regulatory filing, he is seeking additional financial backers amid a sharp decline in Tesla stock.
The deal still has to go to Twitter shareholders for a vote.
Microsoft Cuts Earnings Forecast
Microsoft Corp. cut sales and earnings estimates for this quarter, blaming the decreased forecast on foreign exchange rates, and the strengthening of the U.S dollar.
A strong dollar allows Americans to buy goods from other countries at lower prices, however, it can hurt U.S. manufacturers by making products more expensive for foreigners, which results in less purchases from abroad.
The software giant said in a securities filing on Thursday that it now expects fiscal fourth-quarter sales of between $51.94 billion and $52.74 billion, down from its prior guidance of $52.4 billion to $53.2 billion, with net earnings expected to be between $2.24 a share and $2.32 a share, down from prior guidance of $2.28 a share to $2.35 a share. The quarter ends June 30.
Economics
Unemployement Remains at Prepandemic Lows
New applications for unemployment benefits dropped last week, marking four months of historically low claims in a tight U.S. labor market. Initial jobless claims, a proxy for layoffs, fell to 200,000 last week from the previous week’s revised level of 211,000, the Labor Department said Thursday.
The weekly tally of new unemployment claims has remained near its lowest levels ever for months as employers hold on to workers and try to hire more, with the gap between job openings and unemployed workers seeking jobs remaining historically large. The four-week average for claims, which smooths out volatility in the weekly figures, dipped to 206,500 last week from 207,000 the previous week.
Thursday’s report showed continuing claims, a proxy for the total number of people receiving payments from state unemployment programs, decreased to 1.31 million the week ended May 21 from 1.35 million for the week ended May 14. They remain near the lowest level since 1969. Continuing claims are reported with a one-week lag.
There were a seasonally adjusted 11.4 million job openings in April, a decrease from an upwardly revised record 11.9 million openings the prior month, the Labor Department said Wednesday. The number of times workers quit their jobs fell slightly to 4.4 million. Both are signs the labor market remains unusually tight.
Meanwhile, hiring held steady, slightly decreasing to 6.6 million hires. Separations overall, which includes quits and layoffs, also fell to 6 million in April.
Demand for workers has exceeded the number of unemployed people looking for work for the past year. During that time, employers have added more than 400,000 jobs a month to U.S. payrolls and the unemployment rate has dropped 3.6%, slightly above its prepandemic level of 3.5% and close to a 50-year low. The hot jobs market is driving up wages at a historically high rate and contributing to the highest inflation in four decades.
Fed’s Lael Brainard Pushes For Further Rate Increases
Federal Reserve Vice Chairwoman Lael Brainard said she supported plans to raise interest rates by a half-percentage point at a meeting later this month and again in July and batted down speculation that the central bank would take a break from raising rates after that.
Federal Reserve Vice Chairwoman, Lael Brainard
“Right now, it’s very hard to see the case for a pause” in September, said Ms. Brainard in an interview Thursday on CNBC. “We’ve still got a lot of work to do to get inflation down to our 2% target.” Ms. Brainard also said it was premature to conclude that inflation had peaked.
With officials largely united on the need for half-point increases at the Fed’s June and July policy meetings, the debate has shifted to what should occur after that.
Ms. Brainard, who serves as an influential member of the Fed’s policy leadership team, said the next several months of data on price pressures and economic activity would be important in determining whether the Fed continued to raise rates in September by a half percentage point or by the more traditional quarter-point increment.
Separately, Cleveland Fed President Loretta Mester said Thursday the central bank could encounter greater financial market volatility and higher unemployment in its quest to push down inflation. “This will take fortitude. There will be bumps in the road,” she said in a speech. “This will be painful, but so is high inflation.”
Cleveland Fed President, Loretta Mester
“ We’ve still got a lot of work to do to get inflation down to our 2% target”
Investing
Analyst’s Report- XYZ (Exchange: Symbol)
By Ben Slye
Business Explanation
Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries owns and operates Chipotle Mexican Grill restaurants, which feature a relevant menu of burritos, burrito bowls (a burrito without the tortilla), quesadillas, tacos, and salads. Their first Chipotle restaurant opened in Denver, Colorado in 1993. As of December 31, 2021, they owned and operated 2,918 Chipotle restaurants throughout the United States, 44 international Chipotle restaurants, and four non-Chipotle restaurants.
By The Figures
(as at close, Friday, May 27th 2022)
Price: $1,375.06
Market Cap: $38.45 billion
P/E Ratio: 58.08
Dividend Yield: None
52-Week Range: $1230.91 - $1958.55
ROE: 30.2%
ROIC: 12.4%
10-Year Revenue CAGR: 12.8%
10-Year FCF CAGR: 12.5%
10-Year Equity CAGR: 8.2%
Management
Brian Niccol has served as Chief Executive Officer of Chipotle and a director since March 5, 2018 and in the additional role as Chairman of the Board since March 3, 2020. From January 2015 to February 2018 Mr. Niccol served as Chief Executive Officer of Taco Bell, a division of Yum! Brands, Inc., a global restaurant company. He joined Taco Bell in 2011 as Chief Marketing and Innovation Officer and served as President from 2013 to 2014.
John R. Hartung, 63, has served as Chief Financial Officer since 2002. In addition to having responsibility for all of Chipotle’s financial and reporting functions, Mr. Hartung also oversees supply chain, real estate and development and Chipotle’s European operations. He joined Chipotle after spending 18 years at McDonald’s Corp., a quick serve restaurant company, where he held a variety of management positions, most recently as Vice President and Chief Financial Officer of its Partner Brands Group.
Mr. Hartung has a Bachelor of Science degree in accounting and economics as well as an MBA from Illinois State University.
Under their management, Chipotle has grown it’s revenue at a compounded annual rate of 12.8% over the last 10 years. The company has also seen it’s equity and cash pile figures more than double over the same period, while also consistently growing it’s working capital.
Chipotle way too expensive right now, Not worth it in my opinion. Good returns on equity and decent growth rates but dont justify a p/e over 50
Im not a fan of the low unemployment... its only feeding into inflation