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Wolfe Research Healthcare Technology & Distribution Analyst, Steve Baxter, hosted a webcast to discuss why he estimates $20B, impact on target price and estimates (given less capital deployment), thoughts on what is priced in and valuation, and recent opioid newsflow and developments.
We believe good labor relations don’t directly contribute to an airline’s financial success, but poor labor relations impede it. One of the many benefits of high oil prices is it adds to our “common enemy” theory, where airlines and unions are at their most collaborative when outside negative forces create a challenging business environment for airlines, like OPEC did from 2007-14. The growth in U.S. shale five years ago had as much to do with the deterioration in airline-labor relations as anything else did, as we see it. A pop in short term profits right around the time labor contracts became amendable resulted in the labor “giveback” feared by many anti-airline investors. That said, good labor relations are a net positive for airlines in the long run. And good labor relations aren’t cheap.
The disposal of the BHGE stake is good news and we think marks the start of a period where we see more tangible and identifiably positive catalysts such as Power growth/margin inflection, FCF momentum and more aggressive B/S de-levering actions…and perhaps the re-entry of the MAX. Risk/reward remains extremely positive vs. $14 YE19 target price.
This week's rotation towards value beta caught many of us offside. We still think it is too early for this trade to truly work, and certainly management outlooks at recent conferences have been anything but confident. With that said, we emerge with increased conviction in our OP UTX and UP LII calls.
California’s AB5 bill implements a more difficult “test” to justify classifying workers as contractors. But keep in mind that drivers would need to argue in court / arbitration that Lyft / Uber does not pass the “test”. This could take a long time to play out. In the meantime, discussions are ongoing to maintain contractor status for drivers but provide higher minimum earnings levels and some benefits. We see this as the most likely outcome.
In August, the Trump Administration announced a final rule that will now include Medicaid status as a determinant of whether an alien applying for admission or adjustment of status (to Lawful Permanent Resident) is financially dependent on the government for subsistence and should be inadmissible to the U.S. Simply put being on Medicaid will become a factor in citizenship decisions, likely discouraging some current non-lawful permanent resident Medicaid enrollees from continuing their enrollment. We note that this does not apply to individuals who already obtained a lawful permanent resident status (green card holders), but only impacts “aliens seeking to adjust their status to that of lawful permanent residents from within the United States, and aliens within the United States who hold a nonimmigrant visa and seek to extend their stay in the same nonimmigrant classification or to change their status to a different nonimmigrant classification.”
Earlier this week, we hosted meetings with UPS mgmt. at their headquarters in Atlanta. Our sense is that momentum in 2Q has continued in 3Q as UPS continues to benefit from a surge in Next Day Air volumes. As a result, we’re raising our 3Q volume and margin expectations and our 3Q EPS estimate is 2% above Cons.