BRAND NEW EPISODE: FIRST INTERVIEW WITH NEW BAYTEX CEO
Global investors spent years writing off Canadian energy. Now, one of the sector’s most embattled companies is trying to prove them wrong. On this episode of In the Money with Amber Kanwar, Amber sits down with Chad Lundberg, President & CEO of Baytex Energy, for his first interview since taking the helm.
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The kids have career day at camp today. This means they have to dress up as what they want to be when they grow up. Nevermind they told us yesterday at pickup in the 38 degree heat. This morning I am proud to present the future: hip-hop girl, zombie cheerleader, and basketball player/pilot ready to take on another hot soup of a day.
Spotlight: Markets are higher this morning as earnings take centre stage while the US/Iran turmoil continues to be relegated to background noise. The market got a jolt yesterday after headline inflation came in softer than expected and rate expectations were pared back. Once again, ignoring that inflation has seemingly re-accelerated with oil prices advancing to a one-month high. Producer price inflation just dropped this morning and like CPI yesterday – it also came in softer. Leading to a rally in the bond market on the back of reduced odds of a rate hike (though a rate hike is still priced in for some point this year). Speaking of which, the Bank of Canada will make a rate decision today at 9:45amET. They are widely expected to keep rates on hold for a sixth meeting in a row.
Faith: ASML is reviving the AI trade and breathing new life into semiconductors after sales and profit topped expectations and it increased its sales forecast for the second time this year. The maker of semiconductor-making equipment (got that?) is seeing shares pop 3% in the pre-market – which isn’t that impressive when you consider they said sales will clock in at 43 billion euros vs the street at 39 billion euros. But is welcome after the decimation caused by IBM yesterday and the lukewarm reception from Samsung results last week. One thing to keep an eye on is that the company plans to start producing more chip-making machines to keep up with demand – expanding capacity by 39% this year and 30% next year. This is typically how boom’s go bust – undersupplied markets prompt increase in capacity and lead to oversupplied markets. But ASML has many long-term agreements that underpin this expansion. “The big picture, in our view, is that demand is so strong that ASML are willing to provide the market with clear, bottoms-up guidance two years out,” analysts at Citi said. Aehr Test Systems is surging 30% right now in a compliment to the AI trade this morning – the semiconductor manufacturer and maker of memory chip testing gave the greenlight for growth. It now sees 2027 sales increasing 160-200% compared to analyst projections of just 70%.
Money bags: Morgan Stanley is getting a tepid response to strong earnings aided by higher revenue and good cost controls. Like peers, Morgan Stanley benefitted from explosive equity trading growth (+69%) and higher investment banking revenue (+58%). The results are stellar but many of the bright spots were well telegraphed with yesterday’s earnings parade from the likes of JPMorgan and Goldman Sachs. Meanwhile, BlackRock is pumping 4% as assets under management soared to $15.3 trillion and earnings beat expectations. BlackRock has been under pressure and Evercore says this was a game-changing quarter. “This should be the quarter where the BlackRock disconnect (assets & flows up, but stock down) finally gives way,” wrote Evercore’s Glenn Schorr. “We see 2Q as a strong quarter with almost everything going right including $199bn in LT flows, AUM up 22% to a record $15.3 trillion, revenue up 31% powered by 8% organic base fee growth and 13% growth in technology services & subscription revenue.”
Deal flow: Shares of PayPal are surging 20% on reports that Stripe and private equity firm Advent International have put in a $53 billion offer to take the company private. The $60.50/share offer represents a nearly 30% premium to where the stock closed yesterday but the stock traded at those levels and higher less than a year ago. The embattled payment processor has struggled with intense competition from the likes of Apple Pay and Mastercard which has caused growth to slow in their core branded payments division. The company brought in a new CEO to address these challenges back in March. In an interesting twist, Michael Burry of “The Big Short” fame, said the offer is too low and the intrinsic value is between $75-$115/share. Shares of PayPal have struggled since the peak during the pandemic – down 84% since 2021.
Wings clipped: CAE is down 2% in the pre-market after being cut to underweight at Morgan Stanley arguing there are better opportunities elsewhere in aerospace without the headache of an operational transformation. Morgan Stanley is lowering its sales and profit growth forecasts for the company while remaining positive on the long term prospects of commercial aerospace and defense. “With more ways than ever for investors to express these themes, we are becoming increasingly selective and repositioning our preferences accordingly,” wrote Kristine Liwang of Morgan Stanley. Liwang prefers FTAI Aviation in commercia aerospace and downgrades LOAR Holdings and TransDigm along with CAE. I own shares of CAE.
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