WMT - Wall Street Lunch: Options For DirecTV?

2023-10-05 12:59:00 ET

Summary

• AT&T is exploring options for the fate of DirecTV.
• Constellation Brands posts slight revenue beat for Q2; Citigroup embarks on its most significant restructuring in nearly two decades.
• Current equity market has echoes of the 1987 crash - Societe Generale.

Listen below or on the go on Apple Podcasts and Spotify

AT&T (T) can now start looking at options for its 70% DirecTV stake . (0:15) Will less hungry Americans change the grocery landscape ? (3:08) Strategist sees echoes of the 1987 crash in this market. (3:58)

This is an abridged transcript of the podcast.

Our top story so far

What’s the fate of DirecTV?

AT&T ( T ) is reportedly looking over options for the joint venture in which it holds 70% of the satellite TV provider.

A three-year commitment with private-equity co-owner TPG is due at the end of July 2024, and AT&T has the right to conduct sales talks.

The telecom company is looking over options, including a dividend recapitalization, adding a new investor, or selling out as soon as next August. That’s according to a report from Bloomberg.

As DirecTV faces industry-standard declines in subscribers with streaming video ascendant, the customer losses are cutting into the cash distribution that AT&T receives from DirecTV. First-half payments to AT&T from DirecTV fell to $1.9 billion this year from $2.7 billion a year ago.

AT&T acquired DirecTV in 2015 for $48.5 billion.

In the markets today

The market looks to be reverting to good-news-is-bad-news trading. That’s when good economic news sparks equity selling because it means the Fed stays vigilant about high rates and tight conditions.

Stock futures lost some momentum after weekly jobless claims barely budged, confounding expectations for a rise.

Pantheon Macro says “it is clear that the initial surge in layoffs late last year, concentrated in the tech sector, has flattened. This does not mean, though, that all the risk of a sustained increase has passed. The impact of much higher rates and tightening credit has not yet worked through the economy in full, especially in the services sector, so we still think that claims will be substantially higher.”

The major indexers are now struggling for direction.

Treasury yields are easing further. After topping near 4.90% in the early hours of Wednesday, the 10-year yield (US10Y) is nearly 4.70%.

Oil continued its selloff, with WTI (CL1:COM) off 1%.

Among active stocks

Constellation Brands (S T Z) posted a slight revenue beat for fiscal Q2. Its beer business posted a 12% net sales increase, driven by a rise in shipments of 8.7%. Strong demand was seen across the company's high-end beer portfolio.

Citigroup ( C ) has embarked on its most significant restructuring in nearly two decades. Executives have begun evaluating employees to decide who to retain, transfer, or lay off by November. That’s according to a staff memo seen by Reuters.

McDonald's (M C D) raised its dividend to $1.67 a share, a 9.9% increase from the prior quarterly dividend of $1.52. The forward yield is 2.61%.

In other news of note

You heard on the Wall Street Breakfast podcast how Walmart (WM T ) cited weight loss drugs as a factor in a "slight pullback" in items purchased and total calories represented in purchases.

Digging deeper into what that could mean for the retail landscape, the comments from Wal-Mart add some weight to an issue that has been speculated upon loosely for months.

Analysts estimate that nearly 7% of the U.S. population could be on weight-loss drugs by 2035. That could lead to a 30% cut in daily calorie intake due to the consumption changes for the targeted group.

The list of stocks that could be impacted by a change in food consumption habits in the U.S. is long. In the crosshairs are grocery names like Kroger (KR), Albertsons Companies (ACI), Grocery Outlet Holding (GO), Ingles Markets (IMKTA), and Sprouts Farmers Market (SFM).

And in the Wall Street Research corner

SocGen bearish strategist Albert Edwards says he sees echoes of 1987 in this market.

The current resilience of the equity market reminds him of the 1987 crash, when bullishness was eventually “squared.”

Edwards says, “As U.S. bond yields surge ever higher… all you can do is brace yourself and hope for the best.”

He notes that the 1987 crash played a key role in worsening worries about a recession in a market priced for the start of a new economic cycle, such as the one we are currently in. And he noted that October is the riskiest month of the year.

“Never in my career have I witnessed such uncertainty about where we are in the economic cycle,” Edwards added.

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