Weekend Update #173
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Coming off a shortened trading week to wrap up the first quarter, the first week of April proved markedly volatile, with macroeconomics dominating headlines. Significant economic releases, countless speeches from Federal Reserve officials – including two from Federal Reserve Chair Jerome Powell – drove markets this week with the yield on the 10-year treasury increasing steadily and the market more broadly paring previous gains.
On Friday, March 29 – a market holiday – the Bureau of Economic Analysis released the February Personal Consumption Expenditure report that corroborated the notion that while the trend of inflation continues to progress in the right direction, its return to two percent is taking longer than many market participants hoped. The headline figure and its core counterpart came in at 2.5% and 2.8%, respectively, on a year-over-year basis. The three- and six-month annualized figures are more than 100 basis points higher than the 12-month figures, largely due to the lapping of favorable readings compared to early 2023 and higher readings to start 2024. While the February figure makes the January readout look more like a statistical aberration, the recent trend is giving both the Fed and the market pause with respect to expectations for interest rate decreases.
Continuing the discussion of economic readings, on Friday, April 5, another blockbuster jobs report provided further evidence that the United States economy is ripping along at a solid pace. The country added 303,000 jobs – surprising estimates to the upside by nearly 40% – and the unemployment rate ticked down from 3.9% to 3.8%. While average hourly earnings continue to remain at a rate that is more consistent with three percent than two percent inflation, the jobs report showed that the economy continues to expand with a strong but normalizing labor market and real wage growth – all in the face of the highest interest rates the economy has seen in two decades. The market adjusted its expectations of rate cuts to begin in September from July following the report.
Turning to company-specific news, Disney fended off activist investor Nelson Peltz’ board battle – though the stock price has increased nearly 25% since Peltz announced his stake, so as far as failed takeover bids go, Peltz’ can be thought of in a more positive light compared to others. Separately, Tesla reported delivery numbers that were significantly lower than analyst estimates and marked the first negative year-over-year comparison for the company since 2020 – another piece of evidence pointing to slowing electric vehicle adoption.
Looking ahead to next week, an incredibly important CPI report comes out on Wednesday followed by PPI on Thursday. What’s more, the earnings season begins with a small cohort of financial firms – JPMorgan Chase, Citi and Blackrock – reporting on Friday.
Weekly Performance
S&P 500 5,204.34 -1.02%
Nasdaq 16,248.52 -1.31%
Dow Jones 38,904.04 -2.27%
Thank you Blue Room Analyst SPENCER WOOTTEN
The S&P 500 was flat for the week and Fund One tracked this performance. Fund holding Atai Life Sciences continued its upward trajectory, finishing the week up over 20%. The target price for the biopharmaceutical company was raised by sell-side analysts as it is starting to be recognized for the promising pipeline that we have been projecting.
4D Molecular Therapeutics was a detractor for the week, although it has been a valuable contributor throughout our holding period. It initially fell following conversations with the FDA regarding the trials roadmap for a lead asset for the treatment of Cystic Fibrosis, as other investors took profits following a solid run this year. We remain optimistic on 4D’s long term outlook.
Thank you Blue Room Investing President JOHN FENLEY
Earnings Summary
Conagra shares are poised to appreciate gradually through calendar 2024 as the company continues to offset top-line revenue declines with margin preservation. To wit, it reaffirmed organic net sales guidance of a decrease between 1.0% and 2.0% yet it raised its Adjusted Operating Margin guidance from 15.6% to 15.8%.
Conagra generated $3,032.9 million in revenues—a 1.7% year-over-year decline that beat Street expectations of $3,012.5 million.
Adjusted EPS came in at $0.69 per share, also above Street expectations of $0.65, and
Organic Net Sales fell 2.0% year-over-year, also besting Street expectations of -2.7%
Grocery & Snacks grew 3.4% due to +4.2% price/mix offset by -0.8% volume declines, which themselves improved significantly from the -10.0% figure in the year-ago period.
Positive contributors included growing dollar share in snacking and staples categories including chili (introduction of Wendy's chili), pudding, microwave popcorn, seeds and canned meat
Refrigerated & Frozen fell 8.1% due to -3.3% volume declines and -4.8% price/mix, representing accelerating deterioration in the category.
The Frozen portion of the segment experienced deflation and rolled back prices accordingly, contributing to the decline in price/mix, as volume struggled due to tough compares, particularly in the Table Spreads category
Additionally in Frozen, Conagra saw trade-down from frozen vegetables to canned vegetables
Continued lower consumption trends also contributed to the negative performance
Frozen specifically has improved from -7.8% volume decline to -1.2% in the first month of Q4 FY2024—an improvement from the just-reported Q3 FY2024 figure of -2.8%, evidence of results from the investments Conagra has been making
Consolidated organic net sales declined -2.0% due to -0.2% price/mix and -1.8% volume declines, which themselves have improved from -9.0% in the prior-year period. The CEO stated "I like the volume momentum we saw in Q3. I like what I've seen so far in Q4, and I expect further progress from here...it's moving in the right direction—that's the bottom line. We are getting momentum on the volume line. We are moving toward that Mendoza line. We just have to continue to do more of what we've been doing, continue to drive it, which is that mindset of volume is important, but so is protecting margin."
SUMMARY
Pat Gelsinger has led a three year journey to Intel 2.0 with success to be defined by the end of C2024 and the culmination of the five-nodes-in-four-years plan. This was driven by investments in execution, process and product leadership, and becoming a world class foundry service business:
Intel is on track with five nodes in four years, after a significant level of investment. 18A is manufacturing ready and the company is already beginning work on 14A.
Intel foundry claims $15 billion in successful lifetime deal value committed to Intel Foundry. The long-term goal by 2030 is to generate $15 billion in revenue per year.
Intel Foundry will now be reported as a separate business segment. We see that the business is definitely in an investment cycle:
The company spoke of F2024 being the trough for Foundry operating losses, which is indicative of the time to production new fab investments will need before they are able to produce for external partners. Additionally, the company plans to become the “number two foundry” by the end of the decade, only breaking even mid-way through that ten year period. This is inclusive of the $18.5 billion in direct sovereign grants and $11 billion in loans. Below the operating line, Intel estimates $25 billion in tax incentives over the decade.
With EUV machines now in fab, the company is forecasting an approach to “double-digit” ROIC by 2030. The company also claims 5 customer commits for Intel produced sub 3nm nodes and 1.8nm 18A with nearly 300 companies attending the Direct Connect event.
Executive Summary
Precision BioSciences significantly boosted its cash in late 2023 and early 2024 with partnerships including Imugene, TG Therapeutics, and Caribou Biosciences, in addition to the $40 million stock offering, for year-end 2023 cash of $116.7 million and a total of $50 million in near-term payments still to be received. As these and existing partnerships with Prevail (Eli Lilly & Co.), Novartis, and iECURE progressed through preclinical development in 2023, Precision was able to step up milestone revenue as well as execute on cost-savings without further investment into now-partnered CAR T programs. The combination of these led to a beat on consensus net loss expectations and bolstered cash above prior consensus expectations. With the PBGENE-HBV IND/CTA submission still expected in 2024 and potential data from iECURE’s OTC Phase 1 study in 2024, we are just at the beginning of many potential data catalysts with in-human data on in vivo ARCUS gene editing for the first time.
Revenue in Q4 2023 was impacted by a $(8.1) million quarterly loss on revenue catch-up adjustments, coming mainly from a $(6.0) million decrease in Novartis revenue recognition due to a change in the estimated effort to satisfy performance obligations — without which, Q3 2024 revenue would have been $15.1 million. The Form 10-K notes that if Precision were to decrease estimated effort to satisfy performance obligations by 10%, cumulative catch-up adjustments would increase revenue recognition by $10.5 million in the current year. So, Precision is planning to invest more into the Novartis partnership to bring PBGENE-NVS further along in development, and R&D costs will step up from current levels in 2024 and 2025 as Precision completes toxicology studies on PBGENE-HBV, readies PBGENE-PMM for IND/CTA submission, and gets its first two wholly-owned in vivo programs into in-human clinical trials.
Pre-market, DTIL shares are trading at $12.58 (-1.33%), potentially on the revenue miss due to the quarterly catch-up adjustments. A notable negative from my prior expectations is no milestone revenue was recognized for iECURE’s CTA acceptance in Q4 2023, which as my expectation was already low at $5 million, means the minimal milestones expected from the partnership may come much later on in development.
Kai Ryssdal – Marketplace
So I’m going to jump right in with the data of the morning. Personal consumption expenditures price index came out this morning. You had it yesterday, 2.8% at the core. Here’s my question: You saw it yesterday, what was your first thought?
Chair Jerome H. Powell
My first thought was that the report that came out this morning is pretty much in line with our expectations. So core PCE, as you mentioned, is at 2.8% on a 12-month basis, headline is at 2.5%. That’s what we were expecting, and it’s good to see something coming in line with expectations.
Kai Ryssdal – Marketplace
So as you and your colleagues at the Fed and at the regional banks have been saying, “We want more data, more good data.” Is this that? Is this in that bucket?
Chair Jerome H. Powell
Well, let’s take a step back. Over the course of the second half of last year, we got what I would definitely consider good data over the course of seven months. And then in January of this year, we got a very high reading – much higher reading on inflation. And so February is lower, but it’s not as low as most of the good readings we got in the second half of last year, but it’s definitely more along the lines of what we want to see. What we’ve said is that we don’t see it as likely to be appropriate that we would begin to reduce interest rates until the Federal Open Market Committee is confident that inflation is moving down to 2% on a sustained basis. And what do we need to get that confidence? It’s just more good inflation readings like the ones we were getting last year.
Kai Ryssdal – Marketplace
With all possible respect, you all, all of you, have been saying the same thing for six months now, right? “We want more good data.” What do you suppose it does to the listening public and the professionals who are listening to this when you keep saying the same thing?
Chair Jerome H. Powell
We’re, you know, we are steady. Our hand is a steady hand in this. We’ve been saying all through last year and this year that we’re making progress. We’ve noted that progress, we haven’t overreacted to it, we didn’t overreact to the good data we had in the second half of last year. You’ve heard us saying that this is good, but we need to see more. And you won’t hear us overreacting to these two months that are higher. The reason that’s important is that the decision to begin to reduce rates is a very, very important one because the risks are two sided. If we reduce rates too soon, there’s a chance that inflation would pop back and we’d have to come back in, and that would be very disruptive, that would not be a good thing for the economy. There’s also a risk that we would wait too long, and in that case, it could be an unnecessary, unneeded damage to the economy and perhaps the labor market.
Rachelle Girard
Thank you, operator, and good morning, everyone. Welcome to Cameco's fourth quarter conference call. I would like to acknowledge that we are speaking from our corporate office, which is on Treaty 6 territory, the traditional territory of Cree peoples and the homeland of the Métis.
With us today are Tim Gitzel, our President and CEO; Grant Isaac, our Executive VP and CFO; Heidi Shockey, Senior VP and Deputy CFO; Brian Reilly, Senior VP and Chief Operating Officer; Sean Quinn, Senior VP, Chief Legal Officer and Corporate Secretary; Alice Wong, Senior VP and Chief Corporate Officer; and Dominic Kieran, Global Managing Director of Cameco U.K. Ltd.
I'm going to hand it over to Tim in just a moment to briefly discuss the current nuclear market environment, our 2023 performance, and how it provides the basis for Cameco's plans and outlook for 2024. After, we will open it up for your questions.
Today's call will be approximately one hour concluding at 9 a.m. Eastern Time. As always, our goal is to be open and transparent with our communication. However, we do want to respect everyone's time and conclude the call on time. Therefore, should we not have time for your questions during the call, or if you have detailed questions about our quarterly financial results, we will be happy to follow-up with you after the call.
There are a few ways to contact us, with additional questions. You can reach out to the contacts provided in our news release. You can submit a question through the contact tab on our website, or you can use the Ask a Question form at the bottom of the webcast screen and we will be happy to follow-up after this call. If you join the conference call through our website event page, there are slides available, which will be displayed during the call.
In addition, for your reference, our quarterly investor handout is available for download in a PDF file on our website at Cameco.com. Today's conference call is open to all members of the investment community, including the media. During the Q&A session, please limit yourself to two questions and then return to the queue.
Please note that this conference call will include forward-looking information, which is based on a number of assumptions and actual results could differ materially. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements and we do not undertake any obligation to update any forward-looking statements we make today, except as required by law.
Please refer to our most recent annual information form and MD&A, for more information about the factors that, could cause these different results and the assumptions we have made.
With that, I will turn it over to Tim.
Tim Gitzel — President and Chief Executive Officer
Well, thank you, Rachelle, and good morning, everyone. We appreciate you joining us for today's call, and a belated Happy New Year.
Our Fourth Quarter Conference Calls always provide a great opportunity to discuss the past year's developments in the uranium and nuclear fuel markets. It's also a good time to touch on a few annual highlights that demonstrate how well our strategy is performing and to provide some insights into our current expectations for the year ahead, so that's the outline I'll follow today.
This past year, we've been consistently talking about the positive market momentum, so I think I can be fairly brief on that side of things. We spent a great deal of time on our calls, in our presentations, and on our webcasts talking about our optimism and positive view of the constructive market conditions we've seen throughout 2023. And we are absolutely maintaining that enthusiasm moving into 2024.
Those listening today that tuned in for a few of our calls and presentations prior to 2020 would be very familiar with the phrase “positive long-term fundamentals.” I say somewhat tongue-in-cheek that we used that message more than just a few times to reinforce our optimism through the lowest points of the market cycle. Back when we initially made that statement, we certainly couldn't forecast the timing of a market transition.
Summary and Analysis
On Wednesday, March 27, Moderna held its fifth annual Vaccines Day where it provided pipeline, operational, and financial updates across its infectious disease portfolio. The presentation itself was largely focused on Moderna’s successes in its latent vaccine portfolio – specifically as it relates to therapies for Epstein-Barr Virus (EBV), Cytomegalovirus (CMV), Norovirus and Varicella Zoster Virus (VZV). While the company focused little on its respiratory portfolio, it continues to anticipate key catalysts this year including the commercialization of its RSV vaccine, the readout of Phase 3 data for its COVID/Flu combination vaccine and the filing for approval of its flu vaccine. Taken as a whole, Moderna continues to show unprecedented levels of both speed and success in moving vaccines through the clinic.
Moderna began the presentation discussing its vaccine for CMV. CMV is the most common infectious cause of birth defects in the United States and there is no approved vaccine currently on the market, making the probability of accelerated approval high – conditional upon positive data. Moderna estimates that CMV presents a $2-5 billion annual opportunity. The company reiterated its expectation for reading out interim data from its Phase 3 trial in 2024, however the readout timing hinges entirely on case accruals – something that the company has no control over. Nonetheless, in the question and answer portion of the event, Moderna’s President telegraphed that the data thus far has been positive, and the likelihood of requiring a further readout following the interim is low.
Presenters then turned to EBV, a latent virus that is attached most commonly through infectious mononucleosis, but remains dormant in the immune system and later presents complications through the form of multiple sclerosis and cancer. Moderna has two EBV vaccines in development; the first targets infectious mononucleosis and aims to prevent longer-term complications as a first line of defense against infection. The second vaccine specifically targets multiple sclerosis. The Vaccines Day presentation marked the first time that Moderna shared data from its Phase 1/2 study targeting infectious mononucleosis. The therapeutic was generally well tolerated across dose levels and demonstrated robust antibody levels that were numerically higher than those induced by natural infection across all dose levels. Furthermore, the vaccine produced B cell neutralizing titers that were numerically higher than those induced by natural infection. While the company did not present data outside of biomarkers, it has been demonstrated time and again in academic literature that the use of biomarkers dramatically increases the probability of success in drug approval. As a result of the strong data, Moderna plans to advance the infectious mononucleosis-focused drug towards Phase 3 pivotal development.
Moderna also presented data from its VZV (shingles) vaccine for the first time. In a Phase 1/2 trial, Moderna’s vaccine elicited antigen-specific CD4+ and CD8+ T cell responses that were comparable to those induced by SHINGRIX (the current standard of care) at low-dose levels, but notably higher at the medium- and high-dose levels. Again, Moderna failed to present data regarding patient outcomes yet given the profundity of the data, the company announced its intention to advance toward a pivotal Phase 3 trial.
The final latent virus discussed during the presentation was for Norovirus, the leading cause of diarrheal disease globally that has a notable healthcare burden across both developed and developing countries. Moderna for the first time presented its Phase 1/2 data, which showed that across dose levels, the vaccine elicited robust antibody titers against the vaccine-matched genogroups and selected strains. Moderna will advance its Norovirus vaccine toward a Phase 3 pivotal trial based on this overwhelmingly positive data.
Following the announcement of three new additions to its Phase 3 pipeline, Moderna then turned to its respiratory portfolio to briefly discuss upcoming catalysts and reiterate the positive data that was produced over the past six months. Moderna began by highlighting the positive Phase 3 data for its updated COVID-19 vaccine that was released on Tuesday, March 26. The new vaccine elicited higher titers against multiple strains of COVID when compared to Spikevax – the company’s currently available vaccine. However, the most compelling feature of the new vaccine lies in its logistical flexibility. The updated vaccine is refrigerator stable, is delivered in a pre-filled syringe and will serve as the basis for the company’s combination vaccines. The logistical advantages could help the company gain further market share from Pfizer in the upcoming respiratory seasons as Moderna will be able to access more healthcare facilities and pharmacies that otherwise would not have had the infrastructure to manage mRNA vaccines. The company is engaging with regulators regarding next steps.
Moderna briefly touched on its RSV vaccine – which is expected to see commercialization this fall. While the company’s reiteration of past data and its competitive advantages – namely arriving to pharmacies in a pre-filled syringe and the lack of GBS – Moderna presented data for the first time that looked at its RSV vaccine in combination with Spikevax and an already commercialized flu vaccine. Both combination vaccines had favorable safety profiles and met non-inferiority criteria with respect to antibody titers. While this part of the presentation was not as headline-grabbing as the initiation of three Phase 3 studies, it marked the first time the company has demonstrated efficacy with a combination vaccine that included its RSV vaccine – or any RSV vaccine for that matter.
The company used its analysis of its flu vaccine to set it up for its discussion of its combination strategy. Moderna’s flu vaccine demonstrated non-inferiority with respect to antibody titers in a data readout in September 2023. Moderna is in communication with regulators and hopes to file for the vaccine in 2024. However, it should be noted that the flu vaccine is not the end product; rather, Moderna is using the flu vaccine as a launching pad for its combination portfolio. The company anticipates reading out Phase 3 data from its COVID/flu combination vaccine later this year and continues to anticipate commercialization by 2025. Following a successful Phase 3 readout, the company will likely initiate Phase 2/3 studies that assess the safety and efficacy of its flu vaccine in combination with its RSV vaccine and in concert with both the COVID and the RSV vaccine. It should be noted that the Phase 3 flu study looked only at individuals over the age of 50 – older adults will be the primary market for the combination vaccines until pediatric studies are expanded.
Taken together, the commercial opportunities for both Moderna’s respiratory portfolio and its latent portfolio are monstrous. By itself, the respiratory portfolio (RSV, COVID and flu) has an estimated peak annual addressable market of $27 billion. This number is expected to increase with the introduction of combination vaccines, which should notably increase uptake. Latent vaccines (CMV, VZV, EBV, and Norovirus), on the other hand, have an estimated peak annual addressable market of $25 billion. Of the four diseases, only VZV has a treatment currently available on the market. Moderna has not guided to a timeline for when it anticipates initiating the Phase 3 studies, but in discussing its R&D allocations, the company highlighted that latent vaccine spend will surpass that for respiratory in 2026, providing a hint as to when the Phase 3 studies are expected to be significantly enrolled.
Following a discussion of Moderna’s manufacturing footprint, when it re-emphasized that all these vaccines could be manufactured at the company’s Norwood Massachusetts plant as they all have the same underlying chemistry and production process, the company’s Chief Financial Officer, Jamey Mock, provided further color on the company’s new development and commercialization funding agreement with Blackstone Life Sciences. Per the terms of the agreement, Moderna will receive up to $750 million and in return, Blackstone will receive commercial milestones and low-single digit royalty payments for the flu program. It should be noted that these royalty payments are extended to any vaccines for which the flu vaccine is a component – including combination vaccines. This funding agreement will offset R&D expenses, but will not change Moderna’s expected 2024 R&D spend of $4.5 billion.
The presentation concluded with Chief Executive Officer, Stephane Bancel, discussing the potential of the mRNA platform and reiterating 2024 expected catalysts. The mRNA platform continues to outperform in a wide range of indications including infectious disease, rare disease and cancer. While this presentation focused solely on infectious diseases, Moderna continues to advance its pipeline with great alacrity. Stephane highlighted two additional Phase 2/3 clinical trial initiations in cancer that were heretofore unknown to the public: adjuvant bladder and adjuvant renal cell carcinoma. Furthermore, the company’s PA and MMA therapies continue to advance into registrational studies. In sum, Moderna continues to prove that it is far more than a COVID company; its diverse pipeline has considerable depth and should produce multiple product launches over the next three years.
Rob Enslin — Chief Executive Officer
Good afternoon, everyone. Thanks for joining us. I want to start by extending a massive thank you to our team. Your hard work, dedication, and innovative spirit are the driving forces behind our success, and I can't wait to see what we accomplish together in 2025. We reported a strong close to the fiscal year, exceeding our guidance across both top and bottom line metrics, driven by demand for the depth and breadth of our platform and the team's focus on customer success, which is at the core of everything we do.
Our momentum also reinforces my confidence in the strategic role we play for our customers and the investments we are making in our future. We delivered fourth quarter net new ARR of $86 million, ending the year with a total ARR of $1.46 billion an increase of 22% year-over-year, and record quarterly revenue of $405 million, up 31% year-over-year. On the bottom line, fourth quarter non-GAAP operating margin was a record 27%. This drove fiscal year non-GAAP operating margin to 18%, an increase of over 1,100 basis points year-over-year.
This was also our first quarter of GAAP profitability as a public company. I am very pleased with the team's ongoing cost management and discipline around capital deployment, which focuses our energy on the right initiative and sets us up for future success.
C-level executives are no longer solely prioritizing digital transformation, they are also prioritizing AI transformation. In a recent UiPath and Bain joint study, the state of AI-powered automation, 70% of executives asserted that AI-driven automation is either very important or critical in fulfilling their organization's strategic objectives.
Our business automation platform is the foundation to deliver the value across every organization. We make AI actionable, unlocking the promise of this next evolution in technology, and I believe that the combination of AI and automation is the strategic change enabler for our customers.
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