Tilman Fertitta’s first special purpose acquisition company flamed out. Why should Landcadia Holdings II and LCA stock be any different? Minneapolis Fed President Neel Kashkari on Friday called for meaningful banking and financial system reform. “Big Pharma” doesn’t come much bigger than Pfizer (PFE). Although you could argue it is so big, the stock can hardly move. Shares are essentially trading for the same price as 3 years ago. Pfizer is also one of the leading names in the hunt for a COVID-19 vaccine. But unlike other names in the race to
It’s been almost three months since Landcadia Holdings II (NASDAQ:LCA) announced it was combining with the Golden Nugget’s online gaming business. LCA stock is up 80% since the announcement.
If you’re thinking about backing billionaire Tillman Fertitta’s latest SPAC adventure, you might want to think twice. Here’s why.
I’ve been following this investment vehicle for years. I can remember when hedge fund managers were buying them in 2008 to park their money during the correction. This year, as you’re probably aware, they’ve taken off like weeds. People can’t get enough of them.
As I stated in March, “SPACs have become all about the jockey and less about the horse.”
So, if you’re considering buying LCA stock, more than anything, you’re betting on Tilman Fertitta. Sure, you’re also making a play on online gaming, but as my InvestorPlace colleague Matt McCall recently argued, Landcadia is a bad bet in a winning sector.
“First, this SPAC deal isn’t about taking a high-growth company public. It’s about a billionaire looking to cash in on today’s SPAC gold rush. Why? To save his over-leveraged hospitality empire,” McCall wrote on Sep. 9.
“Second, compared to other online gambling plays, you can call this company an ‘also-ran.’ Other online gambling companies have the size and scale to dominate the market. This player? Not so much.”
I don’t think there’s any question that if you believe in online gaming, you ought to look elsewhere. I’m particularly attracted to DraftKings’ (NASDAQ:DKNG) growth potential, but there are plenty of other options to consider. Just go down the list of holdings for the Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ) and you’ll get plenty of ideas.
As I said, SPACs are an exciting vehicle because it allows the average investor to invest with some of the industry’s biggest successes.
Fertitta, who is said to be worth $5.8 billion, is the poster child of the low-interest rate era that we find ourselves. He’s used debt to build his restaurants, hotels, and sports teams (he owns the Houston Rockets).
In April, Fertitta’s Golden Nugget sold $250 million in debt at 15% interest to keep his empire afloat. Fansided published an article in March that questioned the billionaire’s financial wherewithal to buy the Houston Rockets in September 2017.
Of all the horses to bet on, Fertitta might not be the one whose house is in the best shape. His debt situation alone suggests a lot has to go right for him not to lose some of his toys in the coming months.
With the novel coronavirus sticking around into 2021, his businesses are right in the crosshairs. That’s not a good place to be.
Tilman Fertitta’s first SPAC was Landcadia Holdings in May 2016. The SPAC raised $250 million to find a merger candidate within 24 months. It found a candidate in Waitr Holdings (NASDAQ:WTRH), completing the combination on Nov. 15, 2018.
“We are pleased to complete the merger with Waitr. I believe they are the best-in-class, on-demand food ordering and delivery partner for customers and restaurants. They are also positioned well to take advantage of the massive unpenetrated market for online delivery, particularly in secondary markets,” Fertitta stated in the 2018 press release announcing the completion of the merger.
The stock got as high as $14.77 in March 2019. However, it’s now trading around $3.40, 66% below the SPACs issue price in May 2016. Before you plunk down money on LCA stock, you might want to consider that Fertitta’s track record isn’t all that it’s cracked up to be.
Waitr’s revenues have grown significantly in the past year compared to sales in 2018; it is still losing a lot of money. Its operating loss in 2019 was $281.3 million on $191.7 million in revenue. In the first six months of 2020, thanks to a lot of cost-cutting, it’s managed to generate an operating profit of $14.6 million versus a loss of $46.5 million a year earlier.
While it appears Waitr has turned a corner, its stock’s recovery in 2020 seems to have come to an end as we approach the final quarter of the year. Since the middle of August, it’s lost one-third of its value.
It’s got a long way to go to get back to break-even. I don’t see it doing so until it books a couple more quarters of profitable growth.
Like my colleague, I believe that Fertitta is using LCA to get himself out of a hole.
Don’t be the one to help him.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
Will Ashworth, InvestorPlace Contributor
Fed’s Kashkari decries ‘absurd’ U.S. financial system that needs bailout every 10 years
Minneapolis Fed President Neel Kashkari on Friday decried the U.S. financial system as “absurd” because it has needed a central bank bailout twice in less than 20 years.
“How can it possibly be this fragile?” Kashkari asked, in a speech to the Council of Institutional Investors.
In March when it became clear that the coronavirus pandemic would damage the U.S. economy, investors and institutions attempted to move to relatively safe assets, causing the U.S. funding markets to buckle.
The Fed moved in with trillions of dollars to support markets and, in the process, removed long-tail downside risks from aggressive trades held by firms.
“The funding markets that almost collapsed in March raise important and complex policy questions,” Kashkari said. It is not as simple as addressing the risks of too-big-to-fail banks, where the clear and straightforward solution is to force them to fund themselves with more equity, he said.
“The solution of fragile funding markets is less obvious but also important,” Kashkari said.
“Fundamentally, I wonder why we allow firms, financial or otherwise, to fund themselves overnight?” he asked.
What societal value is there in repo markets that prove so fragile when risks emerge,he said.
Earlier Friday, Kashkari played down investor fears over runaway inflation, saying a spike in prices would be a “high-class problem” for the central bank struggling to fight persistent low inflation.
Kashkari, who was a key player in trying to avert a more severe financial crisis in 2008-2009, favors stronger financial market regulation than many of his colleagues.
But even former top Fed officials like Ben Bernanke and Janet Yellen have said the Fed needs to get its arms around why financial markets broke down in March.
Supporters of the financial system have argued that banks and shadow banks were not the cause of the crisis as they had been in 2008.
But Kashkari seemed to have little patience with large banks that benefitted from government aid.
“You might not realize it, but the banks got a lot of help,” Kashkari said.
He noted banks were key beneficiaries of the COVID-19 economic stimulus measures passed by Congress this year. Without these one-time checks, more Americans would not have been able to make their credit card payments, he noted.
Analysis by the Minneapolis Fed suggests that banks should raise their capital levels given the risks they pose to the economy. He said the analysis shows that banks should fund themselves with at least 24% of risk-weighted asset — up from 13% today.
Author: Greg Robb
Is Pfizer Stock a Buy Right Now? This Is What You Need to Know
“Big Pharma” doesn’t come much bigger than Pfizer (PFE). Although you could argue it is so big, the stock can hardly move. Shares are essentially trading for the same price as 3 years ago.
Pfizer is also one of the leading names in the hunt for a COVID-19 vaccine. But unlike other names in the race to be first to market with a solution, the catalyst has had no bearing on the stock.
However, after attending the company’s investor presentation, Mizuho analyst Vamil Divan believes the event “successfully illustrated how the company is evolving into a ‘New Pfizer.’”
Pfizer has an extensive pipeline of vaccines and treatments that it expects will generate over $15 billion of annual sales by 2025. The “New Pfizer” is also an attempt to highlight the giant’s growth potential. The upcoming spin-off of its Upjohn portfolio should rid it of unwanted bulk and help it become an “innovation-driven biopharma company.” The company expects to grow the top-line by 6% a year, while delivering double-digit growth on the bottom line.
On the rare diseases front, Pfizer anticipates six rare disease assets will be in Phase 3 trials by the end of the year, including three gene therapies.
The company is also developing a wide range of immunology products, “each for a targeted number of indications where there appears the potential for a truly differentiated product.”
Leading the charge form this business unit is abrocitinib, an oral JAK-inhibitor which Pfizer last month filed for the treatment of atopic dermatitis. Pfizer believes the treatment could reach annual sales above $3 billion.
Pfizer is also targeting the launch of 6 new vaccines by 2025. As for the company’s collaboration with BioNTech on a COVID-19 vaccine, Divan said, “we are encouraged by the data to date and believe Pfizer remains on track to have a clear sense of the vaccine’s profile by the end of October, with potential FDA approval shortly thereafter.”
The analyst believes the vaccine can generate risk-adjusted sales of roughly $1.7 billion next year and $1.2 billion in 2022.
Overall, Divan rates PFE shares a Buy, along with a $43 price target. There’s room for upside of 17% from current levels should the target be achieved in the next months. (To watch Divan’s track record, click here)
The rest of the Street has roughly the same average price target ($43.13), whilst the analyst consensus currently rates the stock a Moderate Buy. The rating is based on 4 Buy and 6 Holds. (See Pfizer stock analysis on TipRanks)
To find good ideas for healthcare stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.