Drug pricing demos as Pharma scrambles
Healthcare
President Trump's drug pricing plans are progressing from the conceptual to a more serious phase. As CMS prepares to issue its most favored nation (MFN) demonstrations and pharma companies attempt to cut pricing and manufacturing deals with the administration, Capital Alpha Partners' Rob Smith and Kim Monk caught up with a former director of the Center for Medicare and Medicaid Innovation (CMMI) on the administration’s advancing Medicare drug pricing agenda. The team sees at least one demo being proposed by the end of the year and implemented by late 2026, though legal challenges remain significant. Physician-administered Part B drugs are the most likely target for a drug model.
Edition: 222
- 17 October, 2025
Consumer Discretionary
New CFO Cath Smith has destroyed a total of (192%) alpha at seven different public companies since 2005. Her below-average ManagementTrack Rating of 3.0 is a downgrade to outgoing Rachel Ruggeri's MTR of 4.3 and will lower SBUX's C-Suite Rating despite CEO Brian Niccol's 8.1 MTR. Smith is classified as a: 1) "Capital Returner" Capital Allocator: 59% of career capital allocated towards Dividends and Buybacks. 2) High F.L.A.G. Risk Concern with a "Bad Compliance Record". 3) Inconsistent Guidance Forecaster: beats 35% of guidance given, misses 17%, in-line 48%. 4) Less Evasive on earnings call Q&A: during her Nordstrom tenure, JWN was ~27% evasive vs. SBUX's C-Suite ~33% evasive over the past five years.
Edition: 206
- 07 March, 2025
Fully depreciated equipment in the Building Products industry
Industrials
Among the 19 companies analysed by BTN, those with the biggest risk of overstated earnings from using fully depreciated equipment or unusually long depreciation lives compared to the industry include Allegion, A.O. Smith, Insteel Industries, Trane Technologies and Masco. Meanwhile, they see Simpson Manufacturing, Advanced Drainage Systems, AAON, Trex and Builders FirstSource as being positioned to start seeing lower depreciation expense and capital spending. These companies are already years into modernisation and expanding their equipment bases. Their depreciation has risen and been a headwind to earnings of late, but they may be about to see this level off and put them in a position of rising margins and FCF.
Edition: 202
- 10 January, 2025
Healthcare
Poor performance is primarily the result of fundamental competitive issues and industry headwinds - OWS believes the new management team’s ambitious turnaround targets will not be met. While bulls view SN as a value stock and a turnaround story, the company’s underlying financial position appears to be far weaker than investors appreciate. SN reported adj. EBITDA and “trading cash flow” of $1.3bn and $635m, respectively, in 2023. However, by OWS's calculation, FCF was just $129m in 2023. Hidden behind its heavily adjusted metrics, SN is in a precarious financial position. TP £7.00 (30% downside).
Edition: 189
- 28 June, 2024
Betaville smokes out Mondi's £5bn+ takeover approach for London-listed rival DS Smith
On the morning of 8th Feb 2024 Betaville published a paywall protected UNCOOKED Alert re. the renewed takeover rumours circulating about SMDS and highlighted one of the rumoured acquirers as MNDI. An hour and a half later SMDS confirmed it had received an approach from MNDI to create a £10bn packaging giant. SMDS shares initially rose 16% on confirmation of the Alert. Other Betaville Intelligence Alerts that have recently been confirmed include Italy-listed oil refiner Saras and Germany / US-listed pharmaceutical company MorphoSys.
Edition: 180
- 23 February, 2024
Healthcare
Reports a mixed set of H1 results with strong top-line growth but weaker margins. Forensic Alpha’s analysis focuses on inventories which continues to rise from what were already-high levels at the end of FY22 (currently stands at $2.4bn). The provision against this inventory balance is now a massive $576m and not surprisingly was identified as a "Key Audit Matter" in KPMG's report for FY22. While management has been very open about this issue, the bull thesis relies on a strong improvement in margins in H2, but this could be derailed in the event the company is forced into making write-downs and / or additional provisions.
Edition: 167
- 18 August, 2023
Screening UK Stocks: Combining quality, momentum and expectations indicators
Methodology - the initial universe are stocks with $2bn+ M/Cap. After that Willis Welby starts with a quality cut off based on their measure of Intrinsic Return on Capital Employed. They then narrow down using a combination of share price momentum and EBIT revisions before incorporating their expectations analysis via their measure of the implied to Y3 EBITM ratio. This has been another month of low turnover for the UK screen and it is notable that stocks coming in are exclusively in Consumer Services with the return of three retailers (B&M, Pets at Home, WH Smith) and Flutter. The four stocks leaving are Burberry, IAG, Hikma and Serco.
Edition: 166
- 04 August, 2023
UK Healthcare: Value funds drive underweight
Healthcare now stands as the third largest underweight risk to UK investors (behind Consumer Staples and Energy) driven by two key factors: 1) AstraZeneca positioning. The net underweight of -2.62% accounts for more than the net underweight of -2.36% for the entire sector. Overweights in Smith & Nephew, ConvaTec and out-of-benchmark Sanofi provide the partial offset. 2) Value Fund positioning. Active UK Value managers are seemingly happy to let underweights increase, with a huge gap of -6.27% vs. the FTSE All Share weight. Value managers are banking on some serious underperformance.
Edition: 151
- 06 January, 2023
Bear’s Den Idea Forum
The average life-to-date alpha of the ~100 short ideas presented at MYST events over the trailing 12 months is an impressive 22.2% (vs. SPX), with ~80% of the ideas generating positive returns. Their latest event saw participants produce a fascinating collection of idiosyncratic ideas with meaningful potential downside including:
Automatic Data Processing (ADP) - “Obviously mispriced” and trading at all-time highs despite facing a contracting labour market. TP $112 (55% downside).
Canadian Tire Corp (CTC/A CN) - Accounts Receivable “exploding” higher as company “stuffs the channel” to hit revenue targets. TP C$100 (35% downside).
ICU Medical (ICUI) - Misguided Smith Medical acquisition is “a bad deal at a bad time”. TP $100 (35% downside).
Edition: 150
- 09 December, 2022
Materials
Teun Teeuwisse’s short thesis remains intact post H1 results - SMDS has failed to benefit from the exploding demand for boxes as it has been unable to improve profitability. As such, the revenue and box volume growth are irrelevant, even though this is exactly what management focuses on to display its "outstanding" performance. Debt remains high and hidden debt (inflated payables / reverse factoring, factoring, the outstanding liability on the interstate put option and deferred capex liability) is at least double the reported debt level. When demand eases things will quickly turn ugly.
Edition: 126
- 07 January, 2022
DS Smith (SMDS LN) UK
Materials
Following a review of the company’s FY results Teun Teeuwisse's short thesis remains firmly intact - FCF beat was driven by stretched payables and was not reflected in lower net debt. Management like to apply all sorts of definitions to prove the company’s quality, but in reality the quality of results remains weak and SMDS has hidden debt which is at least the size of its reported debt. Recent share price strength has been driven by rumours of a takeover by Mondi, but Teun continues to regard any bid as highly unlikely.
Edition: 113
- 25 June, 2021