Barrons : Buy Starbucks Stock. The Coffee Giant’s Worst Problems Are Behind It.

Buy Starbucks Stock. The Coffee Giant’s Worst Problems Are Behind It.

A sequel is seldom as good as the original, and the less said about the sequels to sequels, the better. Howard Schultz, the former CEO who recently returned to helm Starbucks SBUX +3.87% , may be the exception—offering investors a reason to buy the beaten-down stock.

Shares of the Seattle-based company have dropped 36% in 2022, on pace for its worst year since 2008. Starbucks (ticker: SBUX) has been hurt by the possibility of slowing growth for its rewards program and unionization efforts at its stores, as well as China’s economic slowdown and the U.S.’s soaring inflation, which have added to costs. The possibility of a recession only adds to the list of worries investors have about the company’s prospects.

Enter Schultz, who returns to Starbucks just four years after leaving. Schultz purchased the company in 1987 and created what we know as the modern Starbucks, masterminding its rise from a corner coffeehouse to an international chain with a coffeehouse seemingly on nearly every corner. From 1992, the company’s first year as a public company, to 2000, the end of his first stint at the helm, the stock returned 37.7% annually, compared with the S&P 500SPX +3.06% index’s 19.7%.

Schultz came back as CEO in January 2008, and the stock returned an annualized 18.2% through his departure in June 2018, outpacing the S&P 500’s 8.9% return. Now Schultz is back again—he announced his return in April—and ready to tackle Starbucks’ problems head-on.

The last time Schultz returned, he slashed costs to get the company through the 2007-09 recession. Starbucks could use his budgeting skills yet again. For its fiscal year 2022, which ends in September, the company is expected to see its costs of sales, which include wages and commodities like coffee beans, rise 30%. In May, the company said it would see $200 million in additional expenses from investments in wages, employee training, and technology within the next several months, which analysts say will amount to more than $500 million in added annual costs in 2023.

Still, this isn’t 2008. Costs aren’t going to come down, but the worst of the increases should be past. And Schultz, for his part, knows he needs to be willing to invest for growth even if it means looking past some near-term pain.

Schultz should get some help along the way. The good news starts in China, which has been a trouble spot for Starbucks. While same-store sales in the world’s second-largest economy fell 23% year over year during the second quarter, China lifted some of its Covid-related restrictions in May. Starbucks’ sales in the country—which accounted for $4 billion, or 12% of its total sales, over the past 12 months—should start to improve and might even return to pre-Covid levels by the first half of 2023.

“China was a mess, and all of a sudden you have a China reopen story,” says Stephanie Link, chief investment strategist at Hightower Advisors, which owns the stock.

Starbucks should also continue to see a recovery in the U.S. Store traffic remains about 10% below prepandemic levels, according to Evercore ISI estimates, and continued improvement should help sales in the U.S., lifting overall revenue to an estimated $32.3 billion in 2022. Starbucks also highlighted its “consistent pricing power” on its second-quarter conference call in May, which has allowed it to raise profits in North America. In total, analysts expect Starbucks’ sales to grow another 10%, to $35.6 billion, in 2023.

But growing sales won’t help much if Starbucks can’t turn more of its revenue into profits. Analysts expect the operating margin to rise to 15.8% in 2023 from 14.8% in 2022. That would put it on a path back to 2021 levels, when margins were around 18%, as costs should start to decelerate, even as the company continues to spend on growth. “Expensed investment will be relatively modest when compared with this year’s...inflation impact to U.S. margins,” writes Evercore analyst David Palmer.

Earnings per share are expected to fall to $2.89, down 11% from $3.24 in 2021, but should increase 20% in 2023, to $3.47. And if fixed costs remain mostly in check, EPS could grow 15% annually to $4.38 by 2025.

If Starbucks can hit those numbers, the stock could be, if not a bargain, at least quite compelling at current valuations. It trades at just over 22 times 12-month forward earnings, near its lowest level since 2020 and below its five-year average of 27.3 times. Closing that gap to 25 times 2024 earnings would put the stock at $98, up 30% from Thursday’s close of $75.20. “It’s pretty cheap compared with where it’s traded historically,” says Credit Suisse analyst Lauren Silberman, who calls 25 a “fair” valuation and has an Outperform rating and a $103 price target on the stock.

Whether those gains materialize depends on Schultz. He needs to make immediate investments—like spending on training baristas for new store configurations—while continuing to grow the Starbucks Rewards program, whose members spend two to three times as much as nonmembers each year. Silberman, for one, says membership could hit more than 70 million in the next few years, up from just under 30 million now. Schultz will get a chance to lay all this out at Starbucks’ investor day on Sept. 13, when the company should provide updated long-term guidance.

That could really provide a jolt for the stock.

FT : Rising rates raise prospect of property crash

Rising rates raise prospect of property crash
Homeowners, landlords and investors spooked as end of ultra-cheap debt sends prices sliding

Brenda McKinley has been selling homes in Ontario for more than two decades and even for a veteran, the past couple of years have been shocking.

Prices in her patch south of Toronto rose as much as 50 per cent during the pandemic. “Houses were selling almost before we could get the sign on the lawn,” she said. “It was not unusual to have 15 to 30 offers . . . there was a feeding frenzy.”

But in the past six weeks the market has flipped. McKinley estimates homes have shed 10 per cent of their value in the time it might take some buyers to complete their purchase.

The phenomenon is not unique to Ontario nor the residential market. As central banks jack up interest rates to rein in runaway inflation, property investors, homeowners and commercial landlords around the world are all asking the same question: could a crash be coming?

“There is a marked slowdown everywhere,” said Chris Brett, head of capital markets for Europe, the Middle East and Africa at property agency CBRE. “The change in cost of debt is having a big impact on all markets, across everything. I don’t think anything is immune . . . the speed has taken us all by surprise.”


Listed property stocks, closely monitored by investors looking for clues about what might eventually happen to less liquid real assets, have tanked this year. The Dow Jones US Real Estate Index is down almost 25 per cent in the year to date. UK property stocks are down about 20 per cent over the same period, falling further and faster than their benchmark index.

The number of commercial buyers actively hunting for assets across the US, Asia and Europe has fallen sharply from a pandemic peak of 3,395 in the fourth quarter of last year to just 1,602 in the second quarter of 2022, according to MSCI data.

Pending deals in Europe have also dwindled, with €12bn in contract at the end of March against €17bn a year earlier, according to MSCI.

Deals already in train are being renegotiated. “Everyone selling everything is being [price] chipped by prospective buyers, or else [buyers] are walking away,” said Ronald Dickerman, president of Madison International Realty, a private equity firm investing in property. “Anyone underwriting [a building] is having to reappraise . . . I cannot over-emphasise the amount of repricing going on in real estate at the moment.” 

The reason is simple. An investor willing to pay $100mn for a block of apartments two or three months ago could have taken a $60mn mortgage with borrowing costs of about 3 per cent. Today they might have to pay more than 5 per cent, wiping out any upside.

The move up in rates means investors must either accept lower overall returns or push the seller to lower the price.

“It’s not yet coming through in the agent data but there is a correction coming through, anecdotally,” said Justin Curlow, global head of research and strategy at Axa IM, one of the world’s largest asset managers.


The question for property investors and owners is how widespread and deep any correction might be.

During the pandemic, institutional investors played defence, betting on sectors supported by stable, long-term demand. The price of warehouses, blocks of rental apartments and offices equipped for life sciences businesses duly soared amid fierce competition.

“All the big investors are singing from the same hymn sheet: they all want residential, urban logistics and high-quality offices; defensive assets,” said Tom Leahy, MSCI’s head of real assets research in Europe, the Middle East and Asia. “That’s the problem with real estate, you get a herd mentality.”

With cash sloshing into tight corners of the property market, there is a danger that assets were mispriced, leaving little margin to erode as rates rise.

For owners of “defensive” properties bought at the top of the market who now need to refinance, rate rises create the prospect of owners “paying more on the loan than they expect to earn on the property”, said Lea Overby, head of commercial mortgage-backed securities research at Barclays.

Before the Federal Reserve started raising rates this year, Overby estimated, “Zero per cent of the market” was affected by so-called negative leverage. “We don’t know how much it is now, but anecdotally its fairly widespread.”

Manus Clancy, a senior managing director at New York-based CMBS data provider Trepp, said that while values were unlikely to crater in the more defensive sectors, “there will be plenty of guys who say ‘wow we overpaid for this’.”

“They thought they could increase rents 10 per cent a year for 10 years and expenses would be flat but the consumer is being whacked with inflation and they can’t pass on costs,” he added.

If investments regarded as sure-fire just a few months ago look precarious; riskier bets now look toxic.

A rise in ecommerce and the shift to hybrid work during the pandemic left owners of offices and shops exposed. Rising rates now threaten to topple them.

A paper published this month, “Work from home and the office real estate apocalypse”, argued that the total value of New York’s offices would ultimately fall by almost a third — a cataclysm for owners including pension funds and the government bodies reliant on their tax revenues.

“Our view is that the entire office stock is worth 30 per cent less than it was in 2019. That’s a $500bn hit,” said Stijn Van Nieuwerburgh, a professor or real estate and finance at Columbia University and one of the report’s authors.

The decline has not yet registered “because there’s a very large segment of the office market — 80-85 per cent — which is not publicly listed, is very untransparent and where there’s been very little trade”, he added.

But when older offices change hands, as funds come to the end of their lives or owners struggle to refinance, he expects the discounts to be severe. If values drop far enough, he foresees enough mortgage defaults to pose a systemic risk.


“If your loan to value ratio is above 70 per cent and your value falls 30 per cent, your mortgage is underwater,” he said. “A lot of offices have more than 30 per cent mortgages.”

According to Curlow, as much as 15 per cent is already being knocked off the value of US offices in final bids. “In the US office market you have a higher level of vacancy,” he said, adding that America “is ground zero for rates — it all started with the Fed”.

UK office owners are also having to navigate changing working patterns and rising rates.

Landlords with modern, energy-efficient blocks have so far fared relatively well. But rents on older buildings have been hit. Property consultancy Lambert Smith Hampton suggested this week that more than 25mn sq ft of UK office space could be surplus to requirements after a survey found 72 per cent of respondents were looking to cut back on office space at the earliest opportunity.

Hopes have also been dashed that retail, the sector most out of favour with investors coming into the pandemic, might enjoy a recovery.

Big UK investors including Landsec have bet on shopping centres in the past six months, hoping to catch rebounding trade as people return to physical stores. But inflation has knocked the recovery off course.

“There was this hope that a lot of shopping centre owners had that there was a level in rents,” said Mike Prew, analyst at Jefferies. “But the rug has been pulled out from under them by the cost of living crisis.”


As rates rise from ultra-low levels, so does the risk of a reversal in residential markets where they have been rising, from Canada and the US to Germany and New Zealand. Oxford Economics now expects prices to fall next year in those markets where they rose quickest in 2021.

Numerous investors, analysts, agents and property owners told the Financial Times the risk of a downturn in property valuations had sharply increased in recent weeks.

But few expect a crash as severe as that of 2008, in part because lending practices and risk appetite have moderated since then.

“In general it feels like commercial real estate is set for a downturn. But we had some strong growth in Covid so there is some room for it to go sideways before impacting anything [in the wider economy],” said Overby. “Pre-2008, leverage was at 80 per cent and a lot of appraisals were fake. We are not there by a long shot.”

According to the head of one big real estate fund, “there’s definitely stress in smaller pockets of the market but that’s not systemic. I don’t see a lot of people saying . . . ‘I’ve committed to a €2bn-€3bn acquisition using a bridge format’, as there were in 2007.”

He added that while more than 20 companies looked precarious in the run-up to the financial crisis, this time there were perhaps now five.

Dickerman, the private equity investor, believes the economy is poised for a long period of pain reminiscent of the 1970s that will tip real estate into a secular decline. But there will still be winning and losing bets because “there has never been a time investing in real estate when asset classes are so differentiated”.

>>> US Close Dow +2,68% S&P+3,06% Nasdaq +3,34% Russell +3,16%

Closing Market Summary

The stock market was able to hold onto its gains to break a three-week losing streak for each of the major indices. The market opened on a high note and quickly moved sharply higher before trading in narrow range for the rest of the session. The S&P 500 (+3.1%) finished the week just above the 3,900 level. The Dow Jones Industrial Average gained more than 800 points, closing up 2.7%. The Nasdaq Composite was the best performer of the day gaining 3.3%.

Economic data released today contributed to the positive sentiment in the market as New Home Sales beat May expectations while the final reading of the University of Michigan Consumer Sentiment survey for June dipped to a fresh record low, but also showed that five-year inflation expectations decreased to 3.1% from 3.3%.

The buying interest today was broad-based as evidenced by the Vanguard Mega Cap Growth ETF (MGK) closing up by a similar percentage as the Invesco S&P 500 Equal Weight ETF (RSP), up 3.7% and 3.3%, respectively.

In addition, the Russell 3000 Value Index closed up 2.7% compared to the Russell 3000 Growth Index, which was up 3.6%.

All 11 S&P 500 sectors closed in the green with gains ranging from 1.5% (energy) to 4.0% (materials).

Transport stocks contributed to the outperformance in the industrials sector (+3.5%) with FedEx (FDX 243.24, +16.26, +7.2%) rallying past its 200-day moving average (230.50) to a level not seen since early February after the company's above-consensus guidance for FY23 overshadowed a bottom-line miss. Air carriers also outperformed today with American Airlines (AAL 13.90, +0.92, +7.1%) closing atop the Dow Jones Transportation Average (+3.9%).

The energy sector continued this week's underperformance, but still gained a solid 1.5%, narrowing this week's loss to 1.6%. The sector was boosted by crude oil, which climbed 3.3% to $107.65/bbl.

Treasuries finished a solid week on a lower note with the 10-yr yield rising six basis points to 3.13% while the 2-yr yield rose five basis points to 3.06%.

Reviewing today's data:

  • New home sales increased 10.7% month-over-month in May to a seasonally adjusted annual rate of 696,000 units (Briefing.com consensus 595,000) from an upwardly revised 629,000 (from 591,000) in April. On a year-over-year basis, new home sales were down 5.9%.
    • The key takeaway from the report is that new home sales are counted when a contract is signed. The big gain in May coincided with some slippage in mortgage rates during the month, which likely spurred a rush of buying interest in anticipation of mortgage rates moving up again and pressuring affordability. Tellingly, sales in the high-priced West region were robust, as were sales in the South (the largest region for new home sales).
  • The final University of Michigan Index of Consumer Sentiment for June dropped to 50.0 (consensus 50.2) from the preliminary reading of 50.2. The final reading for May was 58.4. The June reading compares to 85.5 in the same period a year ago and is the lowest reading ever on records dating back to 1978.
    • The key takeaway from the report is the understanding that the weakening in consumer sentiment was broad-based across income, age, education, geographic region, and political affiliation, due in large part to inflation concerns.

Monday's economic data will be limited to the 8:30 ET release of May Durable Orders ( consensus 0.1%; prior 0.4%) and Durable Orders ex-transportation (consensus 0.4%; prior 0.3%), followed by May Pending Home Sales (consensus -3.5%; prior -3.9%) at 10:00 ET.

  • Dow Jones Industrial Average: -13.3% YTD
  • S&P 500: -17.9% YTD
  • S&P 400: -17.9% YTD
  • Russell 2000: -21.4% YTD
  • Nasdaq Composite: -25.8% YTD

(Makor) European SPACs Report

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June 24, 2022

 

European SPACs Report

 

Please find attached Makor’s review of the European SPACs universe

 

  • We have identified 30 European SPACs:
    • 25 still searching for a target
    • 5 having already announced a transaction
  • 12 SPACs are listed in the Netherlands, 5 in France, 4 in the UK, 3 in Denmark and the rest in other countries 
  • The average market cap of the 25 SPACs searching for a target is €253m (excluding BHND NA)
  • The total cash in trust of the 25 SPACs searching for a target is €5.3bn and the average is €211m
  • The average deadline for finding a target for the 25 SPACs still searching for a target is one year
  • It is important to note that there is close to no liquidity across the universe (not a single SPAC’s stock has an average daily turnover > €1m)

 

  

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The services, securities and investments discussed in this material may not be available to, nor are suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources and it should be noted that investment involves risk, including the risk of capital loss. Past performance is no guide to future performance. In relation to securities denominated in foreign currency, movements in exchange rates will have an effect on the value, either favourable or unfavourable.

 

All investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources and it should be noted that investment involves risk, including the risk of capital loss. Past performance is no guide to future performance. In relation to securities denominated in foreign currency, movements in exchange rates will have an effect on the value, either favourable or unfavourable.

 

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Makor Securities London Ltd is authorised and regulated by the Financial Conduct

Authority (FCA registration number 625054) 

 

Makor Capital, company number 514456466, is incorporated in Israel and is a 100% held

subsidiary of Makor Holdings Pte Ltd incorporated in Singapore. 

 

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WSJ : $100 Million in Cryptocurrency Stolen by Hackers

$100 Million in Cryptocurrency Stolen by Hackers
Tech company Harmony says it is working to retrieve funds and identify who is behind the theft on one of its blockchain bridge

Hackers have stolen roughly $100 million in cryptocurrency from a blockchain bridge, technology company Harmony said Thursday.

Harmony, which hosts the Horizon bridge that allows users to send crypto between different blockchains, said on Twitter it is working with the Federal Bureau of Investigation and forensic specialists to identify who is behind the theft.

The company said it is working to retrieve stolen funds.

“We have also notified exchanges and stopped the Horizon bridge to prevent further transactions,” Harmony said. “The team is all hands on deck as investigations continue.”

Hackers have targeted blockchain bridges in the past.

In March, hackers infiltrated part of a popular online game’s cryptocurrency network, stealing more than $500 million worth of crypto. And in the largest crypto hack of all time, hackers last year stole more than $600 million worth of crypto from Poly Network, a decentralized finance platform, before returning the funds.

Decentralized financial systems incurred at least $10.5 billion in losses in 2021 due to crime, according to blockchain analytics firm Elliptic Inc., an estimate that includes stolen funds and price drops in crypto offered by systems that were hacked.

Representatives for Harmony and the FBI didn’t immediately respond to requests for comment.

Harmony shared on Twitter the account identification of what it says is the culprit. The balance of the account Friday morning was 85,867.27 ether, or roughly $104 million. Harmony said the hack doesn’t affect its bitcoin bridge.

Harmony describes itself as an open, secure and fast blockchain with $1.1 billion in crypto locked on-chain.

FT : Monte dei Paschi: spot the snag with a turnround reliant on low bad loans

Monte dei Paschi: spot the snag with a turnround reliant on low bad loans
The Italian bank is planning to raise €2.5bn to fund a new strategy

Italy’s politicians are nearly as good with their feet as the country’s footballers. A new turnround plan and a €2.5bn government-backed capital raise at Monte dei Paschi di Siena will kick the bad bank’s problems down the road once more.

The eurozone economy is weakening as inflation surges and Russia turns down the gas. Italian debt costs are rising on default fears. Last year, politicians failed to offload MPS on UniCredit. The commercial bank can congratulate itself on dodging a bullet.

MPS’s new chief executive Luigi Lovaglio has perforce presented a plan for an independent future. He aims to cut costs, triple profits within three years and pay a dividend as early as 2025. There would be 4,000 lay-offs and further branch closures.

The Italian state will contribute €1.6bn in proportion to its 64 per cent shareholding. Suspension of EU competition rules on burden-sharing would likely keep bondholders off the hook this time.

This would complete the clean-up after a financial crisis that began in 2008. Unfortunately, downturns are cyclical. Another one has just come along.

The fresh funds will boost the common equity tier one ratio to 15.9 per cent, from the current 10.8 per cent. Out of that, about €800mn will go towards restructuring. The ratio will suffer further attrition from growth in risk-weighted assets.

Profit generation is expected to offset those costs, resulting in a CET1 of 15.7 per cent in 2024. Regulatory tweaks will then take the figure to 14.2 per cent, closer to peers.


MPS is expected to dispose of a further €1.6bn of non-performing exposures (NPE) by 2026. That would reduce the net NPE ratio to 1.4 per cent, from 2.6 per cent last year.

Unfortunately, Lovaglio’s plan depends on relatively few additional MPS loans going bad. The bank hopes provisions for these will stay below 50bp of the loan book. Unparalleled state support kept the figure at 30bp last year, in line with the average in Europe. Given the economic climate, a jump in the ratio is likely.

FT : Crypto enthusiasts are betting the house on creative destruction

Crypto enthusiasts are betting the house on creative destruction
Despite the recent rout, private digital money seems more likely to mutate than die

Earlier this year, an Irish company that organises an annual tech conference in Toronto called Collision decided to celebrate cryptocurrency’s “day in the sun”, as the blurb said, by inviting its luminaries to speak.

Oops. By the time Collision finally happened this week, 35,000 attendees turned up, but eight of the dozen-odd top crypto speakers suddenly dropped out, citing “family” and “health” reasons.

And instead of basking in the sun, crypto enthusiasts were confronting winter. The sector’s market capitalisation has shrunk by $2tn, or 70 per cent, since last November; the bitcoin price has tumbled below $20,000, the terra and luna stable coins have imploded; crypto lenders such as Babel and Celsius have halted withdrawals; and hedge funds like Three Arrows Capital face margin calls.

Moreover, the carnage would be even worse were it not for the fact that Sam Bankman-Fried, the 30-year-old billionaire founder of the FTX crypto platform, is bailing out crypto lenders such as Voyager and BlockFi with big loans. This echoes the moves that John Pierpont Morgan made during the 1907 American banking crisis to rescue other lenders, in the absence of any central banking backstop.

All this is distinctly embarrassing for crypto evangelists. And it has inevitably sparked schadenfreude from crypto-critics such as Bill Gates and Warren Buffett. It has also left some regulators voicing doubts about whether private cryptocurrencies really have any social utility — and future.

This week, officials at the Monetary Authority of Singapore said they planned to be “unrelentingly hard” on crypto — and thought that private digital money could soon be displaced if central banks issued their own digital tokens. This is significant, particularly given that the MAS was formerly quite warmly disposed towards crypto. The establishment is fighting back.

But I would not be ready to bet that private digital money will actually die — mutation seems more likely. After all, the crypto world has already endured some big busts, yet — like the proverbial hydra — it has always responded to decapitation by growing new heads. And the sector still boasts a big pool of players who are not only convinced of the revolutionary potential of their distributed ledger (or “Web3”) technology, but equally importantly believe in the idea of creative destruction.

“Over the next few weeks there will be more casualties, but this natural churn is healthy for the industry since it is removing the excess,” Brian Shroder, US head of the crypto exchange Binance, said at Collision. “Out of the dotcom bubble (and crash) Amazon emerged, and we want to be an Amazon.” Or, as Edith Yeung of the crypto fund Race Capital echoed: “This is the third time I have seen this [type of crypto crash]. It is a good thing for the industry.”

Maybe this is just desperate spin. But if you look closely, you can already see jostling around creative destruction. The companies imploding are those that feature one or all of the following traits: high leverage, opposition to regulation, excessively complex innovations and heavy spending on expansion. Others are faring better.

Take Binance itself. One reason why Shroder felt confident enough to appear on stage in Toronto, unlike other speakers, is that Binance’s business does not rely on margin trading or crypto lending. That makes it less vulnerable than some rivals. (Although it does face US regulatory investigations over its past promotion of the now-defunct Terra coin.)

Another important factor is that Binance recently raised $200mn in fresh capital, which it is using to diversify into new niches. Thus it is now hiring more staff, Shroder says, even as rivals such as Coinbase slash workers.

Or consider Circle, the company that runs the stablecoin USDC. In recent years USDC has attracted far less attention — and inflows — than its rival Tether, partly because the latter’s creators have taken a defiantly anti-establishment stance that was popular among libertarians, while horrifying regulators. (Last year, New York regulators settled with the company after accusing it of providing misleading information in its accounts.)

Circle, by contrast, has tried to keep the regulators sweet by producing audited accounts, talking about its desire to get a bank licence and courting mainstream financial players.

But while this used to make USDC less attractive for crypto players, its market capitalisation has grown from $48bn to $56bn in recent weeks due to strong inflows. Tether, in contrast, has seen outflows that have cut its market cap from $83bn to $67bn, and if this trend continues it could be eclipsed by USDC. “We are seeing an overall flight to safety and quality,” asserts Jeremy Allaire, Circle founder.

By pointing out these nuances, I am not trying to pick future winners. As Gavin Wood, the co-founder of Ethereum, noted in Toronto, “we are still in relatively early days of the development of this [Web3] technology”.

But the key point is this: just as no one in 2001 expected that Amazon would be a global giant two decades later, or that Silicon Valley’s power would keep expanding, so the crypto world in 2042 could be radically different from what we see now. Therein lies the future promise of Web3 — and the current peril.

WSJ : Supreme Court Overturns Roe v. Wade, Eliminates Constitutional Right to Ab

Supreme Court Overturns Roe v. Wade, Eliminates Constitutional Right to Abortion
The court upholds law from Mississippi that bans abortion after 15 weeks, opens door to widespread prohibitions on the procedure

WASHINGTON—A deeply divided Supreme Court eliminated the constitutional right to an abortion, overruling the 1973 Roe v. Wade decision and leaving the question of abortion’s legality to the states.

The court’s decision in Dobbs v. Jackson Women’s Health Organization upheld a law from Mississippi that bans abortion after 15 weeks of pregnancy, roughly two months earlier than what has been allowed under Supreme Court precedent dating back to Roe.

In siding with Mississippi, the court’s conservative majority said the Roe decision was egregiously wrong in recognizing a constitutional right to an abortion, an error the court perpetuated in the decades since.

Although the case before the court involved a 15-week ban, the overruling of Roe gives states broad latitude to regulate or prohibit abortion as they see fit. Many conservative-leaning states are poised to tighten access further, while some liberal ones have established permissive abortion regimes under state law. The decision could become a major issue in this year’s elections, as state and federal lawmakers look to position themselves in a post-Roe world.

Almost half the states have laws in place or at the ready to curtail or outlaw abortion, while others have laws that would preserve its legality. Questions on whether and how to limit abortions are expected to continue roiling state legislative debates.

The ruling, one of the most consequential in modern memory, marked a rare instance in which the court reversed itself to eliminate a constitutional right that it had previously created.

The decision also is a defining moment for a Supreme Court that is more conservative than it has been in many decades, a shift in legal thinking made possible after President Donald Trump placed three justices on the court. Two of them succeeded justices who voted to affirm abortion rights.

In anticipation of the ruling, several states have passed laws limiting or banning the procedure, and 13 states have so-called trigger laws on their books that called for prohibiting abortion if Roe were overruled. Clinics in conservative states have been preparing for possible closure, while facilities in more liberal areas have been getting ready for a potentially heavy influx of patients from other states.

The ruling follows a highly unusual leak last month of an early draft opinion in the case that suggested the court was preparing to overrule Roe and withdraw federal protections for abortion rights.

The Supreme Court has been investigating the leak at a time of strained relationships among members of the court. Justice Clarence Thomas in a recent speech suggested trust among members of the court had been lost. And when the court heard oral arguments in the Dobbs case in December, Justice Sonia Sotomayor questioned whether the court could “survive the stench” created by perceptions “that the Constitution and its reading are just political acts.”

The court’s Roe decision in 1973, written by Nixon appointee Justice Harry Blackmun, reflected a line of legal thinking that the Constitution barred political majorities from imposing their moral judgments on the intimate choices of individuals. The Roe court grounded the right to an abortion in the 14th Amendment’s guarantee that states can’t deprive individuals of life and liberty without due process of law. The ruling built off a constitutionally recognized right to privacy, which came when the court struck down state restrictions on contraceptives.

That ruling didn’t spark an immediate outcry, but by the Reagan era, it had become a rallying point for conservatives who believed the high court had improperly invented rights not laid out in the Constitution, usurping the political branches of government. The issue of abortion has hung over the Supreme Court ever since, as well as the Senate confirmation process for new justices.

Mr. Trump pledged to appoint justices who would overrule Roe, and when he named Justice Amy Coney Barrett to succeed the late Ruth Bader Ginsburg, the court’s conservative majority grew to six justices. That gave hope to abortion opponents that aggressive new state measures might find high-court support and led some, including Mississippi, to call on the court to overrule Roe.

The court does on occasion overrule its past decisions—notably, for instance in the 1954 Brown v. Board of Education decision that ended racial segregation in public schools—but justices for years have dueled over when it is appropriate to do so. Most of those debates have taken place in cases that had nothing to do with abortion, but the future of Roe has loomed over the discussions.

The Supreme Court in 1992 came close to overruling Roe, in Planned Parenthood v. Casey, a case involving abortion restrictions in Pennsylvania. But internal deliberations led the court to preserve core protections for abortion rights, under a controlling opinion forged by three GOP appointees.

Mississippi’s law, the Gestational Age Act, was adopted in 2018 and initially designed as a more incremental attack on abortion. At the time, a full legal assault on Roe had no realistic chance of success because Justice Anthony Kennedy, a maverick conservative, stood alongside Justice Ginsburg and three other liberal justices in forming a solid majority to keep abortion rights in place.

The case began when the state’s only provider, the Jackson Women’s Health Organization, sued to strike down the 15-week law.

After Justice Kennedy later in 2018 retired and Justice Ginsburg died in 2020, Mississippi shifted gears in how it defended its restrictions. After previously arguing its law could be upheld without jettisoning all constitutional protections for abortion, the state urged the high court to ditch Roe and Casey altogether.

>>> US Gapping down


Gapping down
In reaction to earnings/guidance:

  • CAMP -16.4%, TREE -6% (lowers Q2 rev guidance due to challenging interest rate environment), SWBI -1.7% (also increases dividend), KMX -0.8%

Other news:

  • REV -5.7% (discloses that a portion of the proceeds of the initial borrowing under the DIP Term Loan Facility were used to repay in full and terminate the Foreign ABL Credit Agreement)
  • CYTK -1.2% (FDA to hold Adcomm for omecamtiv mecarbil on Dec. 13 2022)
  • NVAX -0.9% (receives EUA in Taiwan for its Nuvaxovid COVID-19 vaccine for 18+)
  • SRPT -0.5% (FDA places clinical hold on SRP-5051 for Duchenne muscular dystrophy)

Analyst comments:

  • BAX -1.7% (downgraded to Equal Weight from Overweight at Wells Fargo)
  • AMP -1.1% (downgraded to Neutral from Buy at Goldman)