Wall Street Lunch: Office Ordeals


Corporate building facade in windows of glass and steel

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HSBC plans to move its global HQ to a smaller space as office real estate continues to struggle. (0:15) Nearly half of Americans would try weight loss pills. (2:52) Morgan Stanley shakes up its dividend stock poftfolio. (4:20)

This is an abridged transcript of the podcast.

Our top story in today’s session –

Even as the hybrid work model becomes more popular, large office spaces remain vacant, pushing businesses to shift to smaller and less expensive properties.

HSBC (HSBC) is planning to shift its global headquarters from London’s Canary Wharf to much smaller offices in the City of London in 2026. It will cut its worldwide office footprint by about 40%. HSBC, which set up shop in Canary Wharf in 2002, is looking to move into BT’s former headquarters.

The move will likely be a blow to the Canary Wharf hub, which is already saddled with mounting debt and may be forced to sell some assets at a discount to help it deleverage.

Office markets continued to see heightened uncertainty during Q2, according to real estate firm JLL. Global office leasing volumes are down 14% Y/Y. The global vacancy rate rose to a record high of 15.6%.

JLL says “Leasing activity is likely to remain subdued as economic growth slows in major markets through H2 2023. Accelerating return-to-office mandates, upcoming lease expiries, and lower renewal rates will provide additional impetus to demand for new, high-quality space.”

More than 20% of office space has been vacant in the U.S., according to Morgan Stanley. They expect “commercial real estate to underperform on a relative basis in the near-to-intermediate term.”

Now a look at today’s trading –

Among active stocks –

Tyson Foods (TSN) dropped after reporting results that missed estimates. Q3 non-GAAP EPS of $0.15 missed the average analyst estimate by $0.11. Revenue of $13.14B missed by $490M. Adjusted operating income of $179M was down 82% from the prior year.

Sage (SAGE) is plunging nearly 50% after the FDA declined to approve its drug zuranolone for major depressive disorder, citing a lack of efficacy. The company is now considering a workforce reorganization.

Campbell Soup (CPB) announced it would acquire Sovos Brands (SOVO) for $23 per share in cash. The deal is valued at about $2.7 billion.

In other news of note –

Only a tiny fraction of adults in the U.S. are using prescription weight loss drugs, while many more are looking forward to taking them if the meds are proven to be safe and effective. Those are the findings of a new survey by the healthcare policy organization Kaiser Family Foundation.

The KFF poll based on more than 1,300 adults shows that only 4% of adults in the U.S. currently use prescription weight loss medications, and 45% are willing to do so if they hear that these treatments are safe and effective.

Pratt & Whitney’s recall of hundreds of jet engines has pushed airlines worldwide to limit some flights and routes to inspect affected aircraft.

RTX (RTX), the parent company of Pratt & Whitney, says 137 engines installed on Airbus (OTCPK:EADSY) (OTCPK:EADSF) narrowbody planes need to be analyzed. The inspections may cost the aerospace and defense company, formerly known as Raytheon, billions of dollars. That’s from the Wall Street Journal.

Spirit Airlines (SAVE) says it would perform inspections on its Airbus a320neo family of planes this fall. More than 40 of the carrier’s fleet of about 200 jets are affected.

In the Wall Street Research Corner –

The Jefferies equity research team revised its growth outlook and says it sees limited upside for the stock market and anticipates that a recession will take hold in Q1 2024.

The team says they “think that a recession is almost inevitable given numerous factors, but have not seen evidence that the economy is starting to lose much momentum.”

Their 2023 GDP forecast now stands at 1.7% (up from 0.5%), while 2024 falls to -0.5% from -0.3%.

“With better economic growth, we also see fewer cuts to fed funds in ’24 and finish the year at 2.38%.”

Morgan Stanley Wealth Management is swapping out a couple of names and boosting weightings in several members of its Dividend Equity Portfolio.

The team is adding CME Group (CME) and Archer-Daniels Midland (ADM).

They view “CME as a strong fit given its capital return priorities.”

“ADM benefits from a strong balance sheet that allows it to allocate 30% of free cash flows towards organic growth initiatives and 70% for capital return or M&A,” which should support continued dividend hikes and share buybacks.

They remove PepsiCo (PEP) due to its premium valuation and Accenture (ACN) to reflect a more cautious view of IT Services and Consulting.



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