Wall Street Lunch: Elliott Investment To Meet Southwest Airlines

Summary:

• Activist investor Elliott Investment Management pushes for a reconstituted Southwest Airlines board and new leadership, aiming for a $49 share price.
• Durable goods orders rose 4.4% to $289.6 billion, driven by transportation equipment, but core durable goods slipped 0.2%, reflecting restrictive monetary policy.
• Oil prices surged due to geopolitical tensions and Libya’s force majeure on oil production, impacting global supply concerns.

Listen below or on the go on Apple Podcasts and Spotify.

Activist Elliott calls for Sept. 9 meeting with Southwest Airlines. (0:16) SolarEdge CEO steps down. (2:34) Stop & Shop to stop selling tobacco. (3:15)

This is an abridged transcript of the podcast.

Our top story so far. Activist investor Elliott Investment Management plans to meet with Southwest Airlines (NYSE:LUV) on Sept. 9.

“It is time for a reconstituted Board to finally step up and put in place a transparent and credible process for addressing the challenges Southwest faces today,” Elliott partner John Pike and portfolio manager Bobby Xu wrote in a letter to shareholders.

The latest Elliott comments come after the activist earlier said earlier this month that it plans to nominate 10 director candidates for the airline’s 15-person board.

Elliott has confirmed that it has a $2 billion stake in Southwest, and the activist pushed for the airline to do a business review, saying the airline stock can reach $49 a share. Elliott also called for new leadership, including the company’s CEO Bob Jordan and Chairman Gary Kelly.

On the economic front, July durable goods orders soared 9.9% M/M to $289.6 billion, easily topping the +4% rise expected and rebounding from a 6.9% plunge in June. The headline number has been up for five of the last six months. The big driver was transportation equipment, rising 34.8% to $102.2 billion as the volatility in aircraft orders persists.

Core durable goods, which exclude transportation equipment, slipped 0.2% M/M, falling short of the consensus for no change.

Wells Fargo economists said: “Over the past year, new orders of durable goods (excluding transportation) are up a meager 0.65%, which is the softest annual growth rate since January.”

“The stalling is illustrative of restrictive monetary policy and political uncertainty. These dynamics have underpinned a deferment mindset among businesses that are reluctant to take on major projects today.”

“Today’s data confirm the ongoing trend that manufacturers are largely standing idle until looser policy comes to fruition and supports broad-based order demand,” they added.

There was action in commodities, with oil rallying.

Brent (CO1:COM) rose above $80 per barrel, while WTI (CL1:COM) also gained following the weekend strikes between Israel and Hezbollah and concerns of an escalation conflict.

Also, Libya’s eastern government declared force majeure on all oil production and exports after its Tripoli-based rival moved to replace the leadership of the central bank. The eastern part of Libya is home to the Sirte basin, where most of Libya’s oil reserves and four of the country’s oil export terminals are located.

Among active stocks, SolarEdge Technologies (SEDG) announced that Zvi Lando has stepped down as its CEO, and has named previous CFO Ronen Faier as interim CEO. No explanation was given for Lando’s departure.

Lando joined SolarEdge in 2009 as Executive VP of Global Sales and became CEO in 2019.

Argus lowered its rating on Wayfair (W) to Hold from Buy on what it sees as muted prospects amid fewer home sales and the current environment of elevated interest rates.

Analyst Jon Staszak says: “We think earnings growth could be hindered given stretched consumers, less favorable operating leverage, and the need to reinvest profits in software used to compare W’s prices to those of its competitors.”

And retailer Stop & Shop announced that it will stop selling all cigarettes and tobacco products at its 360 stores by August 31. The grocery chain, which has stores across Massachusetts, Rhode Island, Connecticut, New York, and New Jersey, said the decision is part of the brand’s commitment to community wellness.

President Gordon Reid said: “Our responsibility as a grocer goes far beyond our aisles, and we are committed to taking bold steps to help our associates, customers, and communities work towards better health outcomes.”

In other news of note, Telegram has backed iCEO Pavel Durov, who was arrested on Saturday in France and is reportedly still being detained for questioning, with the messaging platform saying he has “nothing to hide.”

The Russia-born billionaire was arrested at Le Bourget airport near Paris as part of an investigation into an alleged lack of moderation on Telegram, which police claim has allowed criminal activity – including crimes against minors, to go on undetected on the app.

The company said it “abides by EU laws, including the Digital Services Act – its moderation is within industry standards and constantly improving. Durov has nothing to hide and travels frequently in Europe. It is absurd to claim that a platform or its owner are responsible for abuse of that platform.”

Toncoin, the token of Telegram-linked The Open Network, dropped more than 20% soon after the arrest but has since cut losses.

And in the Wall Street Research Corner, Goldman Sachs has released its reports on the holdings of 693 hedge funds with $2.8 trillion of gross equity positions ($1.8 trillion long, $1.0 billion short) and 554 mutual funds with $3.7 trillion of equity assets.

Strategist David Kostin says “34% of large-cap mutual funds have outperformed their benchmarks YTD, down from 50% in May and below the historical average of 38%.”

And Goldman Sachs Prime Services “estimates that US equity fundamental long/short hedge funds have returned +9% YTD, boosted by alpha from popular longs and concentrated shorts.”

There are eight stocks that appear in Goldman’s Hedge Fund VIP List (based on the number of funds where the stock is in the top 10 positions) and are also overweight in mutual funds.

Those are CRH (CRH), Progressive (PGR), Visa (V), Fiserv (FI), Uber (UBER), Workday (WDAY), Mastercard (MA), and UnitedHealth (UNH).

---

---