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No-moat Citigroup reported better-than-expected first-quarter earnings at $1.58 per share compared with the FactSet consensus of $1.18. There was an incremental $251 million FDIC special assessment charge related to the FDIC increasing its estimated loss from the March 2023 banking events. Other non-recurring expenses included $225 million of restructuring charges related to organizational simplification. We do not anticipate a material change to our $68 per share fair value estimate for the bank as we incorporate first-quarter results.

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Conagra’s business has evolved over the years, from a conglomerate, reinforced by its 2012 acquisition of Ralcorp that bolstered its private-label exposure (later divested at half the purchase price), to its present focus on brands and driving growth through increased value (rather than just boosting volume). However, food is competitive, and we don’t think it has a portfolio of leading brands and entrenched retailer relationships to warrant pricing power, a handicap relative to branded peers. In addition, it spends notably less in product development and marketing, claiming more efficient spending closes the gap. But we remain skeptical and don’t believe it will capitalize on consumer trends more effectively than competitors. A subscale portfolio lacking strong brands combined with continued underspending is likely to leave it an industry laggard, in our view.
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We believe no-moat Macy’s is struggling to stay relevant as consumers have many choices. The firm recently announced the closure of about 150 of its lower-performing stores over the next three years as part of its “A Bold New Chapter” plan. We think this move is long overdue as department stores have been losing market share to e-commerce and other retailers (outlets, branded stores, specialty stores, discounters) for at least 15 years. Other parts of the new strategy include investments in continuing stores, new smaller-format stores, cost reductions, supply chain investments, and luxury expansion. Even so, due to store closures and a lack of consistent organic growth, we forecast yearly revenue and operating margins will stay well below historical highs for the foreseeable future. Specifically, we estimate long-term operating margins at just over 5% on annual revenue growth below 1%.
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The years since the financial crisis have shown that American International Group would have destroyed substantial value even if it had never written a single credit default swap, had noncore businesses it needed to shed, and had material issues in its core operations that it needed to fix. We've been encouraged, however, by the recent progress in terms of improving underwriting margins, and management's efforts to reduce costs have been another material step.
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Until 2021, Pinnacle West had been earning solid returns and rewarding shareholders with dividend increases as customer and energy usage growth in Arizona outpaced most other utilities. But regulatory setbacks have made it difficult for Pinnacle West to turn those favorable fundamentals into earnings and dividend growth.
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Intuit is the giant behind U.S. small-business accounting software QuickBooks and do-it-yourself U.S. tax software TurboTax. With TurboTax and QuickBooks online sales having eclipsed their respective desktop sales, Intuit has now transitioned into a cloud-first company. Consequently, this has enabled Intuit to leverage customer data to streamline the user experience across disparate products and to natively market its offerings, in turn supporting switching costs and a network effect, which we consider to already be the backbones of Intuit’s wide moat.
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OGE Energy completed its long transition to a fully regulated all-electric utility in late 2022 when it finished selling the 95 million Energy Transfer partnership units it acquired in a swap transaction for its stake in midstream firm Enable. Utilities investors should be more comfortable with OGE now that it is a pure play regulated electric utility.
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We expect The Star Entertainment Group to deliver strong earnings growth over the next decade, buoyed by the recovery from pandemic-induced lows, the ramp-up of Queens Wharf and Gold Coast growth projects, and solid performance from its Sydney property, despite increased competition. The Star casino in Sydney is the company's core asset, which has historically generated approximately 70% of group earnings as the city's only casino. However, The Star's exclusivity in Sydney has come to an end with a second Sydney casino licence issued to Crown Resorts opening in August 2022. This is a major blow to The Star, ending its long-standing monopoly in Sydney.
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Crispr Therapeutics is a clinical-stage gene editing company focused on the development of CRISPR/Cas9-based therapeutics. The company's proprietary platform specializes in Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR)/Cas9, which precisely cuts DNA to disrupt, delete, correct, and insert genes to treat genetically defined diseases. CRISPR’s emerging technology has led to a new class of therapies, which are well suited for targeting rare diseases or other disorders that are caused by genetic mutations.
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Curaleaf cultivates and sells cannabis in the US with a presence in 17 states. Vertically integrated, Curaleaf produces through 21 cultivation sites and sells directly through 147 dispensaries and wholesale to other dispensaries. Compared with other multistate operators, Curaleaf has generally employed a more aggressive growth strategy, which hasn't always paid off, leading to exits and sales.
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Netwealth provides investment administration software as a service. It includes portfolio administration, investment management tools, and investment and managed account services. The firm’s administrative capabilities encompass custodial and noncustodial assets. Netwealth’s product integrates with external software, allowing it to facilitate more functions and streamline the implementation of financial advice to clients under a single—its own—platform. While Netwealth services all cohorts, it is particularly successful catering to more affluent clients who generate more revenue because of greater asset values and trading activity. This supports Netwealth's higher operating leverage relative to its peers.
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As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments. The company's innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat, in our opinion.
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While its primary business is insurance, Fairfax is in some ways more of an investment fund. Chairman and CEO Prem Watsa has a long history of bold investment bets and has shown a willingness to be unorthodox when it comes to portfolio construction. As a result, compared with other insurers, the company's results tend to be driven more by results on the investment side. We're somewhat skeptical of this approach, as we believe disciplined underwriting is a more reliable path to long-term value creation for insurers, and Fairfax's underwriting record is relatively poor.
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We view Marvell Technology as a strong competitor in networking chips, resulting from a multiyear business pivot using acquisitions, divestitures, and organic development to focus on the cloud data center market. In our view, the new-look Marvell offers strong growth potential, impressive profitability, and a healthy competitive position. Between switching, network processing, and optical chips, Marvell has one of the broadest networking silicon portfolios in the world, and we believe it is primed to expand faster than its underlying markets as future networking setups utilize greater content and we anticipate Marvell will continue to win share even in an expanding market.
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Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands at roughly 1,600 locations. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.
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CEO Andres Gluski has narrowed AES’ geographic and business focus by selling businesses in markets where the company did not have a strong platform or competitive advantage. We think his strategy has been in the best interest of shareholders. The company now has operations in fewer countries, a stronger balance sheet, and a rapidly growing renewable energy business.
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The revenue of China Resources Pharmaceutical Group grew at a compounded annual growth rate of 10.4% over the past 10 years. The growth is driven by its medical distribution segment due to industry consolidation and industry expansion. Similar to other larger pharmaceutical distributors, CR Pharma, in our view, is likely to grow faster than the distribution industry average in the next three years as the industry consolidates further.
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The convenience store operations under the 7-Eleven banner have been a key driver of Seven & i Holdings' growth. After accelerating its domestic store expansion and adding more than 7,600 stores between 2011 and 2018, management has embarked on overseas expansion, setting off from North America and now making inroads to other markets, including Vietnam and Australia. Management is pinning hope on foodservice and private-label growth, a key strategic initiative to boost per-store sales, to replicate its Japan success globally. Meanwhile, it has singled out food as the sole focus of the superstore business undergoing a major restructuring through 2025.
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Renault directly and indirectly owns 40.4% of Nissan, while Nissan owns 15% of Renault and 34% of Mitsubishi. Under the new alliance agreement, Renault transferred 28.4% of Nissan shares into a French trust, retaining a direct 15% stake. The trust sells shares under Renault's direction but there is no time limit applied. After Renault sold a 5% Nissan stake to Nissan and Nissan subsequently retired the shares, the trust now holds a 24.6% stake while Renault's direct holding is 15.8%. Nissan shares received voting rights with the new agreement. Voting rights of the Renault and Nissan-owned cross-shareholdings are capped at 15%. In addition, Renault owns 99.4% of Romanian automaker Dacia, and 80.0% of South Korean Samsung Motors.

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