Ivanna Hampton: Here’s what’s ahead on this week’s Investing Insights. Walmart plans to split its stock. I’ll talk with a Morningstar analyst about what this means, and whether investors should buy or pass. Plus – Disney is ready to play full court ball in live sports streaming. Yet, issues remain for the entertainment powerhouse after solid earnings. And – spot bitcoin ETFs have hit the one-month mark since launch. A look at how much money has flowed in, and why the demand could grow. This is Investing Insights.
Welcome to Investing Insights. I’m your host, Ivanna Hampton. Let’s get started with a look at the Morningstar headlines.
Disney’s margins climbed in its fiscal first quarter. Morningstar considers the entertainment powerhouse’s results a positive, though underlying issues remain. Disney is now going all in on streaming live sports. It’s partnering with Fox and Warner Brothers Discovery to provide a joint streaming service this year. Disney will launch ESPN as a standalone platform next year. In contrast to these grand streaming plans, the company had weak results in its traditional TV and licensing businesses. But the quarter validates Disney’s strength and ability to survive the media industry’s evolution. Morningstar estimates Disney’s value at $115 per share. It appears moderately undervalued.
Ford is cutting costs in 2024 to ease the damage from United Auto Workers strike. The Detroit automaker reported a strong fourth quarter despite the UAW strike costing about $1.6 billion in quarterly profit. It reported earnings per share of $.29, beating the average Wall Street analyst’s expectations. However, it was down year over year. Management predicts flat to modest sales increase and lower prices in 2024 compared to 2023. Ford will pay out a supplemental dividend for a second straight year. Investors are scheduled to receive an extra $.18 per share on March 1. Morningstar thinks Ford can handle most tough macroeconomic news without sacrificing investing for the future. The Model e electric vehicle business lost almost $5 billion last year. That’s expected to rise a little more this year. The situation will not likely change until the next generation of EVs roll out in 2026. Morningstar maintains that Ford stock is worth $19 per share.
CVS Health has trimmed its 2024 profit outlook because its Medicare Advantage members are using healthcare services more. The pharmaceutical and retail company has lowered its full-year earnings forecast to at least $8.30 per share from at least $8.50 per share. Yet, CVS shares rose following its earnings release on February 7th. It reduced its profit predictions for 2024 but not as much as the market feared. Other Medicare Advantage providers like Humana have expressed concerns about higher medical costs. An increase in healthcare services hasn’t necessarily been priced into plans for 2024. CVS reported a better-than-expected 12% growth in revenue in the fourth quarter. Morningstar still thinks CVS’s stock is worth $103 per share. Shares look significantly undervalued.
Walmart is making a move to help its employees invest for less. The low-price mega retailer is planning to split its stock. So, what does this mean for investors, and should they buy shares too? Noah Rohr covers Walmart. He is an equity analyst for Morningstar Research Services.
Welcome to the podcast, Noah.
Noah Rohr: Thank you for having me on.
Hampton: So, Walmart is planning a 3-for-1 stock split on February 23rd. Explain what is happening and why is the retailer doing this?
Rohr: Sure. So essentially, Walmart is just increasing the shares outstanding in their stock from their current 2.7 billion to about 8.1 billion after the split. And they talk about the rationale really being to lower the price per share of the stock to entice or incentivize their employees to buy more full shares in the company rather than fractional shares. And so, they're trying to get their employees to feel more like owners.
Hampton: So, Walmart wants to help its workers afford to buy those shares. Can you talk about whether this split will help investors? I mean, will this benefit them?
Rohr: So, the stock split really doesn't have much of an impact on investors overall. Despite the stock split, despite increasing the number of shares outstanding, the overall value of the company does not change. There aren't any ownership implications. So, an investor that owns 10 shares right now, after the stock split, they would own 30 shares of Walmart, but their ownership stake in the company wouldn't change, and the overall value of the company wouldn't change, and the fundamentals of the business also wouldn't change.
Hampton: Now, Walmart is scheduled to report on February 20th. And we'll get to see how they fared during the holiday season. What are you going to pay attention to in those quarterly results?
Rohr: Sure. So, a few things. One is continued growth in comparable store sales. So, for the first three quarters, Walmart has put up about mid-single digit comparable store sales growth driven by both traffic gains and growth in average ticket. So that's been really strong. We also want to see continued – or we want to see how margins fare, particularly with investments in technology and store remodels, as well as rising wages. So, we'll be curious to see how that plays out. And we'll be interested to see how revenue fares by product category. So, seeing if consumers are shifting their spending more to those general assortment, more discretionary product categories, because that category has been particularly soft in recent quarters.
Hampton: And for anyone who is looking to snap up some Walmart stock, is now the time?
Rohr: So, we currently see Walmart shares as slightly overvalued trading in 2-Star territory. So, we would be recommending to hold off for now and wait for a better entry point.
Hampton: Well, Noah, thank you for coming to the table today. Thank you for your insights into Walmart.
Rohr: Thank you again for having me.
Hampton: Spot bitcoin ETFs attracted a lot of attention when they debuted. But what about cash? Morningstar Research Inc’s editorial manager Ruth Saldanha and Morningstar Inc’s Senior Product Manager Sylvester Flood talk about the dollars and demand.
Ruth Saldanha: It's been a month since the U.S. saw the launch of bitcoin ETFs, with much fanfare and drama, it must be noted. Billions of dollars flowed into these funds, it is true. But how much exactly? And who garnered the most money? Sylvester Flood is a Senior Product Manager for Morningstar, Inc., and he closely tracks funds flows. He's here today to talk about the flows into bitcoin ETFs.
Syl, thank you so much for being here today.
Sylvester Flood: Glad to be here, Ruth. Good to see you.
Saldanha: So, let's start with the most important question. How much money went into these newly launched spot bitcoin ETFs?
Flood: Well, Ruth, quite a bit. It was a bit of a slow start. But since they launched on January 11th, the tally is up to US$7.7 billion.
Saldanha: How many of these bitcoin ETFs exist and are all of them counted towards the flows that we have?
Flood: Good question. So, there are 10 new spot bitcoin ETFs and there's one ETF that had existed already that converted to a spot bitcoin ETF called Grayscale Bitcoin Trust. It was very large. It converted around the 12th of January. So, they actually had outflows from that Grayscale fund mainly because the shareholders in that fund had purchased the shares in it but couldn't redeem them at full value of the underlying Bitcoin. So, once they had the opportunity to do that, they did it. So, the outflows from that Grayscale fund have actually been significant, about $5 billion, but they expected that. So, it's not a surprise. The launches of the 10 new ones, I would say have been very successful. The bitcoin or the crypto community had expected probably more flows, but from a mutual fund flows standpoint, drawing in over $7 billion in less than a month is a big success.
Saldanha: Help us understand these flows numbers. How do you calculate them?
Flood: It's pretty simple. Every day ETFs publish a NAV, end of day NAV, net asset value, just like a mutual fund does. They also supply us with shares outstanding and the flows are just the difference from day to day between the shares outstanding and that asset value and that gives us actually the actual flow into and out of these funds.
Saldanha: So, let's talk a little bit about that Grayscale fund and other funds like it. How much of this is net new money and how much of it is just flowed from one ETF into another?
Flood: We can only guess at that because the identities of the buyers and sellers are not known to us and really no one knows. But my guess would be that very little of the new money is coming from the grayscale shareholders. There wouldn't really be any reason for them to leave that one, that bitcoin, spot bitcoin fund and go to the others, except that the grayscale fund has very high expenses of 1.5%, I think. I would imagine that expenses going to – they're going to have to change it just to be competitive. The other new funds have expenses which are about one fifth to one sixth as much as the Grayscale fund. So, I think that net new of that 7.7 billion most of it is new money.
Saldanha: Interesting. Now you said at the start it was a bit slow and then it kind of spiked a little bit. At this stage, do you think that the flows have reached about a plateau for these new bitcoin ETFs?
Flood: I think they're going to keep coming in because especially in the U.S. market there's long been demand by clients of their advisors to give them bitcoin positions in their portfolios. And some of the platforms here developed ways for advisors to do that over the years. They were still a little bit obtuse and kind of strange for the advisors to deal with. They did it though, but you just couldn't look up your position in bitcoin like you could a stock or a fund. Basically, what they've done now is created kind of an easy button for advisors. If the clients are familiar with the ETF structure, all they have to do is say great there's an ETF now that we can use to give you a position in Bitcoin and frankly that's going to be really attractive to advisors. And advisors just don't jump in and out of things. And so, I think over time, especially over the next quarter which is the cycle in which advisors work with clients and make adjustments to their portfolios. You're basically going to see a steady inflow stream into these spot bitcoin ETFs coming through advisors.
Saldanha: We'll ask again in a quarter how much that is. Thank you so much for joining us today, Phil.
Flood: Oh, you're welcome, Ruth. Anytime.
Saldanha: For Morningstar, I'm Ruth Saldanha.
Hampton: That wraps up this week’s episode. Thanks Ruth and Syl! Thanks for listening. If you enjoy hearing market trends and analyst insights on our podcast, feel free to leave a five-star review on Apple Podcasts. It will help others find us. Thanks to senior video producer, Jake VanKersen, and videographer, Colin Grant. I’m Ivanna Hampton, a lead multimedia editor at Morningstar. Take care.
