Well, it’s official… After much hemming and hawing, the Electoral College cast their votes yesterday.
And despite the near-constant din of denial, Joseph Robinette Biden, Jr. was confirmed as our new President-elect.
Along with a popular vote margin of over 7 million, this cements a resounding win for Biden and puts a lid on this year’s agonizingly long election process.
But while it may provide some much-needed normalcy and stability with regard to politics, President-elect Biden is inheriting an economy that is anything but.
Formidable outbreaks of COVID-19 in Texas, California, Arizona, Tennessee, Pennsylvania, Ohio, and Michigan all threaten to shut down – or at least slow down – recovery in those areas.
Source: Bloomberg, Johns Hopkins
And worse, hospitalizations now sit above their March peak, adding to the already intense pressure placed on healthcare workers.
So with the country still very much in the throes of the pandemic, I thought it would be helpful to assess the U.S. economy and take a look at what the first 100 days of a Biden Presidency might look like.
Aside from a request that Americans wear masks in public places for a short period of time, Biden’s top priority upon entering office will undoubtedly be to focus on vaccine distribution.
Speaking at an event in his hometown of Wilmington, DE, where he also announced the top members of his health care team, the President-elect said “This team will help get…at least 100 million COVID-19 vaccine shots into the arms of the American people in the first 100 days.” Since both the Pfizer (NYSE: PFE) and Moderna (NYSE: MRNA) vaccines require two separate doses,the goal is to get 50 million citizens immunized during that period.
The initial recipients list was prioritized in a straightforward manner as well, focusing on those in long-term care, health care professions, and first responders – roughly 22 million people in total.
But in a simultaneous – and frankly, wise – effort to get all U.S. schools opened up in the first 100 days, the Biden administration is going to include the country’s ~5 million educators in the initial wave of vaccinations.
Should this plan prove successful, it will alleviate a ton of pressure on U.S. parents. As I discussed all the way back in September, many have had to withdraw from the workforce in order to supervise the progress of their children’s impromptu online education.
Perhaps more importantly, it can provide some relief for the 30 million children in the country whose families are food insecure, which has weighed substantially on the broader economy.
It also means that the company we targeted in that September piece – Bright Horizons Family Solutions (NYSE: BFAM) – may see an even larger boost in revenue, and a little sooner than we expected. Given that we’re up 25% on that position and that it’s trading near all-time highs, setting a 5% trailing stop here to lock in gains seems wise.
But let’s be frank, there are a lot of steps between getting all those vaccines produced and getting then “into the arms of the American people.”
Once the drug manufacturers fabricate the vaccines, they handle the first leg of distribution themselves, transporting them to refrigerated facilities operated by UPS (NYSE: UPS) and FedEx (NYSE: FDX).
Others, along with PPE and delivery products like masks and syringes, will be handled by McKesson Corp (NYSE: MCK), as they are functioning as a centralized distributor for the government.
McKesson will hand off the vaccines primarily to trucking companies like XPO Logistics (NYSE: XPO) and Old Dominion Freight Line (NYSE: ODFL).
Once the trucking companies have them, they’ll be transported on dry ice to health care facilities, doctor’s offices, and pharmacies like CVS (NYSE: CVS) and Walgreens (NYSE: WBA), who in turn will inoculate those first in line.
A bottleneck in any one of those logistical chains will pass on problems to those on both sides of the transfer, which is a huge risk for Biden’s administration to accomplish their goals.
That said, if all goes smoothly, the amount of cash flow that shifts between those operators will be massive. And when we look at all of them on a quarterly cash flow basis, it’s clear who the biggest benefactors will be.
Source: Bloomberg, Seawolf Research
Moderna’s cash flow has clearly flipped from negative to extremely positive, but it has nearly 10x’ed already this year and has begun to pull back. So upside is largely priced in at this point.
The delivery services, however, have seen even bigger influxes of cash these past few quarters. And of the two, FedEx has been the better performer thus far this year, nearly doubling its cash position since this time last year.
Source: Bloomberg, Seawolf Research
Also, they report earnings on Thursday, so taking a ¼ tranche flyer here – even at this ridiculous valuation – is a “Purple Power” speculation I’m willing to make.
All the best,