Below is a brief excerpt from a complementary research note written by our Industrials analyst Jay Van Sciver. We are pleased to announce our new Sector Pro Product Industrials Pro. Email firstname.lastname@example.org to learn more.
Many parts of the Industrials and Materials sectors are impacted by Federal policy, and the election has broad relevance. The impact of Republicans holding the Senate is likely to be the most relevant, particularly if Senate Republicans continue to pivot toward fiscal hawkishness.
At the margin, a Biden presidential win might make this more likely relative to a Trump win. Below are some initial reads – these will almost certainly need to be adjusted in coming days (…or hours).
We’re also omitting some potential consequences given remaining uncertainties; we may follow-up in a black book format.
TSLA, GM & EV Tax Credits
Republican Senate control keeps EV tax credit extensions and subsidies for charging infrastructure in the ‘unlikely’ pile, as we understand it. Senators, like Wyoming’s Barrasso, who currently chairs the Senate Environment Committee, have been staunchly against new electric vehicle subsidies.
We doubt EV adoption requires subsidies, but this is a negative at the margin for companies like GM and Tesla that are at a US EV tax credit disadvantage over the next couple of years. Shares of Tesla and other EV names may weaken relative to the market on the outcome.
We didn’t speak to many investors who thought Prop 22 wouldn’t pass, and we ae surprised to see the shares responding to so favorably to a well-funded and well anticipated event. That said, Uber’s willingness to flout labor laws may have dissuaded competitive platforms unwilling to ignore legislation.
The clarity on labor rules for app-based drivers may invite competitive capacity at a company that is already hemorrhaging cash during the pandemic. The end of Prop 22 may refocus the market on Uber’s lack of profitability and 4Q20 pandemic-related headwinds. Prop 22 just ensures that a not-so-great status quo continues in one market.
UAL, AAL, Legacy Airlines
It seems clear to us that shares of UAL and AAL have been baking in further government support. The likelihood of that support seems lower if the Senate Republicans adopt fiscal hawkishness, particularly if the executive branch goes to the Democrats.
We’ll see if the House is willing to go ‘piecemeal’, but the odds have probably declined in a way we doubt is reflected in early trading. Per our DC policy expert JT, the airline bailout is “Not dead. Life support.”
The public transit agencies across the US need Federal support given ridership declines during the pandemic.
The NYC area Metro Transit Authority is perhaps the most visible of these, and the ‘blue state bailout’ idea in general faces serious challenges with a Republican majority Senate. We would expect names like Alstom and WAB to move to reflect what could be customer difficulty/distress.
MLM/VMC/CAT/KMTUY & Infrastructure
We’d assume a larger infrastructure bill is now less likely, although Republicans may be more willing to consider ‘investments’ as the highway bill comes up late next year. At the margin, it is probably negative for the MLMs and VMCs as well as the companies that sell into heavy construction markets, like CAT.
We’d assume the outcome is reasonably positive for FCN, as deferred restructuring may no longer be deferred. A Biden Justice Department might well be more aggressive. Tech antitrust could remain a target of bipartisan dissatisfaction. At the margin, the election is probably favorable for FCN.
FDX | Airfreight Rates Rising Again
While we’ve backed away from the ‘easy’ FDX call, we continue to see favorable data on airfreight rates. Surging passenger air traffic tends to coincide with holiday airfreight capacity needs. Not so ahead of the 2020 holiday as passenger air traffic remains subdued, particularly on international routes.