Is it time to panic with the stock market rolling over??

Constellation Energy and Walgreens update, and earnings preview for the banks

With a non-holiday Thursday off interrupting the first full week of the year, the themes of 2025 are only just starting to come into focus. What Mr. Market seems to want to prioritize, what behaviors it will be rewarding, and how we should position for it. This past week we had four real pieces of stock specific news….and non-farm payroll numbers.

One of them was broadly everything CES related, led by Nvidia news. We had Constellation Energy buying Calpine Corp from a private equity holder. Then we started/ended earnings seasons with Delta kicking us off for CYQ4 and Walgreens being the last company to report from last cycle.

If we’re being honest, CES has been boring for years. We made a TV that is also a waterfall. We made a TV that is as thin as a piece of paper. We made a sex doll. Fancy toilets that somehow still aren’t as good as the most basic toilet in a public restroom in Japan. On and on, the last half decade plus has been the same items at CES with incremental updates. Few if any real groundbreaking tech that feels like a need to have within the next 12 months as was common prior to the late 2010s.

Nvidia’s presentation was exactly that. The 5k series of RTX GeForce GPUs for home PCs were announced. To much fanfare. But unless you’re looking to play Witcher 3 in 8k, its not a needed piece of tech. At least until after GTA6 comes out for PC. Which might not be until late ‘26 or ‘27 if Rockstars history of PC ports is anything to go by. So its not a needed today piece of tech. It is awesome though.

The only other things to come out of CES that were notable were more smart rings are coming, LED red light therapy masks are about to get real cheap (boys pay attention to this one if you’re looking for a Christmas gift this year for the wife/girlfriend), and there’s a few other players in the smart sunglasses arena that are going up against Meta. But none of this stuff really moves the needle. It continues to be incremental improvements, not anything groundbreaking. Boring.

The market didn’t like Nvidia’s press conference. Using it as a massive sell the news event and pushing it down almost 10 points from tip to tail on the day. While I think some of this selling is liquidity related (more on this piece below), the market can’t be happy that Nvidia only briefly talked about datacenter related products, which is where most of their revenue comes from now, and instead focused it on consumer GPUs. It’s called the consumer electronics show. I’m not sure what the market was truly expecting.

The only real red flag in the Nvidia conference was their weird pivot in the last few minutes to Robots. Robots aren’t anywhere close if they were Google wouldn’t have sold Boston Dynamics for pennies. No one serious in the robotics space thinks we’re closer than a decade off, yet Nvidia, via Jensen, is already trying to hype this next ‘explosive’ sector of growth. Given that margin risks in their data center revenue are going to be the story of 2025, its got to be a bit unnerving for those giga long Nvidia to see Jensen, a pumper on the level of Elon (and I mean this in a good way) start to take his eye and sales pitch off of the data center spend and move it onto an area that doesn’t even exist right now. Even if data center is consumer related. This topic might’ve negatively affected the stock the rest of the week, but I imagine only somewhat, not nearly as much as liquidity did.

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Constellation is the best preforming S&P 500 stock YTD. As its up 36.42% already. Going into Friday’s session it was up nominally. The big move was made then, as it was announced they were buying gas power generation company Calpine. The deal was for a mix a stock and cash, and values the privately held Calpine company at $26.6 billion dollars. According to CEG’s management, this deal will add $2b to FCF, putting it at a 13x FCF buy, which is extremely cheap given the expected growth natural gas utilities, especially a semi unrelated one like Calpine, will have. The deal could have a pay back period of, and this extremely best case scenario, five years. But its more likely it’s paid off in totality via FCF within eight or nine. The stock consideration is 11.9b, leaving the remainder of 4.5b of cash and 12.7b of debt. This 17b of cash/debt considerations, when adjusted for growth should be paid back by the end of decade at the latest.

The market loved the deal, sending CEG shares up almost 70 points.

I’m a little less in love with it, as it moves CEG away from being a pure play nuclear energy producer and into a much more volatile natural gas space. A space that is expected to grow, but still. If data center growth slows- for literally any reason, this deal isn’t a grand slam for shareholders. To keep the baseball analogy going, the worst-case situation is its probably a single but still beneficial to the bottom line. The only near term risks for longer term share holders is that Calpine was owned almost entirely by private equity. Once the deal closes in Q4-25 its likely they’re will be a semi strong ask on CEG as the PE firm monetizes some of its CEG holdings to return to LPs. That will likely create some weakness in Q1 2026. Sometime to remember a year from now.

If you missed CEG no worries. While I don’t know what the catalyst will be VST seems to run a few days/weeks after CEG. At least it has for the last year-ish since it got into the S&P 500. It looks primed and ready to go, I think a move up to either 190, or if things get real spicy, 220/225 area, is probably in the cards soon. The chart looks beautiful.

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One of the most obvious themes for 2025 is energy production. That’s why the nature gas stocks have been moving. Why pure play oil names, or energy names that have to do with power conversion has done well YTD. Its why CEG ripped higher. Its why I think VST will as well.

The thing with 2024, is much of gains in the tech space came from multiple expansion. A trend that likely won’t continue if liquidity isn’t continually injected into the market in a big way. Not without seeing massive growth surprises.

An example of a stock that did show a massive (for what it was trading at) growth surprise was Walgreens. Listen, I’m not going to sugar coat it and say Walgreens is some world beater stock, but the company was priced like it was going to see declining revenue for the next 10 to 12 years, was maybe going to see the 2040s at the latest and then go bankrupt. It was at <5x the mid point of the sell side EPS going into the print at $9~. Walgreen’s guided to 1.4 - 1.8 for 2025, and *this is the important part* smashed all revenue expectations and actually GREW revenue.

Suddenly the melting ice cube thesis goes away if that revenue growth continues. Listen, again, and I want to stress this, WBA isn’t a world beater best in class equity. What it is, was a company that wrote down all good will last year, tore off all of the issue areas, and put their EPS in the dumpster, all while refocusing the business on the core business. Can it still go bankrupt in 10 - 15 years? Ya probably. But if it’s growing revenue it can’t be trading at <5x EPS. Even if operating losses increased (at a lower rate and led by one-time items) in this print.

Walgreen’s is likely sadbagging their guidance, and based on the how far it moved on Friday the market seems to think so too. Its likely their real 2025 number is closer to $1.6 at the low end, to $2 at the high. That would be a midpoint of $1.8 in EPS, which is the top of their current range. Given that now they no longer have any opioid settlement set asides, and no other major lawsuits coming down the pipe, its likely they probably get to that $1.8 number. With an outside shot of north of $1.9. Given their revenue growth levels, they should trade at 8 -9x current year’s EPS and 7.5 - 8.5x NTM EPS. That puts them somewhere in the 14s to maybe 16 at the high end for their stock price.

There’s a massive gap up to $15.5, I expect if we push into that we’ll likely see the close of that gap by the end of the year. This all asssumes PE doesn’t step in on Monday and try to buy them for $14~. If they don’t announce soon it’s likely off the table as Walgreen’s market cap will become to big for them to take private.

Walgreen’s is a stock that has beaten to hell and back, but if it continues to show (small) revenue growth for the remainder of the year, it should see multiple expansion while the rest of the market compresses.

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Before we jump into broad market stuff, I want to talk about United. They moved close to 10% higher on the Delta earnings print on Friday. The key part that Delta did that moved United was talk about how strong international travel seems to be trending into summer 2025, and raise their full year guidance because of credit card usage. Personally I don’t know why anyone uses one of the branded airlines credit cards because at least if you have the Chase Saffire rewards card (the $95 a year card, the same price as the united and delta one) your points move over to either United or Delta on a 1:1 basis and the chase card gives you more points for restaurants, gas, travel and a few other categories. But the branded cards seem to be popular despite that spread.

All of that is a read through to United, who is benefiting from Frontier raising their prices, Spirit declaring bankruptcy, Southwest looking like they’re going to increase their fares as well, and Boeing mismanagement keeping more planes out of the air. I told people to get long United before the Delta print, and that paid off, but I think it’s worth holding United *at least* until their earnings next Tuesday. As the market will likely push them higher expecting a good print and a great reaction. While there is always risk to owning a stock. Especially in a weaker market like we’re in now. Saying that, with a reference price of $107~ I think United will be north of $110 going into the print. Though do remember next Monday is another market closure day, so if you don’t want to hold through earnings you need to sell by Friday close.

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Okay, now that we got through the news of the last week let’s talk about the market. The market is in a very interesting (read: NOT GREAT) place right now. Making matters worse is that any excess funds from the IRA bill that haven’t been used already have been returned to the US treasury. This reduces fiscal stimulus, which in turns has a negative affect on market multiples. It shouldn’t affect earnings much, outside of companies that have benefitted from oversized muni-spending like MSI and AXON. But it reduces the Perma bid that has been on the market since the IRA bill was passed.

The liquidity drain happened on 1/6. Which happened to be the day the Nvidia puked. While it’s like CES was more of the reason, as one of the biggest liquidity captures in the market (also of note: Apple and Tesla), the lack of new money flowing in via municipality spend starting on 1/6 will hurt the BTFD impulse that has made the Mag7 (and tech more broadly) fly well past what their growth rates would justify.

That doesn’t mean I’m omega bearish near term. The TGA will have to be drawn down sizably for structural reasons in the next 10-ish (real world) days. This should lead to a sizable rally into Friday MOPEX, possibly through the latter half of next week with the Trump inauguration. For the next few days put on your rally caps! After that the market has, in my view, two viable bullish paths and one bearish one.