Equity Highlights April 2024

Welcome to Broyhill's Equity Highlights, where we share a few quick takes on recent news across the portfolio every month.  

We aim to make these highlights easy to read and easy to repeat. Feel free to share our work! 

Baxter considers selling kidney care unit to private equity. Last year, Baxter announced it would be spinning off its Renal Care segment to simplify the business and refocus on surgical technology and consumables. The company remains committed to separating the Renal Care business but may now sell the segment to private equity investors. Either way, Baxter's self-help story is playing out as expected.

Reckitt Benckiser Sheds Nearly $7 Billion in Market Value After Infant-Formula Verdict. Reckitt Benckiser, a consumer goods company known for making Mucinex, Lysol, and Enfamil, is in hot water with bereaved parents of premature babies. We argue that the market's reaction to the first of many lawsuit verdicts is overblown, with the stock trading at all-time lows. We've seen this movie before. We are applying our learnings from similar success stories (McKesson) and failures (Bayer) to underwrite this new holding.

Dollar Tree is closing 600 Family Dollar stores in the US, and the locations are emerging. We view this as a positive for Dollar General, which should face less competition in areas where Family Dollar stores are set to close. Barclays estimates that 96% of closing Family Dollar stores are within a 10-minute drive of a Dollar General store, which could translate 50-100 to comps next year. 

The Federal Perspective on Coverage of Medications to Treat Obesity: Considerations From the Congressional Budget Office. After weighing the cost (pun intended) of GLP-1 drugs against the cost of obesity-related ailments, the Congressional Budget Office expects that coverage for the drugs will be too expensive. While we do expect prices to come down over time, the cost is one of many reasons to support our belief that anti-GLP-1 companies, including dialysis manufacturers, will survive despite the drug's effects on patients with obesity.