Company Reports

Paychex's offering appeals to businesses wishing to outsource mission-critical functions, manage and attract employees, and remain compliant with increasingly complex and evolving regulations. We expect more regulatory complexity, tight labor markets, and a growing adoption of hybrid work will underpin strong demand for Paychex's suite of offerings, supporting wallet share and market share gains. This includes greater penetration of the outsourced payroll and human resources model in the small-business market. While we factor in market share gains, we expect increasing competition to limit Paychex's pricing power and force the company to maintain elevated spending on software development and innovation to remain competitive.

With over $47 trillion in assets under custody or administration, Bank of New York Mellon is the largest custodian in the world. While core custody can be an undifferentiated offering, scale and the stickiness of clients have helped the firm generate double-digit returns on tangible equity.

Northern Trust consists of two moaty segments: wealth management and a custody business known asset servicing (previously corporate and institutional services or C&IS). Both segments are supported by the firm’s asset-management capabilities.

In our view, Illinois Tool Works is a consultative manufacturing firm that invents long-term solutions for its customers’ most painful problems. It explicitly operates in markets where it can differentiate itself and where customers prioritize product performance over price.

Befitting its private equity roots, New Fortress Energy seeks to provide an integrated solution for certain regions that lack where cheap, reliable, and efficient sources of power are scarce, primarily by providing gas or liquified natural gas solutions. It has been reasonably successful at identifying and acquiring infrastructure in countries such as Jamaica or Brazil that are very underutilized because of existing market challenges or relative geographic isolation, and using them to supply gas to the country, often displacing far more expensive and less reliable sources of power.

Narrow-moat-rated Repligen is a leading provider of bioprocessing solutions for companies that manufacture biologic drugs. Its business lines include advanced filtration and fluid management systems for both upstream and downstream processes, prepacked chromatography columns, proteins used in chromatography resins, and process analytic systems. Although Repligen is a relatively small player, we believe it is at the forefront of the innovation frontier. In the past 10 years, it has transformed from a company mostly known for its protein A ligands to one with a track record of launching new products with limited or no direct competition.

Carrefour provides exposure to global food retail with a high European weighting, mostly in the mature and competitive western part of the continent: France, Spain, Italy, and Belgium. However, it is highly exposed to the large hypermarket format, which is in structural decline in mature markets. This is because of consumer behaviour shifts and demographic trends (less waste, lower family formation rates, smaller families), which have contributed to the structural growth of convenience over one-stop shops, with shoppers preferring more frequent shopping trips and smaller baskets.

BeiGene is an emerging Chinese biotechnology company with a global leading position in hematologic cancers thanks to its core drug Brukinsa. Since its approval in 2019, Brukinsa’s stronger efficacy and superior safety profile have allowed BeiGene to gain market share from existing drugs. In the next five years, we expect Brukinsa to continue contributing more than 50% of BeiGene’s total revenue.

Koninklijke Ahold Delhaize is one of the largest grocers in the United States with almost $60 billion in sales across the country. It holds the number-one or number-two position in most of its markets with Albert Heijn in the Netherlands the group's most prized asset, commanding over 37% of Dutch market share, accounting for 55% of total European sales. The company has generally managed its expansion and operations prudently, with low levels of financial leverage and a strategy of financing its dividend and share buybacks using its free cash flow.

While Sainsbury’s has historically distinguished itself from its peers with a higher-quality (premium-priced) food offering, it has been underperforming its peers due to a lack of focus and responsiveness to an increasingly value-oriented UK consumer base and a below-average value perception. Recent investments in lower prices have reverted trends with the grocer now in a solid position in the very competitive UK grocery market.

Aurizon's rail operations hold significant cost advantages over other forms of bulk commodity transportation, though the industry is highly cyclical and competitive. Downward pressure is likely to remain on haulage rates and volumes as overcapacity drives intense competition.

We expect REA Group’s near-term challenges to center around navigating significant volatility in the Australian housing market. After the onset of the covid-19 pandemic, REA Group received a substantial boost to revenue and profit margins from the booming housing market. We estimate that residential transactions were around a third above trend levels during fiscal 2021 and 2022. With the normalization of interest rates, we expect continuing swings in listings but an eventual return to trend, which started in fiscal 2023.

EchoStar has broken from its television legacy, agreeing to sell its satellite and online television operations to rival DirecTV. The move isn't surprising considering that EchoStar's predecessor, Dish Network, has made a massive bet on wireless spectrum, spending about $30 billion (more than $100 per EchoStar share) to acquire various spectrum licenses over the past 15 years. Selling the television business, which should close in late 2025, helped EchoStar raise additional capital, which it will plow into the wireless business. The firm will need to invest heavily in additional network coverage, customer acquisition, and developing new enterprise service offerings to build a niche in the wireless market. We expect EchoStar will again need to raise capital two or three years from now, even if the business performs well. Uncertainty remains very high.

In September 2024, Jacobs Solutions completed the spinoff of its critical mission solutions and cyber and intelligence businesses. On Sept. 27, these businesses were spun off and merged with Amentum to form a new publicly traded company. Jacobs shareholders received one share of Amentum Holdings (trading on the NYSE under the ticker “AMTM”) for each share of Jacobs held on Sept. 23.

Interactive Brokers is a unique brokerage in our coverage. It serves a more niche client base. In addition to retail investors, the company caters to the trading of institutional clients like hedge and mutual funds, proprietary trading groups, introducing brokers, and financial advisors. The commission mix of retail and institutional clients is about 55%/45%. Most of Interactive Brokers' clients still choose to pay commissions, even though many other retail brokerages have switched to a zero-commission model for US stock trading. The clients of Interactive Brokers are more sophisticated than those of Charles Schwab and E-Trade. They trade more frequently, maintain higher cash balances to make opportunistic moves, and use more leverage. These trading-savvy customers are attracted by Interactive Brokers’ low margin rates, comprehensive trading platform, sophisticated trading execution capabilities, and high interest paid on idle cash.

BridgeBio Pharma is a biotechnology company focused on bridging the gap between genetic research and unmet patient needs. Its pipeline targets Mendelian disorders, precision oncology, and gene therapy, with four programs in late-stage development.

LPL Financial provides an advisory and brokerage platform for advisors, broker/dealer services for financial institutions, and resources for practice management. At the end of 2023, advisors on LPL's platform served over $1.3 trillion of wealth management assets in the United States. LPL aims to offer services to all advisors regardless of business model. For example, advisors can be licensed with LPL Financial, giving LPL responsibility for managing risk and compliance, or they can operate as a hybrid Registered Investment Advisor using LPL Financial for custody, trading, and administrative support. LPL has also launched a new employee model that allows advisors to fully outsource practice management.

Stellantis’ DARE 2030 strategy (launched 2022) has four key goals—become the most profitable automotive original equipment manufacturer globally, lead the industry on carbon neutrality by achieving such by 2038, accelerate the transition to electrification with a battery electric vehicle, or BEV, sales mix target of 100% in the EU and 50% in the US by 2030, and achieve first place on customer experience.

Qube's strategy is to consolidate the fragmented logistics chain surrounding the export and import of containers, bulk products, automobiles, and general cargo, to create a more efficient and cost-effective supply chain. The business has enjoyed some successes to date, though significant scope for industry consolidation remains.

Transurban is a major toll road investor with concessions to operate motorways in Australia and North American. Concessions grant the right to operate the roads and collect tolls for predetermined amounts of time. The core Australian roads are integral parts of the motorway networks in Australia's three largest cities: Melbourne, Sydney, and Brisbane. The roads benefit from strong competitive advantages, and the assets generate attractive returns on initial investment, warranting a wide economic moat rating.