Douglas Cliff
In current weeks, weight reduction medicine have made headlines because of some firms saying that they may already be having an affect on the underside line. Whereas at first look the affect of those drugs — often known as GLP-1 agonists — would possibly simply affect meals and drinks, the truth is that they may affect many different shopper industries.
Attire retailers, on line casino/gaming names, and even airways are simply a few of the industries that would see an affect from the rising reputation of weight reduction medicine. A number of the extra common ones are Novo Nordisk’s (NVO) Wegovy (semaglutide) and Ozempic (semaglutide) and Eli Lilly’s Mounjaro (tirzepatide).
In a current be aware, BofA Securities famous that whereas the usage of these new medicine remains to be early, it is prudent to concentrate now to their potential affect. “The affect of those downstream results is far much less clear to the market however might change shopper habits over the longer-term with some industries benefitting whereas others having greater threat.”
Relating to attire retail, BofA’s Lorraine Hutchinson mentioned the drugs may very well be a boon to the business because it might spur a wardrobe alternative cycle.
“Weight reduction might help demand for the choices from conventional retailers…and fewer demand for plus dimension retailers like Torrid (CURV),” she wrote. “We additionally anticipate athletic attire manufacturers like lululemon (LULU) and Deckers (DECK) to learn given the more healthy life proven to be supported by GLP-1 medicine.
“If people utilizing GLP-1 lower your expenses by way of way of life modifications, they may use this cash to fund the clothes spending,” she added.
Based mostly on present analysis, there could also be a relationship between weight problems and drawback playing, in keeping with BofA, which estimates this sort of playing represents 10%-30% of all gaming income. If weight reduction medicine are prescribed to much more folks, this might probably result in a decline in drawback playing, negatively impacting the business.
“This suggests the utilization of GLP-1 might create a 0-4% income headwind for US industrial gaming with greater threat for slot machines or regional gaming,” famous BofA analyst Shaun Kelley. He added that in consequence, he’s keeping track of Boyd Gaming (BYD), Caesars Leisure (CZR), MGM Resorts (MGM), PENN Leisure (PENN), and Crimson Rock Resorts (RRR).
Whereas cigarette adverts used to assert that tobacco may very well be a approach to curb appetites, BofA believes that GLP-1 medicine’ affect on the sector can be minimal. Nicotine is thought to suppress urge for food, insulin ranges and improve metabolism.
BofA’s Lisa Lewandowski maintains that nicotine is used primarily by teenagers and younger grownup girls for weight administration. “This small subsegment of the smoking inhabitants might have restricted entry to those weight reduction medicine, resulting from their earnings, location, and insurance coverage protection. As well as, youthful sufferers might discover medical doctors hesitant to prescribe these medicine given the potential for long-term use of GLP-1 medicine and issues about younger grownup consuming issues.”
Nonetheless, on condition that there are ongoing research on utilizing GLP-1s to scale back cravings for addictive substances akin to nicotine and alcohol, the medicine might probably have an effect on tobacco utilization. That might affect firms akin to Philip Morris Worldwide (NYSE:PM), Altria Group (NYSE:MO), and British American Tobacco (BTI).
One business that would profit from weight reduction medicine are airways. Slimmer passengers imply much less general weight on board, and that would affect the underside line when it comes to much less gas burned. Gasoline accounts for ~25% of an airline’s general bills.
In late September, Jefferies put out a be aware stating that United Airways (UAL) might save $80M yearly assuming the common passenger sheds 10 kilos. That is based mostly on the belief that every United (UAL) flight could be ~1.8K kilos much less and save 27.6M gallons of gas per 12 months, in keeping with analyst Sheila Kahyaoglu.
“This profit needs to be acknowledged equally throughout airways,” Kahyaoglu wrote.
Throughout its Q3 earnings name on Oct. 12, Delta Air Strains (NYSE:DAL) CEO Ed Bastian, responding to a query, indicated the he does not see the meds having an affect on gas projections.
Nonetheless, take note of future feedback from administration of different prime airways, akin to, American Airways (NASDAQ:AAL), Southwest Airways (LUV), JetBlue Airways (JBLU), and Spirit Airways (SAVE), on this topic.
For additional evaluation on the affect of weight reduction medicine, take a look at the Oct. 14 Wall Road Breakfast Catalyst Watch podcast.