With the U.S. Treasury set to exhaust its workarounds and run out of options to manage the national debt until the self-imposed debt ceiling is raised or suspended, the world’s richest economy, which also issues the global reserve currency, is projected to run out of cash and fail to meet its obligations as early as June 1.
While Treasury Secretary Janet Yellen has deemed it ‘unthinkable’ to let the U.S. default on its debt and has urged lawmakers to set their differences aside to ensure that “America should never default.”
However, with Republicans such as Donald Trump playing hardball and endorsing the notion of letting the nation default if Democrats don’t agree to spending cuts, it’s probably fair to say that Ms. Yellen’s words are going largely unheeded.
Given that the alternatives to raising or suspending the debt ceiling, like the U.S. has done almost 80 times since the 1960s, seem either unviable or unattractive, the extent to which the U.S. and global economy could be undermined if the default comes to pass would, in the words of Yellen, be an “economic catastrophe.”
With business leaders such as Jamie Dimon convening a ‘war room’ over the debt ceiling standoff, even the markets have begun pricing in the worst. The S&P 500’s net loss since the beginning of the month could only worsen further the longer the crisis drags on.
Do you see the U.S. defaulting on its debt this time?
- Can’t Say
However, the sliver of silver lining that could encourage investors alarmed by the looming cloud of fat tails is that if the worst comes to pass, it would also mean a potential devaluation of the U.S. dollar.
This could be a significant tailwind for the export prospects of technology stocks, which have been under pressure due to 10 interest-rate hikes over the past year and are witnessing a watershed due to the advent of generative artificial intelligence.
Let’s discuss three potential winners:
Verizon Communications Inc. (VZ) offers communication, information, and entertainment products and services to consumers, businesses, and governmental agencies. The company provides wireless and wireline communications services and products in the United States through Consumer Group and Business Group segments.
Over the past three years, VZ’s revenue has increased at a 1.2% CAGR, while its net income has grown at a 5.5% CAGR. The company’s total assets have grown at 8.7% CAGR during the same time horizon.
On May 9, VZ settled its fifth green bond offering of $1 billion, with total offerings coming in at $5 billion since 2019. The net proceeds are expected to be allocated entirely toward renewable energy investments to accelerate the transition to greener electrical grids across the U.S.
During the first quarter of the fiscal year 2023, VZ’s total wireless postpaid phone gross additions increased by 5.3% year-over-year, while its total broadband additions of 437,000 were the highest in over a decade.
VZ’s total operating revenue for the quarter came in at $32.9 billion, while its net income and EPS increased by 6.5% and 7.3% year-over-year to $5 billion and $1.17.
VZ has met or exceeded its consensus EPS estimates in three of the trailing four quarters.
Adobe Inc. (ADBE) offers software products and services that enable individuals and businesses to create, manage, deliver, measure, and optimize content and experiences across various digital media formats. The company’s segments include Digital Media, Digital Experience, and Publishing and Advertising.
Over the past three years, ADBE’s revenue has grown at a 15.6% CAGR, while its EBITDA and Net Income have grown at 17.9% and 13.6% CAGRs, respectively. Its total assets have increased at 7.9% CAGR during the same time horizon.
On March 21, ADBE introduced Adobe Firefly, a new family of creative and generative AI models, first focused on generating images and text effects. Firefly would be part of the new Sensei generative AI services series across ADBE’s clouds.
On March 22, ADBE announced its partnership with General Motors Company (GM) and Prada Group to deliver real-time customer engagement and customization to improve the experience its clients can deliver to its end customers.
For the fiscal 2023 first quarter that ended March 3, ADBE’s revenue increased by 9.2% year-over-year to a record $4.66 billion. During the same period, the company’s gross profit increased by 9% year-over-year to $4.09 billion, while its non-GAAP operating income increased by 6.9% year-over-year to $2.13 billion.
As a result, ADBE’s non-GAAP net income for the quarter increased by 9% and 12.8% year-over-year to $1.75 billion and $3.80 per share, respectively. Robust financial performance has enabled the company to repurchase 5 million shares and increase the intrinsic value of the holdings of existing shareholders.
For the fiscal second quarter of fiscal year 2023, ADBE’s revenue and EPS are expected to increase by 8.7% and 13.1% year-over-year to $4.77 billion and $3.79, respectively. For the entire fiscal, both metrics are expected to increase by 9.6% and 12.3% year-over-year to $19.30 billion and $15.39, respectively.
ADBE has also impressed by surpassing consensus EPS estimates in three of the trailing four quarters.
Crane NXT, Co. (CXT) is an industrial technology company involved in payment and merchandising technologies. The company’s offerings include electronic equipment and associated software, including payment verification and authentication, as well as automation solutions, field service solutions, remote diagnostics, and productivity solutions.
On April 3, CXT announced the completion of its separation from Crane Company and celebrated its launch as an independent, publicly traded company. The leadership marked the occasion by ringing the New York Stock Exchange’s Closing Bell® on April 4.
Marking its strong start as an independent company, CXT’s net sales for the fiscal first quarter that ended March 31, 2023, increased by 6.2% year-over-year to $224 million. During the same period, its adjusted operating profit increased by 21.8% year-over-year to $67 million.
For the fiscal year 2023, CXT’s revenue is expected to increase by 2.8% year-over-year to $1.38 billion, while its EPS is expected to come in at $3.93, in line with its raised full-year adjusted EPS guidance range of $3.75 to $4.05.