3 shares in the news because of Ye, FKA Kanye West
The controversial American rapper formerly known as Kanye West has recently brought attention back to how the corporate world responds to social issues. The erratic musician, who also goes by the name Ye, recently unleashed a tirade of offensive comments that created a storm on social media and received backlash from advocacy groups.
The incident shed light on how companies react to their celebrities and public opinion. Some corporate giants (including the three listed below) have severed business ties with West and his entertainment and fashion empire, despite the resulting loss of millions of dollars in profits.
For investors who like to invest based on headlines, you may want to consider stocks of the following companies, which are currently trading at a price below our fair value estimates.
The German sportswear juggernaut Adidas (ADDYY) designs, develops, produces and markets sportswear, footwear, accessories and equipment for sport and leisure. Its fashion brands include Ivy Park and Y-3. Adidas sells its products in more than 160 countries through stores and e-commerce sites.
Adidas last week severed ties with rapper Kanye West over his social media comments. Adidas said in a public statement that it would end production of Yeezy-branded products, a partnership between the shoe company and West, and halt all payments to Ye and his companies with immediate effect.
“After months of speculation and mounting public pressure, Adidas has given Kanye West (Ye) what he wants and has ended their hitherto successful partnership,” a Morningstar stock report read, adding that “Although this decision has recently become inevitable, its impact will be more severe than expected as Adidas has ended production of all Yeezy products and stopped paying royalties.
The immediate impact is expected to be 250 million euros ($246 million) on Adidas’ fourth-quarter net profit, the report adds.
While Adidas offers limited information on Yeezy’s sales and profitability, the impact of the discontinuation of the Yeezy product line on results in future years could be “murky but significant”, says analyst David Swartz Morningstar stock, which recently reduced the fair value of the stork in the United States. $93 per ADR instead of US$105, “due to his misfortunes in greater China and the sudden termination of the Yeezy contract”.
Clothing retailer Gap (GPS) sells clothing, accessories and personal care products under the Gap, Old Navy, Banana Republic and Athleta brands. Old Navy accounts for more than half of Gap’s sales. The company operates stores around the world and has e-commerce sites.
After the Kanye West controversy erupted, Gap issued a statement saying that “anti-Semitism, racism and hatred in any form are inexcusable and will not be tolerated in accordance with our values. In the name of our customers, employees and shareholders, we partner with organizations that fight against hate and discrimination.”
Gap took immediate action to remove Yeezy Gap products from its stores and shut down YeezyGap.com.
The resulting loss of business adds to the retailer’s woes, including higher inventory, lower operating margins, inflation, logistical challenges and a strong US dollar. However, positive signs are emerging. “In recent weeks, shipping has shown signs of normalization and gasoline prices have fallen,” a Morningstar stock report said. “Additionally, we expect inventory levels to improve as manufacturers cancel shipments and sales increase over the holiday season.”
The benefits of investments in supply chains and other operations by many apparel companies, including gap, will pay off and become more apparent in 2023, the report says.
Despite widespread pessimism in the market, “now is a good time to consider the many apparel stocks that are trading well below our fair value estimates,” Swartz says.
Swartz recently lowered the fair value of the stock to US$25 from US$26, due to weaker results in the second quarter of 2022, primarily due to inventory issues at Old Navy.
US banking giant JPMorgan Chase (JPM) is one of the largest and most complex financial institutions in the country, with nearly $4 trillion in assets. The bank operates four major segments: retail and community banking, corporate and investment banking, commercial banking, and asset and wealth management. The bank has a global footprint.
JPM recently ended its relationship with Kanye West and his clothing brand Yeezy Inc, prompted by his numerous offensive comments. JPMorgan Chase, which has joined other companies in distancing itself from West is arguably the most dominant bank in the United States.
“The bank’s combination of scale, diversification, and sound risk management seems like a straightforward path to competitive advantage, but few other companies have been able to execute a similar strategy,” says a Morningstar report. on stocks.
The financial juggernaut enjoys an unrivaled combination of scale and reach that underpins its wide moat. “Given the bank’s higher capital levels, scale and reach with technology changes, and robust fee income, JPMorgan will consistently earn returns above its cost of equity of 9.5% throughout. cycle,” said Morningstar strategist Eric Compton, which places the stock. fair value at US$146, calling it “one of our top picks among US banks.”