Motley Fool Money - Firing on All Cylinders Indeed

Episode Date: November 3, 2023

We’re seeing some big reactions to earnings results in tech and have a few reasons to think some beaten up names might be finding their footing. (00:19) Ron Gross and Matt Argersinger discuss: Why interest rate and unemployment news helped stocksthis week. Starbucks’ triple-shot growth plan, Apple’s flat growth, and why Shopify is firing on all cylinders. Huge earnings reactions from DoorDash and Roku, and Match’s struggle to hold onto singles.  (18:50) Marc Robinson breaks down the negotiations between the United Auto Workers and automakers Ford, Stellantis, and General Motors. (34:16) Ron and Matt break down two stocks on their radar: WK Kellogg and Quest Diagnostics. Stocks discussed: SBUX, AAPL, SHOP, MTCH, DASH, ROKU, KLG, DGX Host: Dylan Lewis Guests: Ron Gross, Matt Argersinger, Marc Robinson Engineers: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

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We've got the latest on three house. hold names and three stocks that are down big, but might be poised for a turnaround. Mottleyful money starts now. Everybody needs money. That's why they call it money. Fool Global headquarters, this is Motley Fool Money Radio Show. It's the Motleyful Money radio show. I'm Dylan Lewis. Joining me over the airwaves, Motley Fool senior analysts, Matt Argersinger, Ron Gross. Gentlemen, great to have you both with me. How you doing, Dylan? We've got some big earnings to run through, but first, we're going to take a snapshot

of the big macro. Ron, we had a Fed meeting this week. We had jobs data this week. What did you see? It's been an interesting week, a lot of volatility. On Wednesday, the Fed unanimously, easy for me to say, agreed to hold rates steady. As you will recall, that's following a string of 11 rate hikes, four in 2023. And chair Jerome Powell said, getting inflation down to 2% has a, quote, long way to go. Okay, so obviously the investors Wall Street are hearing higher longer, and they don't typically like higher longer. But towards the end of the week, we got some interesting data that caused treasury

yields to back off, and they had been very, very high, as high as since 2007, which is part of the weakness, the cause for the weakness we're seeing in the market. We saw weaker than expected jobs report come in. We saw wage inflation moderating. So two things that say, well, maybe the economy is cooling off. Maybe the Fed is doing a good job in lowering our inflation rate somewhere down closer to two. The unemployment rate ticked up a bit to 3.9%. Yields came down. Stock market shot up later in the week, Thursday and Friday. So let's see what next week, but this week ended very strong. Yeah, we saw some big-time earnings results from some big-time companies.

We can get the earnings beat started and kind of talk through some of those big reactions we saw, Ron. Let's start with Starbucks. Shares up over 10% after the company reported earnings and revenue ahead of expectations. Matt, we joked earlier, I think maybe a couple weeks ago, about the absurdity of the high-priced Starbucks menu items. Are those double-shot drinks doing the heavy lifting here? They are. Well, the good news is, yes, they are. And Starbucks has been really able to pass long price increases, unlike a lot of other companies we'll probably talk about. But the good

news is it's coming from pole places. It's not just price increases. It's also coming from transactions. And, you know, it just hasn't felt really good to be a Starbucks shareholder lately. I mean, if you go, going into the earnings report, you know, you had a stock that's been mostly flat over the past three years. It's really underperform the market. There's been uncertainty about who is going to be CEO and how long Howard Shirtz would stay around. And of course, growth is kind of stagnated, particularly in China. But here we go. Today, it feels pretty good to be a shareholder. I mean, Q4 results are really solid. Global comparable store sales were up 8%. And as I mentioned, it wasn't just average ticket. It was also transactions. So it's not like Starbucks is seeing

any drop-off in customer traffic or transactions. We've seen a lot of companies report growth that's been totally based on price and not on volumes. Starbucks is winning on both ends. U.S. Coms were up 8%. China Coms. China's been a little bit of a struggle. Comps there were up 5%. And total revenue was up 11% to 9.4 billion. Probably the best part of the report in the Q4 was the operating margin, which was up 300 basis points, earnings for share, up 31% to $1.6. All these figures were way ahead of a consensus. And finally, the 90-day-after-rewards members, something I'd kind of pay attention to.

That number was up 14% in the U.S. to 32.6 million members. So quite a strong finish to fiscal 2020 for Starbucks. Yeah, those are incredibly strong results. And I know it's not all that Starbucks had for the street this week. Their CEO, Laxman-Narris-Semin, unveiled the company's new long-term strategy for the coffee chain. Matt, what's the plan? Yes. Naira Simmons and the team held a special call with Starbucks shareholders.

He kind of outlined his new long-term strategy, and he's calling it, wait for it, the triple shot reinvention with two pumps. Hey. Oh, oh. So this beverage order has five elements to it, guys. One, elevating the brand. Two, strengthening and scaling the company's digital presence. Three, becoming truly global.

And then here are the two pumps. You got one pump for unlocking efficiency. and a second pump for reinvigorating the partner culture. Don't have a lot of time to go into the details and context behind each of these, but there are a lot of investors who are probably wincing a bit at the, and I was certainly at the kind of the tortured coffee metaphor here, but they probably didn't win to the company's guidance for fiscal 2024. So comm's growth is between 5 and 7 percent, revenue growth is between 10 and 12 percent, earnings growth are between 15 and 20 percent, and Narasimini thinks those numbers

are actually pretty sustainable for the next several years, not just in this new fiscal year. So, you know, if Starbucks can meet these kinds of growth rates, I think shareholders are going to be feeling pretty good. I'd advocate for a third pump where we put the milk back out on the counter so I could put my own milk in my coffee once again like we used to do pre-COVID. I would call that an efficiency gain, Ron. You know, that's going to help throughput putting that milk out there. I'm 100% with you. I want to be able to dictate the color of my own coffee. We had results from Apple as well this week, another company that needs no introduction, Ron.

We just talked Starbucks results. The story there was some strength in China. Not exactly the case with Apple's results. No, really, really the opposite. And, you know, Dylan, it ain't easy being a $2.7 trillion company. Why don't you try it sometime? A lot of stuff has to go right. And in this case, in this case, not everything is going well.

earnings were better than expected. We'll talk about that in a second. Sales were disappointing. Guidance was disappointing. Sales were down slightly, but this was the fourth consecutive quarter of declines. So, you know, for market-leading Apple, that's not what investors are looking to see. The iPhone business was up 2.8% for new iPhone 15s introduced in September, but all other categories basically showed weakness. Mac down 34%. iPad down 10%, wearables down 3%. Only bright spot in addition to the iPhone was the service segment, which was up about 16%. That's AppleCare, ICloud storage, App Store sales, deals with Google. So that was okay. That's actually the second largest segment now behind iPhone.

So it's important that that had some strength. But as you said, China, one of the bigger challenges, Apple reported it's a second largest segment. lowest revenue from the greater China region since mid-2020. iPhone demand was strong, but Mac and iPad were very, very weak. And overall, China revenue fell 2.5%. Boil all this down. You got some help from a lower tax rate. You got some help from the fact that they buy shares back.

So shares outstanding were down. So earnings per share actually managed to grow pretty nicely at 13%. So not too bad. company continues to return cash to shareholders, has $162 billion in the bank, 27 times forward earnings. Got to see some growth folks. Otherwise, that starts to look pretty expensive. That was, yeah, you hit the last point about valuation run, and that's kind of where I was going to go. If you looked at Apple entering the year, it was trading for around 21, 22 times earnings, you know, a slight premium to the overall market. Definitely always justified for something

like Apple. But the stock is up 35 percent year to date. Even through these earnings, I didn't realize it had such a good year. And now, as you mentioned, 27 times earnings feels like a premium valuation. I mean, even Warren Buffett, of course, owns and loves Apple. It's probably a little nervous about where the stock is trading. I noticed Berkshire Hathaway was a steady buyer of the stock last year and kind of coming into the year, but he hasn't bought any shares over the last couple quarters. I wonder if he's seeing the same kind of valuation concerns that we are. It could be a lot of the talking heads are focused on the fact that it's down 10, 11% from its higher earlier in the year. But as you mentioned, still up 35% despite that pullback and selling

rather richly at the moment. One of my biggest positions, though, so I've got my fingers crossed. All right. Our final name for the big earnings wrap-up, Shopify. The company shares are They're up 25% this week after a strong earnings report, push them higher. Matt, what is behind the big pop? Well, yeah, hard to find anything not to like about Shopify's results. I mean, gross merchandise volume up 22% at 56.2 billion. That's a big number. The merchant solutions business, which is kind of the biggest revenue segment,

it's where Shopify helps sellers with payments, shipping, working capital. Revenue there was up 24%. And a big reason for that was Shopify payments. The gross payments volume grew to $32.8 billion and accounted for 58% of Shopify's gross merchandise volume. So their payments infrastructure is definitely getting traction within their customer base. You turn to subscription solutions. Revenue there was up 29%. And part of the growth here was really about pricing. So Shopify raised prices on its basic and premium plans and didn't doubt any meaningful drop-off in subscribers after doing that. Monthly recurring revenue was

up 32%. Now, investors have gotten kind of used to these growth rates on the top line, which are obviously still very impressive. But I think what's new with Shopify is just the profitability now. So we know the company sold its logistics business to a partner over the summer. So taking all those operating and cap-ex costs out of the equation has really, really boosted the company's cash flow. So operating income in the quarter was $122 million. That compares to an operating loss of $346 million a year ago. Free cash flow was $2,000. 76 million and free cash flow margin was 16%. And management noted that they expect that free cash flow margin to remain in high teens in the current quarter as well. So this is a fast-growing

company, but also a much more profitable company. I think that is what has investors excited. The only thing I would say is this is still a company that does a lot of stock-based compensation over $100 million in the third quarter alone. So you kind of have to take that free cash flow with a little grain of salt. Ron, Shopify, president. Harley Finkelstein appeared on CNBC this week, and I think he might owe you five bucks because he said the company was firing on all cylinders, talking about the strong growth,

the cost of discipline, and continuing to see some big brands coming over. I want to hear it from the man himself, though. Do you agree with the assessment? I saw some of that interview, and I agree that they certainly at the moment are firing on all cylinders. He was very happy to be reporting those results to the interviewer, for sure.

Well, and now he owes your royalty, so it's great. There you go. The show pays for itself. All right, coming up after the break, we've got one company riding the trend of convenience and a full stock up 40% since reporting. Stay right here. This is Motleyful Money. If you're early in your career and looking for insight, inspiration, and honest advice,

listen to the Capital Ideas podcast, hear from Capital Group professionals about leaning into the differences that make you unique, making decisions that last, and what it means to lead with purpose. The Capital Ideas podcast from Capital Group, available wherever you listen, published by Capital Client Group, Inc. Welcome back to Multiple Money. I'm Dylan Lewis. Join again over the airwaves by Matt Argersinger and Ron Gross. We're going to pick up right where we left off with earnings. This time, though, checking on three companies that have had a bit of a rough run for the past few years,

but might be showing some signs of life. Ron, first one up is DoorDash. Company shares up nearly 20% after the leading food delivery company. reported recent orders on the platform that were hitting record levels, and based on the company's guidance, Ron, seems like they're expecting some good times to continue. Yes, but, yes, and the stock's up 80% this year. $35 billion market cap for DoorDash.

Is that sound right? I mean, let's get into some of the numbers, and we can discuss that. They did post their strongest quarter since going public in 2020, so good for them. I am a customer probably use it too often, so I'm with them. They projected better than expected growth and adjusted earnings for the current quarter, so that's strong guidance as well, as part of the reason that we really saw the stock take off. Total order value on the app and total number of orders both rose 24%, strong business. Restaurants stayed strong, grocery business doubled.

Revenue was up 27% as a result. expenses were managed well and they managed to trim overall losses to 75 million. Trim overall losses to 75 million. I will remind you it's a $35 billion market cap and they're trimming losses. Okay. They do have adjusted EBITDA. We play with some of the numbers and we see that it came in at $344 million. It's strongest ever.

That's a fourfold increase over last year. $878 million in free cash flow. on a trailing 12-month basis. So not profitable yet, but they are producing free cash flow if we do some adjusting. 35 times adjusted EBITDA, though, here. So they've got to grow into this value in a humongous way. Can they do it? That's going to take some time, I think.

But it'll be fun to watch. Yeah, well, what might help them grow into that valuation, Ron, is this idea of the macro trend of convenience. CEO, Tony Zhu, has talked about that. It sounds like you're helping them out with some of those orders yourself. But generally, the gist is consumers seem pretty happy to sit at home. And if they can find some of those categories like grocery and expand beyond conventional food delivery, there might be something there for them?

I think so. I mean, I think this is a business. And I think it will be a profitable business if expenses are controlled appropriately. I just don't know if a $35 billion market cap is appropriate. And time will tell. All right. We have a rough week for match shareholders. online dating company down over 10% after reporting third quarter earnings. Matt, it seemed like the

key area of concern here was user growth trends, especially with Tinder. Right. That's that's the story. I mean, if you compare the stock chart of Match Group with Zoom over the past five years, you'll see almost a what looks like a perfect correlation. I mean, like Zoom, match was kind of that perfect pandemic stock. I mean, people stuck at home. There wasn't a lot of opportunities for social interactions. Matches services really boomed. And the stock really behaved like that for a year or so. But now stock is down more than 80% off its high. It's close to a seven-year low.

I couldn't believe it when I looked at it. And I think the results will tell you that unlike a Starbucks or Shopify, subscribers here tend to be pretty price sensitive. So Match Group has raised, or as management says, optimized pricing over the past year for many of its services, including Tinder. And I think that's helped revenue in the short term, but subscriber numbers are way down across the board. Paying members fell 800,000 to 15.7 million in the third quarter. Tinder was the big loser. Paying members there fell 6%.

And revenue guidance for the current quarters was below management's prior guidance. So all that taken together really hit the stock hard. And I think this is somewhat of a network effects type of business. I'm not a user. I can't confirm that. But I think when you start losing subscribers in a business like this, the momentum of the business can really fall off. I mean, on the positive side, margins are higher. That's what the price tax are doing.

The business is generating a lot of free cash. But I think unless they can get subscriber growth going again, I don't know. There might be a lower floor for the stock. All right. We'll wrap with another name in Convenience. Roku shares of the streaming and ad company up 40 percent, 4.0 percent. earnings. Ron, this report felt like a company that had some good news and desperately needed some good news. It really did. Times have been tough here and there, but up 100% this year

the stock. So it's getting some love for sure from investors. This was a strong report with signs of an advertising rebound and cost gutting, helping the bottom line and future guidance, which I think really has got investors excited. Revenue is up 20%. platform revenue, which includes their ad sales and their distribution deals, and the Roku channel was up 18%. Roku added 2.3 million active accounts in the quarter. That's up 16%. Revenue per active user was down 7% year over year, but it was actually up 1% on a sequential basis, moving in the right direction. We've got to get that number moving a little bit

more quickly, more strongly. Gross margins narrowed a bit. Device margin growth was offset by narrowing platform gross margins, led to an adjusted EBITDA number. Again, adjusted, we have to play with some of the numbers to get this, of $43 million positive. Management said it remains cautious and uncertain, amid an uncertain macro environment and an uneven ad market recovery,

but they did guide to adjusted EBITDA of $10 million, for the fourth quarter. This is an $11 billion market cap company, not putting up great numbers, but maybe they're on track right now. They remain committed to positive adjusted EBITDA for full year 2024. Ron, I look at this name and some of the others, and I think it's possible that we might be seeing some bottoming with some of these big growth tech stock names. Is that what you're seeing here? Bottoming, it's interesting, though, in the current interest rates environment, you've got to put up some strong numbers to still support some of these market caps. They're still pretty high, just not as high as they were. All right, Ron, Matt. We'll see you guys a little bit later

in the show. Up next, we've got a breakdown of the wins the United Auto Workers notch in their deals with Ford, Stalantist, and GM. Stay right here. You're listening to Motley Full Money. Welcome back to Motley Full Money. I'm Dylan Lewis. Detroit might be able to breathe a sigh of relief. As of weeks end, Ford, GM, and Stalantis all have established tentative deals with the United auto workers union. The details are down, and now it's up to union members to accept the contracts. So we went to economist Mark Robinson, who worked for GM for over three decades advising on negotiations, labor and strategy for a breakdown on how the deals came together and lessons from these negotiations. Mark, we spoke with you in early October, and at the time, the conversation

with the UAW and the automakers was these two sides and how they are angling in their negotiations. very different story now. Last week we saw that there was a deal struck with Ford. We have news that there's a deal with Stalantis and GM. What happened over the last couple of weeks since we last checked in with you? Well, they went through their escalation strategy, which they've been telegraphing for a while. They stopped firing shots across the bow and walked out of a negotiation session with Ford a couple weeks ago. and struck Ford's most profitable plant, its Kentucky truck plant.

They then waited actually two weeks to strike GM and Salandez's most profitable plant. And the day after they struck the GM's most profitable plant, they announced a tentative agreement with Ford. So some of this was Kabuki. I mean, it was show. Sean Fane had to demonstrate to its members that they had, as he put it on Sunday, gotten every last dime that was on the table. And looking at the deal, he got a lot of dimes.

He got so many major advances for the members. But despite this extraordinary agreement, he still had to be, and is today still concerned about ratification. Yeah, Mark, let's talk a little bit about some of the advances that you were talking about there. I think if you're looking at the UAW side, from my perspective, it seems like the major wins that we're seeing based on what we know about these deals are significant pay, raises the return of cost of living adjustments, family leave. Are there some other things that really jump out to you as big wins for the UAW? Yes. So it was not just that they got significant wage increases overall. They essentially got rid of the two-tier system, and it was actually multi-tier system. So the Detroit three had

agreed essentially over the years to bring some jobs back in or keep some plants open, basically under concessions that the union made about wages and work rules. And they just undid that. So if I were the companies, I wouldn't expect that kind of possibility to be out there in the future and that they may have some remorse about the decisions they made back then. They also covered these non, in some cases, plants that didn't even exist yet, these joint venture battery plants that the Detroit three had, you know, in unprecedented fashion, set up with Korean battery suppliers, Samsung and LG Chem.

And even though they weren't under the national agreement, and in theory, the companies didn't even have to talk about them with the UAW as part of these national negotiations. They agreed to bring them under the national contract at assembly plant wages. And in the case of Ford and Stalantis, who hadn't even opened up their plants yet, they agreed. through essentially a slide of hand to instantly have them be unionized and have them be under, again, at the national agreement wages. And so that was a massive win for the UAW. And it's a big strategic defeat for the Detroit automakers. And they may end up even rethinking their long-term battery strategy as a result of this.

Mark, it seems like this was generally something that led to a lot of advances for the UAW. From the automaker perspective, are there wins? Because so much of the coverage and the press that I see on this is basically the UAW got a lot of what they were looking for. I can't see any major wins that the automakers got. The only thing they were able to not agree to some things that the UAW demanded, like, to find benefit pensions for new or higher workers and big increases in existing pensions and 32-hour work week, which the union, I think, never was very serious about. My rough farmer's math is that each of the companies has another $2 billion a year in labor

cost as a result of this agreement. That's by the end of the agreement. That's more than a 33% increase in their labor cost, maybe up to 40%. That's a massive hit. And the other thing is that Ford, for example, was very proud of its non-confrontational relationship with the union. and they viewed that as a competitive advantage over General Motors. Well, not only did Ford get struck, which was already a defeat for that strategy, but Sean Fane went out of his way to diss the chairman and the CEO of Ford.

he stood up Bill Ford, the chairman of the board, who was coming in for a special conversation with him in advance of the strike. He walked out 10 minutes into an important negotiation session and struck for his most profitable plan. That's not gentlemanly behavior, which I'm sure Sean Fane would be perfectly comfortable. being ungentlely, but there are hard feelings in the companies about this strike. You mentioned Sean Fain there, and the approach from the UAW with this strike was kind of new and different, and Sean Fain is a very new and different union leader. Do you think that contributed to the success of the negotiations? Yes.

I think that his style and his just aggressiveness contributed. There was a very interesting story in the Wall Street Journal about the three 30-something advisors that Sean Fain hired, not union members. I mean, they came in as staffers. And the combination of that kind of fresh thinking and more strategic thinking and more nimble communications clearly had an impact on the strike. I think that some of the negotiation tactics were similar to things I've heard about for how Donald Trump negotiates.

So, for example, GM, before it signed the tentative agreement, the UAW escalated and struck yet another plant just before the deal. that couldn't have been because GM was unwilling to sign the pattern. GM would have agreed to the pattern economics. A week earlier, they were said they were very close to a deal. What I think happened is that the union negotiators came into that session, trying to get all three deals done at once. Again, there's no tradition around that.

And they then said, oh, we want more here and we want more there. And they'd already agreed to not take more, but they grabbed it. And that led to more confrontation and probably more concessions from the Detroit three. But it's not a way that they are used to negotiating. and it may have some long-term consequences for how they approach the union in the future. Do you think that there are tactics that other labor groups and maybe other industries might borrow from with what the UAW did? I mean, Sean Fane is hoping that in May 1st, 2028, there are many union contracts that expire on the same day.

He wants to call a general strike. He wants to change the way unions are perceived and bargain in America. Not sure he'll succeed, but he definitely wants to, he wants to be leading a revitalized labor movement. And his advisors, there's apparently a playbook that they published that they more or less followed. My guess is other unions will be downloading copies of that playbook. You have a C-suite newsletter that you write. And right after the Ford deal was announced, you wrote that the gains were incredibly impressive. This is a record contract by any measure. However, it is something that still needs to be ratified.

This is what we need to put to an end here. Are there reasons to worry about that? Absolutely. So, Sean Payne has raised expectations extraordinarily high. That may be some of the downside of his tactics, is that the companies basically knew that the workers were going to be very, had very, had very, high expectations, and if they wouldn't be able to get out of this with a cheaper contract just by waiting a couple more weeks. So just recently, the union members rejected a leadership proposed agreement, a tentative agreement at Mack Trucks. Now, it wasn't nearly as rich as the Detroit Three agreement, which was in fact part of its problem. And in 2015, What's now, Stalantis rejected a national agreement.

So there is history of it. There's a risk of it. One thing that Fane is clearly trying to do is to create the sense that the strike is over with his members by getting, reaching tentative agreements at all three and ratifying all three and calling the workers back to work before ratification. He's trying to create a Faya compil. He may succeed. but there's a risk that he won't. And if he doesn't, if there's a failed ratification at any one of the three is chaos. You're a game theorist, and last time we had you on,

you were talking about how these are kind of economic conversations and financial conversations, certainly for the union workers, but also, you know, there is political posturing that goes on here. And, you know, right after the Ford deal was announced in principle, the company revealed that they expect, it will add about $850 per vehicle to their manufacturing costs. That, for our audience, as an investing audience, is a financial disclosure. But I'm curious, is that also some political posturing as we start thinking about things like

ratification and the relationship between these automakers and their workers going forward? Yes. And they're also coming out with statements about how much the strike costs them. I would take those statements with a grain of salt because there have been very few people who have walked away from a dealership not having a car or truck that they wanted, even with these strikes. So it seems as though they could probably, with a little bit of overtime, make up for a large fraction of whatever they look. lost in production during the strike. So I think that the accounting may allow them to show smaller earnings impact down the road than the headline figure on the cost of the strike would suggest.

Mark, we're certainly not rooting for any more labor disputes or for people to be on the sidelines not working, but if that's the case, we'll be coming back to you. you and talking again soon. Really appreciate your time. Pleasure in talking to you. There's power in a factory. Power in the line. Listeners, you can catch Mark's latest writings at C-Suite on Substack. And if you're interested in stock ideas, the Motley Fool has you covered there too, especially if you're interested in dividends. Our analysts at Motley Fool Stock Advisor put together a list of five quality dividend payers that are also recommendations in our Stock Advisor service. This report is free to you with no purchase necessary.

You just need to go to fool.com slash dividends, and we'll email it directly to your inbox. That's fool.com slash dividends with an S. And we've got more stock talk ahead. Coming up after the break, Matt Argersinger and Ron Gross return with a couple stocks on their radar. Stay right here. You're listening to Motley Fool money. As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against.

So don't buy or sell anything based solely on what you hear. I'm Dylan Lewis, joined again by Matt Argersinger and Ron Gross. Let's get over to stocks on our radar. Our man behind the glass, Rick Engdahl, is going to hit you with a question for our radar stocks round. Ron, you're up first. What are you looking at this week? This is an interesting one that caught my eye from our friends over at our microcap service firecrackers, and it's WK Kellogg, KLG.

It's the number two seller of Ready to Eat cereal in America, number one in Canada and the Caribbean, and it owns nine of the top 20 brands. That's Frosted Flakes, Rice Krispies, Raisin Band, Fruit Loops, Frosted Mini Wheats, and Special K. I happen to love cereal. Don't eat it enough, but I should. It's delicious. Still the top breakfast choice for kids, but there's a lot of competition out there from healthier food. So there has been some weakness here.

It was recently spun off from the parent company, which is now known as Kelanova, ticker symbol K. They hold on to some of the international brands, and they kept a Rice Krispy Treat business that was smart because they are delicious. But we were left with this small microcap company catalog. They've definitely had some problems. The shares are off significantly since it went public. That could create an opportunity. It's only a $900 million market cap company. So if they can put up EBITDA numbers of what they're hoping, which could be up to $400 million annually for a $900 million market cap company, this could be very interesting. It's a little dicey, though, because it is in a

category that is showing declines. And we really don't see any significant catalyst from a business perspective in the foreseeable future. Rick, sounds like we've got a pure play cereal company here. What's your question? Yeah, I can't imagine a world without fruit loops. That's weird. Ron, yes. I know the answer, but cereal first or milk first? Definitely cereal first, right? I've heard arguments the other way, and I just don't believe it's true. I just wanted to see if it was, You want the milk to waterfall down over the cereal so that you don't wind up with the dry stuff on top, right? I mean, we're all sensible people here. We know how this works.

Not anarchy. All right, Matt, what is on your radar this week? I'm looking at Quest Diagnostics, tickers DGX. It's a leading diagnostics and blood testing company. Think of Theranos except legal and ethical. It pretty much operates a duolopoly with Lab Corps. So most hospitals and clinics will use one or the other, or, both to outsource blood tests. Obviously, Quest revenues really soared in 2020 and 2021 because

of COVID-19 testing. No surprise that's fallen off big time. In fact, their COVID-19 testing revenue fell 92% year-over-year in the third quarter. But what's been great about the company and the results is just how well their base or non-COVID testing business has held up. Volumes there were up almost 6% in the quarter. That was well ahead of what management was expecting. And because of that resilience, management keeps raising full-year guidance, earnings per share are not expected to be between $8.65 and $8.75 for the full year. They're also expecting to generate at least $900 million in free cash flow. This is a really cash flow heavy business.

And management tends to use that free cash flow to either make acquisitions, pay a steady dividend, which they do, and buy back shares. And I think at less than 16 times earnings, you know, trades for a below market multiple, yet it's a very strong cash flowing business with a really good competitive position. So I like where Quest Diagnostic is right now. Rick, a question about Quest. Yes, but. So in my extensive research for this segment here, I went to the website, and the first thing that popped up was a photograph of a very healthy woman working on a laptop

while doing a plank and smiling. And I'm wondering, is this company just over-promising? It could be, but it's, you know, it's aspirational. It's just showing you, you know, what we're all hoping to achieve in life. It's a lifestyle brand, Rick. Exactly. Which one's going on your watch list? I think I got to go with the fruit loops. How can you turn that down? I might do a plank while I'm eating them. That's good balance. Rick, thanks for weighing in on our radar stocks. Matt and Ron, thank you for bringing them to us.

That's going to do it for this week's Motleyful Money Radio Show. Thanks for listening. We'll catch you next time.