Talk about a changing of the guard.
Three of America's flagship companies, Apple, Berkshire Hathaway, and Walmart, have new CEOs at the helm, each of whom, to one degree or another, is succeeding a rock star predecessor. How will these new guys fare, and which one would you bet on?
For those not familiar, at Apple, John Ternus is replacing Tim Cook, while Greg Abel has Warren Buffett's old job at Berkshire and John Furner has taken over from Doug McMillon at Walmart.
As if you needed convincing these handovers are a huge deal, consider the connections hundreds of millions of us have to these companies. Some 150 million Americans shop at Walmart each week. Over 120 million of us have iPhones. Think of the millions of books sold about Warren Buffett, and the million-plus Americans who work for these companies.
How many Americans own these stocks? That's impossible to pin down. (Several years ago, Buffett bemoaned to me that he had no way of knowing exactly how many shareholders Berkshire had.) Consider Gallup reports that 62% of Americans own stocks, mutual funds, or exchange-traded funds-some 212 million people. Certainly, many millions of them own these three stocks either directly or through an index fund or ETF.
And don't tell me these companies are just borgs, where success is a foregone conclusion. Tell that to Target shareholders (down 35% versus up 116% for Walmart over the past five years), or consider Apple's market cap is 38 times Sony Group's. Or think how Berkshire soared while another once-vaunted conglomerate, General Electric, crashed. Of the three companies' combined market cap of nearly $6.8 trillion, $6.3 billion was generated by Cook, Buffett, and McMillon. That's leadership.
Now it's up to the new guys.
Apple
John Ternus, 51, began his tenure on Sept. 1, stepping right into the fray by hosting Apple's annual autumn product presentation, where he introduced a slew of devices, including-ta da-Apple's first folding smartphone, the $2,000 iPhone Duo.
A native Californian, Ternus went to the University of Pennsylvania, where he studied mechanical engineering and was on the swim team, graduating in 1997-the same year as Elon Musk. He joined Apple in 2001 and worked under Steve Jobs. Two years ago he spoke at Penn Engineering's commencement, saying, "Always assume you're as smart as anyone else in the room, but never assume that you know as much as they do."
Ternus, Apple's eighth CEO (kudos if you can name 'em all), has excelled as a hardware engineering manager across Apple's product line. He also oversaw the critical transition from Intel processors to Apple chips.
"John isn't the kind of person who picks fights," says a person close to the company. "He's not a pushover. He's good with people and is just focused on getting the job done." If Cook was the operations genius, Ternus has come in as a product guy just when the company needs to focus on the next generation of artificial-intelligence-driven technology. After selling over three billion iPhones since they were introduced in 2007, it's hard to imagine something taking its place, but maybe something will.
Evercore ISI analyst Amit Daryanani, who just raised his price target on Apple from $365 to $380 (the stock is at $337), notes that his annual survey of iPhone purchase intentions suggests "a better-than-expected iPhone refresh cycle, led by the latest launches." He sees growth in unit sales and prices increases from more consumers buying fancier phones, but Duo sales building slowly.
Ternus is perhaps handicapped by Apple's richly valued stock, with its trailing 12-month price/earnings multiple of 38. To use Jobs' favorite adverb, the bar here is "insanely" high. Don't bet against Ternus clearing it.
Berkshire Hathaway
Greg Abel is the best known of the new CEOs. He's been in his seat the longest, since Jan. 1, but the real reason is that he's succeeding Buffett, who's shared the stage with him at Berkshire's Woodstock for Capitalists annual meeting. Abel, 64 (middle age for Berkshire), presided over his first this past May 2.
Abel is an operations guy, not an investment guy, and may be more attuned to the former than the latter. "Focus on operational excellence hasn't declined," the cool, calm Canadian told The Wall Street Journal recently. Berkshire's investments are critical to its singular flywheel. Buffett, 96 and now chairman emeritus, is apparently still making investment decisions, but one of Berkshire's investment managers, Todd Combs, has left the company, while the other, Ted Weschler, hasn't seen his remit increased. Is there a vacuum?
Abel bought back nearly $8 billion in stock in the second quarter. That, plus a smaller amount in the first quarter, mark the first buybacks in a couple of years. In late May Berkshire made (for it) a modest acquisition, buying Taylor Morrison Home, a leading home builder, for $8.5 billion in cash (including assumed debt).
Berkshire stock trails the market during Abel's tenure, up 1.2% versus 12.6% for the S&P 500 index, though it would be foolish to draw any conclusions, especially with the market gone AI wild, a period during which you'd expect Berkshire to lag. UBS analyst Brian Meredith, cheered by results from its railroad and manufacturing businesses, recently upped his price target from $585 per Berkshire B share to $604.
Berkshire is sitting on some $360 billion in cash. Watching how conservative or risk-inclined Abel is with that trove will be key for Berkshire shareholders. "With a substantial war chest of cash, BRK is currently under-earning in our view, with cash deployment increasing the earning power of the company," Meredith writes.
Walmart
Walmart's new CEO, John Furner, 52, started on Feb. 1 and has already presided over three earnings reports. So far the Street reaction has been mixed. The stock is now down 7% during his tenure, versus up 11% for the S&P 500. It's early days still, plus much of what's hitting the stock, namely inflation, is beyond Furner's control. Still, bet that the new CEO hopes that-like his Arkansas Razorback football team (off to a slow start at 1-2)-the stock will rally going this fall.
The son of a Walmart exec, Furner started off as an associate in 1993 in the garden center at store 100 near company headquarters in Bentonville, Ark. Furner worked for the company in China, was CEO of Sam's Club, and held that key stepping-stone position, president and CEO of Walmart U.S.
He likes to play rock music on the guitar, which he says helps him listen and think more strategically. In an interview, Furner spoke about working on his grandfather's farm: "Anytime he needed anything, he didn't buy it...[he] just went to the shed and figured [out how] to piece something together and solve the problem without spending money."
BMO Securities analyst Kelly Bania, who has an Outperform rating and a price target of $126 on the stock (trading at $110), recently met with Furner and Walmart executives and says company management "feels great" about the back-to-school shopping season and is gaining share, especially among high-income households. Bania notes Walmart's grocery sales volume are far outpacing competitors.
"We believe WMT is under-earning today due to e-commerce pressures, which are poised to improve in coming years," she writes.
Music to Furner's ears.
Which stock do you think will do best over the next five years: AAPL, BRKA, or WMT? Put your answer in the comments.
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