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Before we get going, a few quick notes…
▶If you missed it: My quick note Tuesday on whether burgeoning controversy over Guggenheim CEO Mark Walter will ultimately hit his Carvana stake apparently made the rounds. Shortly after I published my squib – a regurgitation of what I had unwittingly “buried” at the tail end of last week’s Wrap – Hunterbrook Media issued a full report suggesting that given the way Walter had pledged his shares to Citigroup, he might not be able to sell his Carvana shares. The implication was that whatever happens, it would be worse for Walter than Carvana. At the time of the publication, Hunterbrook Capital, a Hunterbrook affiliate, was long Carvana stock.
▶Speaking of Hunterbrook: They issued a positive report Friday on Modine Manufacturing, which is down roughly 30% since I first red-flagged it in May. While my report focused on the old-line industrial company’s all-in bet on data centers, I also took a swipe a week later at how the company had issued a stock-goosing press release a day ahead of Q4 earnings heavy on hype and light on details, touting a $4 billion multi-year long-term agreement. Or as I put it on social media…
In its report, Hunterbrook – whose affiliate is also long Modine – said it has determined those customers are Google and Amazon. And if there’s any problem, it’s meeting the demand. (Of course, what’s not known is what the price/margin is on those orders.)
▶I haven’t really been hiding under a rock: I’m sure you’re all sick of hearing about The Move, which has caused a bit of disruption in my world, but there’s a backstory to the public story, which my wife explained in her The Modern Postcard last week. (I mentioned this last week also, but it was behind the paywall for no other reason than that’s where it fit in that report’s flow.) As part of this chaos, which started last January, I stopped doing any form of Office Hours and begged off doing any guesting on podcasts. I’m now coming out from under that rock… starting next Friday with a visit to Kuppy’s Happy Hour…
▶Kuppy is Harris Kupperman, who I first ran into when he was 18. He had just won a stock-picking contest run by TheStreet.com and, for a moment – in 1999 pre-social media days – became the talk-of-the-town as the day-trading teen wonder. Unlike so many, he turned his 15 seconds of fame into a real job… and started a fund and a spinoff biz or two. I have no idea if he’s still the active, high-risk trader he was then, but I do know that he actually takes long-term positions in unloved companies. My God, has he become a value investor? This should be fun. He has no idea, but I do believe I’ll be interviewing him, with this as my key question, and it’s a simple one: How would the Harris Kupperman of the dot-com bubble have done trading the AI bubble – especially given the structural changes in the market… and given what he NOW knows?
▶As for my Office Hours and other podcasts: I intend to re-rev up the machine and open myself (selectively) to more podcasts. So… stay tuned!
▶Now, for the main event – QXO: When I first wrote about QXO in May 2025, the rollup of building products companies – created by legendary consolidator Brad Jacobs – had just bought Beacon Roofing. You can read it below…
My focus was how investors were overlooking the coming dilution from the deal. But there was a wild card: Brad Jacobs, or more to the point, what I call the Brad Jacobs premium. Then again, as I wrote…
Based on what I’ve presented, there appears to be significant short-term, catalyst-driven risk, with “short-term” defined as however long it takes for QXO to start proving that it deserves a Brad Jacobs premium… or until people realize the valuation disconnect.
As the chart below shows, investors didn’t care, with the stock going on to rise nearly 90% at its highs…
My, what a difference one year makes…
It appears investors are finally paying attention to dilution, which skyrocketed with its just-closed $17 billion deal to acquire TopBuild, its biggest – and most dilutive – acquisition yet. You can see it clearly in the chart below…
More specifically, that includes around 1.038 billion in common shares outstanding post-TopBuild, based on the post-close filing, but excludes roughly 530 million to 580 million of additional potential dilution from warrants, preferred conversions, and equity awards. On a fully diluted economic basis, the share count is closer to 1.55-1.60 billion.
At the same time, QXO’s net debt before TopBuild was already rising, hitting around $4 billion…
Which begs the question…