A monopoly died last week - 9/8

Morning Watchlist: Tuesday Edition             

A quick note from Behind the Markets

The long weekend is over, and the market opens this morning with three days of news to digest.

Friday's jobs report came in scalding — 162,000 jobs added against roughly 56,000 expected — and the two-year Treasury yield closed at a fresh 52-week high of 4.37%. Futures settled near a coin flip on a September hike. Then the Gulf refused to take the holiday off: U.S. forces struck three Iranian oil tankers Saturday, Tehran vowed a "more painful response," and by Monday Brent crude traded near $97.

The market votes on all of it at today's open. But while the crowd watches the tape, we keep coming back to Friday's two quieter earthquakes: a monopoly that died by tweet, and a $226 stock that now costs $100.

Three stories this morning. Three pairings. Let's get into it.

1) A Monopoly Died on Social Media

For decades, one company has collected a toll on nearly every American mortgage. To sell a loan to Fannie Mae or Freddie Mac, lenders needed a FICO score — and Fair Isaac charges more than $10 per score for a product it has priced, in practice, without competition.

On Friday, the competition arrived by social media post. FHFA Director Bill Pulte instructed Fannie and Freddie to "approve all lenders to use VantageScore" — a rival score that costs under a dollar. Effective immediately.

Fair Isaac fell as much as 21% and closed near $932, down about 17% — its worst day since March 2020, and 53% below its 52-week high. The violence makes sense once you see the engine: in its latest quarter, FICO's mortgage-origination revenue nearly doubled and made up 62% of its scores business. That growth wasn't more mortgages. It was price.

Now the second-order question we ask every morning: who wins? Here's the twist — VantageScore is jointly owned by the three credit bureaus, Equifax, Experian, and TransUnion. Their product just got the government's blessing. And their stocks fell anyway — TransUnion as much as 11% intraday — because Pulte kept typing. The bureaus "have been overcharging Americans for far too long," he wrote, adding "this will end soon," and said the agency is studying "bi-merge, and stronger solutions." Today a mortgage requires credit reports from all three bureaus; a two-report rule would cut industry volume by roughly a third.

The pairing: TransUnion (TRU) — Watch

Think of it this way: FICO never owned the ingredients — it owns a recipe card. The bureaus own the pantry, and together they own the rival recipe that just won. At Friday's close near $79, TransUnion is a $15.3 billion company at about 21 times earnings, against a 52-week range of $63 to $96.

So why Watch and not Buy? Because when the referee is swinging at everyone in the ring, you don't climb in to pick up loose change. Friday's damage was done in a few posts on X, and the next few posts could cut deeper — or retract everything. Our entrance: the bi-merge threat resolving into an actual rule (or being shelved), or a washout toward the 52-week low near $63, where the risk is fully paid for. What kills it: bi-merge and "one credit report" both becoming policy — a third of the volume can vanish faster than VantageScore royalties arrive.

2) The Report Card at the Pump Lands Tonight   

Tonight after the close, Casey's General Stores — the Midwest's beloved gas-station-and-pizza chain — reports earnings, and Wall Street expects about $6.81 a share. The backdrop may be the best environment gas-station economics have ever seen: oil in the $90s, and retail diesel setting an all-time record last week at $5.82 a gallon.

But Casey's has traded north of 40 times earnings this year. The market knows it's wonderful. One step behind the headline sits the pure play nobody brags about owning.

First, how a gas station actually makes money — because it isn't the way most people think. When wholesale fuel prices spike, street prices follow quickly. When wholesale prices fall, street prices drift down slowly. Economists call it rockets and feathers. The gap in between is the station's margin — which means a fuel retailer doesn't want cheap gas or expensive gas. It wants jumpy gas. It's the currency booth at the airport: the wilder the swings, the wider the spread it keeps.

The pairing: Murphy USA (MUSA) — Buy

Murphy USA runs about 1,800 low-price fuel stores, many parked next to Walmarts. And the jumpiest oil market in a generation is showing up in its results: second-quarter retail fuel margins hit 35.1 cents a gallon, up 20% from a year ago, and earnings came in at $11.27 a share versus $7.36 last year — up 53%. Management guided to roughly $636 million of full-year profit and says the business now has "a higher fuel margin floor."

Then there's our favorite statistic in this whole letter. Murphy USA generates about $19 billion a year in revenue — with fewer than 19 million shares outstanding. It bought back another 143,100 shares last quarter and raised the dividend 28% over the past year. The company has spent years quietly eating itself, one share at a time, and each remaining slice keeps getting bigger.

At Friday's close of $511, that's a $9.4 billion company at about 15.6 times earnings. The S&P 500: 21. Casey's: north of 40. Analysts average a $623 target. The honest risks: the guidance assumes 35-cent margins hold; a calm, falling oil market would shrink the spread (peace in two war zones is the cheerful way to lose — we'd take that deal twice); record pump prices can eventually destroy demand; and if Casey's stumbles tonight, the whole aisle wears it for a day.

3) The $226 Stock That Now Costs $100

We flagged Lululemon on August 30th as a Watch, with a kill switch spelled out: another guide-down that reads brand-broken, not cycle-broken. Friday we got the print, and the market's verdict was 17% down in a day, to $100.61.

The quarter: revenue fell 4% to $2.4 billion, comparable sales fell 9% — down 12% in the Americas — and leggings sales dropped roughly 20%. The headline profit "beat" came with an asterisk the size of a container ship: 86 cents of the $2.92 was tariff refunds. Guidance took the real damage. Full-year earnings were cut from about $11 a share to $9.48–$9.73, and the current quarter was guided to as little as $0.93 versus the $2.41 Wall Street expected. The interim CEO said customers are shifting to "away-from-body silhouettes" — corporate language for: shoppers are walking away from the garment that built the company, some of them straight to Alo Yoga.

At $100, Lululemon costs about 10.5 times the new guidance — an $11 billion company now, squarely in our mid-cap wheelhouse, at half the S&P's multiple.

The pairing: Lululemon (LULU) — Still Watch

So is this the entrance we said we were waiting for? Not yet, for two reasons. Comps didn't stabilize — they deteriorated, and China, previously the strongest region, reversed. And this cut came from the caretakers: new CEO Heidi O'Neill, the ex-Nike executive, walks in the door today — and incoming CEOs almost never bless the old regime's numbers. The reset we're waiting for is hers. Cheap is the ticket price. Proof is whether the ride works. Our entrance now: O'Neill's own plan with comps flattening. What kills the setup for good: the leggings decline steepening, or China taking another leg down.

Before You Go

Three stories, one thread: pricing power. FICO's was revoked by a regulator on a Friday afternoon. Murphy USA's is being handed to it by the jumpiest oil market in years. Lululemon's is leaking to a rival, $21 a share at a time.

It's a crowded first day back. GameStop's full results land today — our Watch wants proof of discipline: a buyback signal, not another pursuit. Canada's tariffs go live today, opening the umbrella over Commercial Metals and Eagle Materials and delivering the long-flagged headwind to AGCO. Casey's reports tonight, Apple takes the stage tomorrow with Cirrus Logic listening, Oracle answers for the AI construction bill Thursday, and Friday morning brings the August CPI — the last number the Fed hears before it decides.