The coronavirus recession is generating winners and losers in corporate America, with cash-rich behemoths set to get bigger while debt-heavy companies and the economy lag.
Slammed by the now-ending economic and social lockdown, a growing number of enterprises are filing for bankruptcy or closing up shop because they can’t pay the bills. Others are downsizing even as they pile up more I.O.U.s, adding to already record U.S. corporate debt.
The upheaval will act as a drag on growth as highly-leveraged companies are forced to divert resources from expanding their businesses to meeting creditor obligations.
“Higher debt burdens coming out of this are likely to slow recovery,” said former Federal Reserve Governor Jeremy Stein.
The shakeout, though, will give cash-rich corporate titans an opening to grab market share and extend their dominance as the economy gradually reopens.
“The behemoths within the U.S. are going to have more market power,” Nobel Laureate economist Joseph Stiglitz said.
Potential winners include the liquidity-laden FAANG stocks beloved by investors: Facebook, Amazon, Apple, Netflix and Google-driven Alphabet. Big-box retailers Walmart and Costco Wholesale also could come out ahead. So, too, might retail farm-store chain Tractor Supply.
Loser Lineup
The losers already are lining up at the bankruptcy courts. Among them are such American mainstays as J.C. Penney, J. Crew Group and Hertz.
Small and medium-size businesses that operate on thin profit margins are particularly vulnerable. While many have availed themselves of help via the government’s Paycheck Protection Program, they still face daunting prospects adjusting to a world where the virus remains a threat.
“Business failures are going to be in the hundreds of thousands,” said Mark Zandi, chief economist for Moody’s Analytics.
Winnowing out small firms would be a plus for larger, publicly traded companies, allowing them to grab a bigger piece of the profit pie. That may be one of the reasons why the stock market has performed so well relative to the dismal performance of the economy, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co.
Unemployment unexpectedly fell last month to 13.3% from 14.7% in April but was still more than triple the level that prevailed prior to the pandemic. Among companies cutting jobs: airplane maker Boeing and ride-hailing giant Uber Technologies.
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