Trefis Helps You Understand How a Company's Products Impact Its Stock Price


Intel is rumored to be in talks to acquire Altera, a leading fabless vendor of Field Programmable Gate Arrays (FPGAs). The news lifted Intel's stock price by approximately 5% and Altera's by 28%, though neither company has commented on the rumors. After a strong 2014, Intel's stock is down almost 15%. In a recent note we discuss the potential benefits of the rumored deal.

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Wal-Mart's average square footage per store in the U.S. has come down significantly over the past several years. In 2010, it stood at 162,000 square feet per store, when the company had 708 Discount stores, 2,907 Supercenters and just 189 Neighborhood markets. Once the retailer started expanding its small-store format aggressively, the average square footage per store declined rapidly. Going forward, we expect this trend to continue due to Wal-Mart's plans for aggressive expansion of small stores.

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Ratings Growth And Cable News Dominance Will Boost Fox News' Subscription Revenues
  • By , 4/1/15
  • 21st Century Fox’s (NASDAQ:FOX) Fox News Channel has been the most watched cable news network for 13 straight years. Fox News was the only cable news network to grow in primetime ratings in 2014 while MSNBC was down 20% and CNN down 8% in overall primetime viewership. While higher ratings translate into better advertising revenues for the cable networks, Fox News’ strength is also aiding its subscription growth. Fox News is an immensely popular channel with a loyal audience, which is unlikely to shift to other news networks. Moreover, it is the most trusted news network, according to new polling done by Quinnipiac University. On that note, we discuss below the trends in Fox News’ subscription revenues and our estimates and forecast for the coming years. We estimate revenues of about $30 billion for 21st Century Fox in 2015, with EPS of $1.69, which is in line with the market consensus of $1.70, compiled by Thomson Reuters. We currently have a  $39 price estimate for 21st Century Fox, which is more than 15% ahead of the current market price. Understand How a Company’s Products Impact its Stock Price at Trefis
    TWC Logo
    TiVo Survey Aptly Conveys The Current Sentiment In The Pay-TV Landscape
  • By , 4/1/15
  • TiVo (NASDAQ:TIVO) subsidiary Digitalsmiths recently released a white paper which seeks to uncover the current trends in the pay-TV landscape. The white paper makes certain observations about the dissatisfaction flt by pay-TV subscribers and concludes that this frustration could lead to 1.5 million users pulling the plug on their pay-TV service. Such a scenario could be very damaging to the top lines of many pay-TV providers such as Time Warner Cable (NYSE:TWC), Comcast (NASDAQ:CMCSA), Dish Network (NASDAQ:DISH) and DirecTV (NASDAQ:DTV).
    YELP Logo
    Revising Yelp’s Price to $53
  • By , 4/1/15
  • Yelp’s (NYSE:YELP) has been in the news for the past few quarters due to the gyrations in its stock price. The stock has underperformed the broader markets since January this year. While the return on Nasdaq and S&P has been -1.41% and 1.75% respectively, Yelp’s return has been -11%. The primary reason for this has been failure of Yelp’s management to achieve street analyst’s estimates, who were expecting a much higher growth rate than Yelp was able to deliver. However, we estimate that with the existing growth rate and revenue run rate the stock is fairly valued at $53. As the company is currently expanding into new geographies, which will negatively impact the monetization rate of its core local ads business, the stock is well placed to gain a significant foothold in the $130 billion local ads industry. In this article, we will explain the factors supporting our valuation of $53 per share. Check out our complete analysis of Yelp Local Ads Business to Grow, Albeit At Slower Pace According to our estimates, the local ads business makes up over 80% of Yelp’s estimated value. The key drivers for this division are the average revenue per active local business account and the number of active local business accounts listed with Yelp. According to BIA/Kelsey, online local ad spending in the U.S. is expected to increase from $31 billion in 2014 to $35 billion in 2015. The company has a total addressable market (TAM) of 76 million local businesses in the world, of which 53 million are present in the Americas and Europe. This translates into a global market of nearly $140 billion. However, the number of active advertising business, which pay for Yelp’s services, listed with the company is just a fraction of this market at 84,000 in 2014.  While we expect that the base effect will limit the active business listing CAGR to 30%, we believe that the company can add at least 332,000 active business accounts by 2021. Our reason for this growth are as follows: Mature Cohorts Conversion: The number of claimed businesses, which have a listing with Yelp but do not pay for any of the premium services, stands at over 1.9 million. Most of these businesses are in regions where Yelp has been operational for more than five years. Considering that mature markets witness higher conversion rates from claimed businesses to active businesses, we expect strong growth in active business accounts from these regions. International Expansion to Help With Growth: O ne of the key to Yelp’s growth has been its expansion in  international markets, which not only increases the cumulative reviews on the Yelp site but also increases its appeal to advertisers and users alike. Recently, the company added Chile and Hong Kong to its addressed markets. As a result, international traffic grew over 40% year over year to approximately 30.8 million unique visitors on a monthly average basis. Furthermore, the company said that revenue from international markets is expected to gain traction in the coming quarters as it monetizes regions such as cohorts in Italy which were setup three years ago. We expect this expansion spree to bolster the number of active business accounts on Yelp in the coming years. While we expect that the base effect will limit the active business listing CAGR to 30%, we believe that the company can add at least 332,000 active business accounts by 2021. Popularity of Yelp’s Mobile App To Attract More Businesses and Users: Most of the users have a tendency to check up on local businesses particularly restaurants when they are on a move. As a result, Yelp’s mobile app has gained traction in the recent quarters. For example in 2014 monthly mobile unique visitors grew to 72 million. Furthermore, 45% of new reviews and 56% of the ad impressions came from mobile devices. Considering the rampant growth in the usage of mobile devices, we expect the mobile platform to become a major revenue driver for Yelp in the coming years. We believe adoption of Yelp’s mobile platform will drive this growth in unique visitors on the Yelp site, which in turn will lead to more businesses signing up for Yelp. Average Revenue Per Active Business To Grow Average revenue per active local business (ARPALB) is one of the most important drivers in our valuation for Yelp’s locals ads business. According to Yelp, the monetization rate of a city or region increases with time as more businesses sign up for premium services such as dedicated webpages and call to action to promote their products or services. The company’s ARPALB improved to $6,523 for regions where Yelp started offering services in 2005, and to $470 for regions where Yelp services started in 2010. However, as Yelp introduces its services in new regions, we expect blended ARPALB to grow at a slower pace, as new regions such as Latin Americas have less spending power compared to the U.S., and fewer businesses in these regions are willing to pay for premium Yelp services. Points Of Concern While Yelp has had some success in monetizing the local ads business, it does face some challenges that can impact its valuation: Competition to Impact Revenue Growth: Our forecast is based on the assumption that Yelp will see reasonable success across its business lines and will be able to attract users in the new markets it enters. Although Yelp has a first mover advantage in social local review services, other Internet giants can leverage their data, experience and money to launch similar services in the future. Companies such as  Google (NASDAQ:GOOG) and  Yahoo (NASDAQ:YHOO) have competing services and there is always the risk of these companies expanding and leveraging their existing base to compete with Yelp. Furthermore, startups such as Zomato are starting to flex its muscles outside its home countries, and can significantly impact Yelp’s user base. New apps from companies such as Uber circumvent Yelp’s offering altogether and can potentially dent its popularity. As a result, Yelp’s revenue growth could slow down. Expansion To Impact Margins: The single most important factor that drives Yelp’s value after its revenue growth is the growth in its operating expenses. Yelp has had to incur high operating expenses to fuel its rapid expansion. Yelp’s operating expenses were almost $366.5 million, 97% its overall revenues, in 2014. While SG&A expenses account for 69%, R&D expense accounts for 17% of the revenues. We expect SG&A costs to decline to around 42% of revenue by the end of the forecast period. However, the company has expanded its services to Latin America, with Chile being Yelp’s newest market. We believe that Yelp’s planned expansion spree may lead to an increase in SG&A expense as it will have to increase its marketing and operational costs to sustain the growth in new markets. This will reduce Yelp’s cash profits in the future. Our price estimate for Yelp stands at  $53, which is 15% above its current market price. Understand How a Company’s Products Impact its Stock Price at Trefis Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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    SAP Looks to Procurement Services Market to Boost Revenues and Protect Margins
  • By , 4/1/15
  • Earlier this month, German software giant SAP SE (NYSE: SAP) stated that it plans to capitalize on the burgeoning business-to-business (B2B) ecommerce market by providing online procurement and vendor management services. Steve Singh, head of the newly created Business Network division for cloud-based corporate procurement services, called it a $75 billion opportunity in the form of fees on facilitating purchase of trillions of goods and services. Corporate procurement services is a lucrative market that is already served by software bigwigs like Oracle Corp. (NYSE: ORCL) and (NYSE: CRM). Research firm Frost & Sullivan estimates that the B2B online retail market will grow to $6.7 trillion by 2020, due to rapid adoption of online purchasing platforms. Corporate procurement service providers stand to make billions of dollars in fees by providing cloud-based platforms and management services to facilitate such online purchases by big companies. We have a price estimate of $78 for SAP SE, which is about 10% higher than its current market price. See our complete analysis of SAP SE here Building Upon SAP’s Transition to Cloud SAP has invested heavily in recent years to adapt to the ongoing transition from on-premise to cloud-based software. Its latest ERP platform, the SAP S/4HANA, is also optimized for cloud, on-premise and hybrid deployments (Read: Has SAP Bet The House With The Biggest Update to its ERP in Two Decades? ) The company spent nearly $20 billion in acquisitions designed to expedite its entry into cloud computing. These acquisitions included ecommerce specialist Ariba, contract staffing firm Fieldglass and staff travel and expenses manager Concur. These acquisitions are now planned to be combined into a single ‘Business Network’ for procurement services. According to SAP, the Business Network generated over $1 billion in revenues and is expected to grow at a CAGR of 30% through 2020. Further, SAP already has an existing customer base which uses its Resource Planning and Supply Chain Management software. The company is likely to attempt to cross sell its new procurement services to such customers. By leveraging its existing customer base, SAP plans to create a network of preferred B2B suppliers for corporate purchases, which may result in lower costs for its customers. This strategy will give SAP a leg up against smaller competitors in the newfangled market. However, it is worth noting that SAP will have its work cut out for itself as it will also face competition from software behemoths like Oracle, Salesforce and Microsoft (NYSE: MSFT). Moreover, SAP will face competition not just from software vendors, but also from companies like China’s Alibaba (NYSE: BABA), which is a pioneer of B2B ecommerce and already has a gross merchandize value of over $27 billion. Margin Buffer in Low-Margin Cloud Computing Era SAP has maintained a commendable gross margin of around 80% for its software products, since as far back as 2008. This status quo is likely to change in the cloud computing era, which is characterized by aggressive pricing and intense competition from large and small players alike. In short, services businesses do not command software’s rich margins.  Therefore, it is widely feared that SAP may not be able to retain its high margins for much longer. In such a paradigm, the corporate procurement services business has the potential to provide a buffer for the overall margins of the company. The cloud computing industry has far lower margins than the 30% operating margins historically maintained by SAP. Thus, the higher-margin Business Network could prove crucial in protecting SAP’s margins as it transitions to a cloud computing company. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    LVS Logo
    Casino Notes: Macau Gaming Revenues Plunge 40% In March
  • By , 4/1/15
  • tags: MGM WYNN
  • The Macau government released the March gaming data, which came on expected lines with a 39% drop in gross gaming revenues. It appears that the market is now stable and the gaming numbers were well received with investors and most of the gaming stocks in China saw an uptick in today’s trade. Sands China was up 2%, MGM China Holdings up 3% and Wynn Macau was up three quarters of a percent in the Hong Kong market. Nevada gaming numbers for the month of February were also released yesterday and the Las Vegas Strip saw a 4.38% drop in gaming revenues as compared to the prior year period. On that note, we discuss below these developments in the casino industry.
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    American-US Airways Integration On Track
  • By , 4/1/15
  • tags: AMR
  • American Airlines (NASDAQ: AAL), which emerged from bankruptcy through a merger with US Airways on 9 December, 2013, has been making steady progress in consolidating the operations of the two carriers. While there have been a number of mergers in the US airline industry over the last decade, the success of these deals is highly dependent on the efficiency of their integration process. To successfully achieve its integration plans, American Airlines will have to overcome several challenges such as obtaining a single operating certificate for its flights and IT systems, consolidation of a seniority list for all its pilots, and integration of frequent flier programs, etc. In this article, we will discuss the developments made by American Airlines on the path to integrate the operations of the two carriers. We currently have a price estimate of $53 for American Airlines, which is in line with its current market price. See our complete analysis for American Airlines Group Inc. Major Accomplishments since 2013 The merger of American Airlines and US Airways in 2013 created the world’s largest airline in terms of traffic measured by revenue passenger miles (RPMs) and available seat miles (ASMs).  In January 2014, the merged entity began offering enhanced connectivity to their respective networks through a code share agreement, which enabled the two airlines to sell tickets on each other’s flights. This enhanced passenger convenience as it allowed them to combine flights operated by both the carriers and also ensuring seamless transfer of bags between flights. In March 2014, US Airways opted out of the Star Alliance to affiliate itself with OneWorld Alliance, which was founded by American Airlines. Consequently, it entered into code share agreements and reciprocal frequent flyer programs with the members of OneWorld Alliance. The cargo divisions of the two carriers were also integrated under a single cargo air waybill, resulting in one of the largest air cargo operations in the world. In addition, the airline made changes in its meal offerings and mealtime windows to align the meal services of the two carriers. The carrier reached an agreement with the various work groups, particularly the pilots and the flight attendants. By the end of the year, the two airlines had co-located their operations at 75% of the airports where they operate jointly. To top it all, the $36.7 billion airline announced a $2 billion investment in aircraft cabins, Admirals Club lounges, and international in-flight Internet on 9 December 2014 to mark the one-year anniversary of the merger. US Airways’ Dividend Miles program merged to American’s AAdvantage After almost a year of constant efforts, American Airlines has finally announced the integration of US Airways’ Dividend Miles program with its existing AAdvantage program which will take effect from 28 March, 2015. The Dividend Miles’ accounts, along with their mileage balance, will be merged into a new or an existing AAdvantage account. Under the integrated program, the members will be categorized into three elite segments – Gold, Platinum, and Executive Platinum – based on miles or segments traveled. The following table depicts how the elite segments of Dividend Miles program will be integrated into the AAdvantge program. However, the upgrade policy for the two carriers will continue to differ until the reservation systems are fully integrated. American Airlines will offer its Gold and Platinum members unlimited, complimentary upgrades on flights of 500 miles or less and will allow the use of earned miles or purchased upgrades for flights over 500 miles. Executive Platinum members will receive unlimited complimentary upgrades on all American Airlines’ flights based on availability. On the contrary, US Airways will offer unlimited, complimentary upgrades to all its members and a companion traveling with them in the same reservation. Prior to the merger, American’s AAdvantage had over 70 million members, while US Airways’ program had about 30 million members. The integration of the two programs will create the biggest loyalty program in the industry with roughly 100 million members (ignoring any duplicate accounts). As American Airlines continues to award points on the basis of miles or segment flown, its frequent flier program will have an edge over the loyalty programs offered by large US carriers such as Delta (NYSE: DAL) and United (NYSE: UAL) that started awarding points based on the amount spent on tickets, penalizing the passengers who accumulate points by traveling on cheaper flights. Single Operating Certificate (SOC) is on its way A SOC is a major step in the integration process of this merger as it will align the operating policies and procedures of the two carriers and help to determine the best policies for the combined airline. As a result, American Airlines has been working closely with the Federal Aviation Administration’s (FAA’s) Certificate Management Offices and the assigned Joint Transition Team to obtain this certificate. Though the airline did not expect to receive the certificate before the middle of 2015, its consistent efforts have fast-paced the process. Last week, the FAA announced that the carrier would be granted the SOC on 8 April, 2015, which would allow American Airlines and US Airways to temporarily operate all their flights under the American Air Carrier Certificate – AALA025A. While it will not have any impact on the operations seen by the passengers of the airlines on the  majority of their flights, maintenance and dispatch procedures will converge as a result of this certificate. The certificate would be appropriately amended once the two airlines are fully merged into a single corporate entity. Integration of Reservation systems may take longer than expected Subsequent to receiving the SOC, consolidation of the reservation systems is the most important, yet most challenging, job ahead of American Airlines. Each of the two airlines have approximately 700 systems, which means the technical teams would have to integrate about 1,400 systems to deliver a unified reservation system for the combined airline. The carrier plans to retain American Airlines’ legacy systems as they are larger, have higher scalability, and will require less training for employees and customers. While the airline is making efforts to expedite the integration process, given the complexity of the task, the consolidated reservation system will not be ready until the end of the year. Consolidated seniority list for pilots is expected by end of year There has been a lot noise about the consolidation of a seniority list of pilots of the two newly merged US airlines. In January 2015, a panel of arbitrators appointed to consolidate this list acknowledged that since the seniority list prepared after the America West-US Airways merger in 2005 was not implemented before the American-US Airways merger in 2013, the seniority of the pilots of former America West should also be reviewed under the current integration process. So now there will be three seniority lists of pilots that will be integrated through arbitration. The hearings are scheduled to commence on 29 June, 2015, and continue until mid October and will be attended by US Airline Pilots Association (USAPA) Merger Committee, West (America West) Merger Committee, and AA Pilots Seniority Integration Committee. The deadline to finalize the integrated seniority list is 9 December, 2015, the day when the merger completes two years. Retaining its Headquarters at Fort Worth Suspending its plans of relocating its headquarters, American Airlines has decided to retain its corporate office at Fort Worth, Texas, and move all its new employees from around the country to its existing campus. The carrier currently owns a 1.4 million-square-foot corporate campus, which comprises two headquarter buildings, holding about 1,000 employees. While the airline has not yet decided on the exact number of employees to be relocated to its campus, it aims to consolidate most of its operations team into the Fort Worth facility. American Airlines further plans to develop its existing 124,000-square-foot integrated operations center into a new facility for its technical operations group, which is currently scattered throughout the US. Over the last year, the airline has moved more than 300 management level employees to its campus and is constructing a new two-story, 149,000-square-foot integrated operations center, which will accommodate approximately 1,400 employees. The construction of the new center is expected to be completed in the third quarter of 2015. Conclusion American Airlines’ progress in integrating the two carriers has been comparable to the recent mergers in the industry led by Delta and United. The airline has efficiently integrated the frequent flier programs of the two airlines and has made strong headway in receiving the SOC. Based on the company’s current timelines, the consolidation of the fleet and reservation systems, and seniority list for pilots, is all expected to conclude by the end of the year. While there is still a long way to go before the two carriers are fully merged, American Airlines seems to be on track to meet the December deadline for the full integration of the merger. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Gap Inc February Results Confirmed Its Fiscal 2015 Concerns
  • By , 4/1/15
  • tags: GPS ANN GES ANF
  • Last month, after its Q4 and fiscal 2015 earnings release, apparel major  Gap Inc (NYSE:GPS) issued a frail guidance for fiscal 2015 stating that strengthening dollar and inventory delays due to West Coast port congestion will weigh heavily on its growth. Soon after, it released its February sales results, that were disappointing by its standards. For the four week period ending February 28, the company reported net sales of $918 million, reflecting a year over year decline of 1.2%. Comparable sales for the period were down 4%, which is not alarming as such, but considering that this was on top of 7% decrease witnessed in the same month last year, it does raise some concerns. By Brands, Gap’s comparable sales fell 7% on top of 10% decline and Banana Republic’s comparable sales were down 5% as compared to -7% in the same month last year. While these brands have been the company’s weak link for some time now, its lone performing brand Old Navy also hit a roadblock in February. The brand could barely meet its last year’s comparable sales levels, even though they had declined 6% in the year ago period. Gap Inc had ample concerns for its fiscal 2015 growth and February results have somewhat confirmed its fears. The retailer had guided its earnings per share for fiscal 2015 at $2.75-$2.80, reflecting a year over year decline of -4% to -2%, and notably below analysts’ consensus estimate of $3.01. Although a single month’s results are not enough to gauge Gap Inc’s fiscal 2015 performance, they shed ample light on factors that will influence the company’s growth through the year. Even though West Coast labor issues have been resolved with a tentative five-year pact, it will take a few months for operations to return to normal. Meanwhile, retailers such as Gap Inc will continue to suffer due to inventory delays. The U.S. dollar is expected to continue to appreciate against euro and other currencies this year, which will subdue Gap Inc’s growth in international markets, which account for over 20% of its net revenues. Our price estimate for Gap Inc is at $51.64, implying a premium of less than 20% to the market price.
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    Lexmark's MPS Business Can Drive Growth In The Future
  • By , 4/1/15
  • tags: LXK HPQ
  • Lexmark International (NYSE:LXK) has been identified as one of the leaders in Managed Print Services (MPS, in industry parlance) by industry analysts. Gartner, IDC and UK based Quocirca have all recognized Lexmark as an MPS market leader. However, the intense competition from companies such as Xerox (NYSE:XRX) and  HP (NYSE:HPQ) exists in this segment, and Lexmark in the recent quarters has stepped up its efforts to ensure that it continues to be the top contender in MPS industry. In this note, we explore how MPS is affecting Lexmark’s business across laser and Perceptive software divisions. See our full analysis on Lexmark MPS Drive Cost Efficiency Managed Print Services (MPS) are being offered by most companies that manufacture printer hardware. MPS tends to make printing cheaper and more efficient as it is offered as a service. Under MPS, procurement, maintenance and other aspects are taken over byvendors such as Lexmark. Over the past few years, the printer hardware market has become highly commoditized and margins are low. Tough economic conditions, intense competition and refurbished printer supplies from secondary vendors have resulted in a shift in hardware manufactures business focus from hardware to MPS. Furthermore, clients of printer manufacturers are increasingly adopting MPS to cut costs and simplify printer management. From the customer’s point of view, MPS provides cost efficiency. A report from Quocirca estimates that security and cost efficiency are the biggest drivers for enterprises to shift to MPS followed closely by reduction in carbon footprint and operational efficiency. This shift in client behavior augurs well for companies such as Lexmark because service agreements tend to be sticky and MPS is a high margin business compared to selling hardware. Lexmark’s Offering Lexmark is focused on both enterprise and middle market customer growth with industry-specific solutions focus in the following areas: Electronic content management: – Unstructured content is instantly available at the time and place it’s needed. Output management:- Output is optimized for the time and place it’s needed Process management:- Manual processes are automated and integrated According to Lexmark, the addressable market for both electronic content management (ECM) and business process management (BPM) is fairly large and offers good growth rates. Lexmark estimates that worldwide spending for content and process management in 2014 exceeded $10 billion. It expects that the content and process management software will account for about 30% of its revenue in 2015. The content and process management is expected to grow at 10% per annum in the near foreseeable future. Lexmark Managed Print Services has three components that cater to ECM and BPM segment: Infrastructure Optimization: Includes output and process assessment, change management, training, deployment, reverse logistics, utilization management, and project management. Proactive management: Includes asset management, proactive monitoring and diagnostics, consumables management, maintenance service, help desk services, configuration management, management reporting and governance. Business Optimization: Includes business process optimization for customers, including leveraging industry and horizontal solutions, content management, business process management, intelligent capture, search and mobile capture. Focus On MPS Services To Drive Business Growth Laser printer and cartridge division is its biggest business unit and makes up over 82% of Lexmark’s estimated value. In the recent quarters, the unit sales of printer hardware and supplies have declined in line with the decline in printer hardware industry. MPS currently contributes to a small portion of the revenues but is set to grow as it focuses its business on the service aspect. MPS contracts have increased and have offset the decline in non-MPS revenues. We also estimate that this will also help the company to shore up its EBITDA margins for hardware over the coming quarters as MPS is a high margin business. While we expect EBITDA to decline to 24.5% for our forecast period due to commoditization of hardware and supplies, margins can stabilize at 2014 levels of 24.5%. The MPS offering also works in conjunction with with Perceptive Software, which is used to bring paper invoices, bills and other non-electronic invoices into the electronic mainstream for more efficient processing. Perceptive Software is the main service offering of Lexmark and constitutes ~9% of the current Trefis price estimate. We currently estimate that revenues from will reach $505 million at the end of our forecast period. If MPS can fillip Perceptive Software revenues to $650 million and margins to 17% in the same period, we expect 10% upside to the current Trefis Price estimate. We have a  $42.20 Trefis price estimate for Lexmark, which is inline with its current market price. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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    Here's Why Facebook's Advertising Revenues Could Grow To Over $40 Billion By 2021
  • By , 4/1/15
  • tags: FB TWTR LNKD
  • In our latest model for Facebook (NASDAQ:FB), we estimate advertising on the core Facebook platform to account for the bulk (more than 75%) of our valuation. We expect advertising revenues on the core platform to rise from $11.5 billion in 2014 to over $40 billion in the terminal year of our model. While this will be driven by increases in both users and average revenue per user (ARPU) on the platform, the latter will be responsible for more than 70% of this increase in the top-line, in our view. We estimate Facebook’s overall advertising ARPU to surge from $8.60 in 2014 to over $23.00 by 2021, driven by the roll-out of better and more targeted ads, high demand for social media and mobile ads, an increase in user base, and monetization on Messenger and Search.  These factors together will further propel both ad inventory as well as ad pricing on the social networking platform. Moreover, we expect international ARPU growth to outpace overall ARPU growth over the long-run, as Facebook is still under-penetrated in international markets. In the event  Facebook’s overall advertising ARPU rises much higher to $29.00 by the end of our forecast horizon, then it will drive a more than 15% increase in our price estimate.
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    Why Acquiring Altera Can Be A Good Thing For Intel
  • By , 4/1/15
  • Leading PC chipmaker,  Intel (NASDAQ:INTC) is apparently in talks to acquire Altera, as per a recent report by Bloomberg. Altera is a leading fabless vendor of Field Programmable Gate Arrays (FPGAs), a type of Programmable Logic Device (PLD) used in place of Application Specific Integrated Circuits (ASICs, a common type of custom device) for low volume applications, most commonly in communications equipment.  The news lifted Intel’s stock price by approximately 5% and Altera’s by 28%. Neither company has commented on the rumors. After outperforming the market in 2014, Intel has significantly underperformed the market so far this year. Year-to-date, the company’s stock is down almost 15%, as compared to an approximate 1.5% increase in the S&P 500 index during the same period. Last month, Intel lowered its Q1 2015 outlook by almost $1 billion as a result of weaker than expected demand for business desktop PCs and lower than expected inventory levels across the PC supply chain.  Re-affirming the weakening PC demand, research firm IDC recently lowered its forecast for global PC shipment, predicting a 4.9% decline as compared to its initial estimate of a 3.3% decline. In addition to the declining PC sales, Intel’s limited presence in mobile devices has also impacted its growth rate in the past couple of years. Though the company’s tablet offering has shown considerable momentum in the last few quarters, it continues to report low revenue because of the impact of contra revenue charges that result from heavy discounting at the present node.  This is expected to abate in the coming year with a move to the next less costly node, boosting results considerably. Thus, buying Altera could be a good move for Intel as it will help the company to further diversify its addressed markets and reduce its dependence on the PC market. Altera generates close to $2 billion in revenue and has marginally higher profit margins than Intel. With its elevated stock price, Altera has a current market cap of approximately $13 billion and enterprise value of  $12 billion. At the end of 2014, Intel had cash and cash equivalents of $14 billion. If the deal goes through, this will be Intel’s largest acquisition to date. Our current price of $34 for Intel is approximately 10% higher than the the current market price. See our complete analysis for Intel Altera’s Acquisition Can Help Intel Extend Its Lead In Data Centers & Expand Its Presence In Automotive, Industrial & Communication Applications Intel and Altera announced a manufacturing partnership in February 2013 to fabricate Altera FPGAs at the 14 nm node. That deal was extended in March last year when the companies agreed to do more detailed work together on chip packaging and design. Altera’s FPGAs are found in a wide range of products and applications that require complex custom logic (i.e., control) devices in unit volumes too low to justify the design of a custom ASIC.  Common applications include prototypes and high-end communications, networking, computing and industrial equipment. Interestingly, Intel, Altera and others have been advancing the use of FPGAs and Intel’s CPUs for advanced data center applications. Such devices would seem to have an obvious application in software defined networking equipment as well.  Intel will benefit from handling the manufacturing of Altera’s FPGAs at 14 nm and (in all likelihood) below. Note, however, that for trailing nodes and existing FPGAs, Altera will most likely continue to use the services of its existing foundry, Taiwan Semiconductor Manufacturing (TSMC). The deal, if it comes to pass, will give Intel the potential to create system-level solutions for servers, telecom infrastructure gear, and other products that combine processors, FPGAs, and other chips. Intel will also be able to better cater to the likes of Facebook and Google (and keep ARM rivals at bay) by giving these companies the ability to pull communication processing from expensive networking equipment into much lower-cost server blades. This can help increase the companies share in the data center market. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Global Equity Markets Witness Strong Underwriting Activity In Q1
  • By , 4/1/15
  • tags: BAC C GS JPM MS
  • The global equity market saw a flurry of activity over the first quarter of the year, with companies around the world raising more than $242 billion through IPOs and follow-on offerings over the period. Quarterly data compiled by Thomson Reuters shows that this figure was the highest on record for the first quarter of a year. The total deal size is almost 30% higher than the $188.8 billion figure for the year-ago period and a good 21% above the $199.9 billion figure for the previous quarter. The strong improvements in total deal size is, however, not expected to result in a notable increase in equity underwriting fees for investment banks. This is because fee revenues depend on both the total size as well as the total number of deals completed over a period. While total deal size saw a boost in Q1 2015, the total number of deals (1,172) was only slightly higher than that in Q1 2014 (1,110) and fell almost 9% compared to Q4 2014 (1,286). This will likely have a negative impact on total fee revenues. Thomson Reuters’ data estimates that equity underwriting fees for the industry as a whole was largely the same as what was seen for the same period last year. In this article, we detail the equity capital market performance of the country’s five largest investment banks in Q1 2015, and also estimate the change in each of their fee revenues compared to Q1 and Q4 2014.
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    Q1 Debt Origination Revenues Likely To Be High Despite Lukewarm Activity
  • By , 4/1/15
  • tags: BAC BCS C DB JPM
  • Companies around the globe raised $1.58 trillion through debt issuance over the first quarter of 2015, according to Thomson Reuters’ quarterly report for the industry released this week. This figure is marginally better than the $1.57 trillion figure for Q1 2014, and a good 25% above the $1.26 trillion for Q4 2014. Considering the fact that the cyclical debt industry is strongest in the first quarter, and that the previous quarter was the slowest period for the industry in at least three years, the activity level for Q1 2015 was below average. This is evidenced by the sequential reduction in the number of debt origination deals, as the figure for this quarter (3,748) was the lowest in the last four quarters. That said, the number of deals was much better than the figure for the same period last year (3,265). As the debt origination fees that a bank reports are affected by the number of deals it participates in, the size of each deal and the actual role the bank plays in it, Q1 2015 is expected to be an overall strong period for banks in terms of fee revenues. Thomson Reuters’ data estimates a 4.6% increase in fees for the industry as a whole compared to the same quarter of the prior year, and a near-30% jump in fees sequentially.
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    What To Expect From NetApp After A Weak End To 2014
  • By , 4/1/15
  • Storage giant NetApp (NASDAQ:NTAP) had a lackluster 2014, with a 2.5% decline in net revenues through the calendar year. Much of the decline was attributable to weak storage product sales, corresponding to the industry-wide decline in storage system factory revenues. NetApp’s storage product revenues (which include hardware product sales and related software) fell by over 6% for the full year to $3.8 billion. As a result of low product revenues, the related software entitlements and maintenance (SEM) division also suffered. SEM revenues were down by about 2% on a year-over-year basis to $900 million for the full year. The company is poised to grow strongly in the coming quarters on the back of a revamped product lineup, strength in the storage software market and its presence in the fast-growing converged infrastructure and flash array market. Below we take a look at how NetApp’s storage hardware performed in 2014 relative to its peers and what to expect in the coming quarters.
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    Key Factors Driving UnitedHealth Group’s Medicaid Managed Care Business
  • By , 4/1/15
  • tags: UNH
  • Medicaid Managed Care accounts for over 15% of our price estimate for UnitedHealth Group’s (NYSE:UNH) stock value. The division recorded unprecedented growth in enrollments in 2014, adding over a million new Medicaid customers, about 2% higher than the previous year. At the end of 2014, the total number of people served by the company’s Medicaid division stood at just over 5 million. This resulted in a 29% year-over-year spike in the division’s  revenues to about $24 billion in 2014, as the company continued to benefit from an expanding market. Medicaid Managed Care is a program through which Medicaid beneficiaries receive coverage through a private managed care organization (MCO) such as UnitedHealth. In return for the services and coverage provided, the insurer receives a monthly premium per member from the applicable state (Medicaid is financed by individual states as well as the federal government). In this note we review the key factors that will drive the company’s Medicaid Managed Care business. We have a price estimate of $105 for UnitedHealth’s stock, which is about 10% lower than the current market price.
    Three Biotechs that Could Radically Change the Practice of Medicine Forever: Wasatch Analyst Jill Wahleithner
  • By , 4/1/15
  • tags: INO RHHBY NVO
  • Submitted by The Life Sciences Report as part of our contributors program . Three Biotechs that Could Radically Change the Practice of Medicine Forever: Wasatch Analyst Jill Wahleithner Buyside analysts don’t publish ratings and target prices for the public: Nearly all their notes, analyses and projections are top secret. However, in this interview with The Life Sciences Report , Wasatch Advisors’ Jill Wahleithner breaks that tacit rule. Wahleithner, a former big pharma scientist, identifies three unusual biotechs with advanced therapeutic technology platforms that could turn the tide against conditions that have plagued humankind for eons, and the potential returns on investment matches the potential to completely and radically change the practice of medicine forever. The Life Sciences Report : Back in the mid-1990s, you were a scientist at Novo Nordisk (NVO:NYSE), where you worked to find potential industrial enzymes. You understand the research and discovery phase of biotechnology quite well. Now, as a buyside analyst, you follow emerging companies with very sophisticated technologies, including immunology-focused platforms. How do you evaluate these platforms? Do you go to peer-reviewed literature as you look at emerging technologies? Jill Wahleithner : All the time. I have online access to an academic journal library. It is the first place I go when I start looking into a company. I pull out the relevant publications so that I can understand the science, understand the pathways, and see what has happened in the past. TLSR : Most investors outside of institutions have little idea how to evaluate the technology and how to assess intellectual property (IP). You have your name on at least two patents, so you understand this process. How do you evaluate IP? JW : I will pull up patents if I think if they’re relevant. There are times when I want to understand where a company is positioned with respect to the future of a particular product, so I read the patents. When you work for a pharmaceutical company as a bench scientist, part of your job is to bring forward ideas that you think could be part of the company’s patent pool. When you become the source of these ideas, you must learn how to think about patents—what a patent means and what exactly is patentable. That being said, I also recognize that my reading of a patent is not the same as what the courts might read, so there’s always a risk. TLSR : A couple of decades ago, when I began speaking with analysts and CEOs of biotechnology companies, I would frequently hear the term “bulletproof” as it relates to biotech patents. I hardly ever hear that term anymore. Is that my imagination? JW : I think that’s very insightful. Some patents that people considered to be bulletproof have been overturned. The U.S. Supreme Court definitely has impacted what is patentable and what is not patentable. I think there is more hesitation to be confident about what you are protected against. TLSR : You review the science of emerging biotech companies for portfolio managers (PMs) at Wasatch Advisors. What are the PMs focused on? I know you write reports for them, but when you are in a face-to-face conference discussing early-stage names, what is the bottom-line judgment the PM wants to hear from you? JW : It really depends upon the portfolio manager. Some of them have a deep interest in the space, and they want to understand what’s happening with the science. Others, not so much. It comes down to one thing. My job is to go back to the science and help PMs understand why a compound in development is relevant, where it fits in the medical community and what would happen if they did invest. TLSR : You have a tremendous interest in immunotherapies and immune prophylaxis. You’re also very interested in genetically modified cellular technologies. Have we crossed into a new realm of harnessing and modifying the genome to leverage cellular and humoral immune responses? JW : I think we’ve built a bridge, and we’re just now starting to walk across. The question is: How solid is the bridge? I see a lot of potential. I see so many promising ideas out there, but there have been a lot of failures. These failures have allowed companies to fine-tune their processes, and to come up with novel methods that incorporate the knowledge learned from the failures. In the next two to three years, we are going to see whether we really can fix diseases by driving the body to do the repairs, instead of adding products into the body to handle the symptoms of disease. TLSR : Your answer implies that genetic disease may be curable with some of these technologies. If platforms can be developed such that functional cures can be accomplished—let’s say for HIV/AIDS—does that necessarily mean that you can cross over to another disease indication and effect the same kind of result with that platform? JW : Possibly. It depends upon the disease. Given the basic technology of editing the genome, once it has been proven as safe, there are many ways to use that tool. What we’re seeing from Sangamo BioSciences Inc. (SGMO:NASDAQ) right now, with its genome-editing HIV data, is that there have not been any long-term repercussions that raise questions about safety. This means you can go into diseases where existing treatments are not necessarily optimal. You don’t have to worry about possibly killing the patient with the Sangamo approach because we know, from trials with its HIV product SB-728-T, that you don’t have the downstream long-term safety events seen with some of the initial gene therapy technologies. TLSR : Is Sangamo a company that you’re currently positive on? JW : Yes, it is. It’s a company that I really like. I see a lot of potential. Its scientists are phenomenal. They think deeply about the products and how to develop these tools. In the next two years, we should see several products come to the clinic where, for the first time, the human body will be used to enable “functional cures.” It will be interesting to see how those “cures” do. TLSR : What milestones should investors be looking for at Sangamo? JW : I would look for Phase 2 data from the HIV program with SB-728-T, and whether that gets partnered. At this point, the company has generated enough data that if a larger pharma is interested, a partnership will happen. I would also look at Sangamo’s in vivo protein replacement therapy products, which are just hitting the clinic. We should get some Phase 1 data from some of those in the next year, and that will tell us whether these tools meet their promise. TLSR : Which protein replacement products are you referring to? JW : The first one I think will be for beta thalassemia major with SB-BCLmR-HSPC. There will also be some data for lysosomal storage diseases, as well as for Huntington’s disease and for the hemophilias. We’re going to see multiple products hitting the clinic in the next year. Depending upon the product, different routes are being used to enable protein production in the body. TLSR : We’re talking pretty much about monogenic (single gene-related) diseases here. Do you foresee this platform extending to polygenic diseases, since most diseases, by far, are polygenic? JW : I could see where it might have some functionality in specific cancers. I don’t know about diseases like diabetes or heart disease. These are a lot more complicated, and it depends upon how the science evolves in identifying the causative agents and whether those agents can be impacted by altering the genome. TLSR : Would you speak to another name? JW : Inovio Pharmaceuticals Inc. (INO:NASDAQ) has spent years developing a DNA-based vaccine platform. Its first product and lead candidate, VGX-3100, is for cervical intraepithelial neoplasia, a precancerous condition resulting from infection with the human papillomavirus (HPV). VGX-3100 is a synthetic, circular DNA molecule that acts like a virus. It comes into the body enabled by electroporation, an electrical shock applied to the skin with the injection. It hooks onto the cell surface and injects its DNA into the cell, which is what a virus does in vector-guided gene therapy. It then takes over the cellular translation or protein synthesis machinery, and directs the production of antigens, which are proteins, just as they were encoded in the plasmid. It allows the body to attack four proteins found on HPV virions. The idea of using DNA, which is simple to make and cost-effective, to drive the body’s natural immune response is just fascinating. TLSR : The dangers of gene therapy have been written up in the general press, as well as the scientific literature. Inovio CEO Joseph Kim told me that one of the things about vector (viral)-based delivery of genetic material is that patients could develop an allergy to the virus itself. He believes this is one of the major advantages of Inovio’s plasmid delivery of genes into cells. JW : That’s exactly right, and it’s why you can’t do repeat treatments when you’re using gene therapy products that are delivered by a virus. Patients develop antibodies that could cause a violent immune response on readministration of the vector. There are a lot of advantages to the plasmid delivery system. The injected plasmid just disappears with time because, unlike a virus, it’s not able to replicate. It doesn’t leave a footprint behind that might cause long-term safety issues. Inovio is capitalizing on the fact that the virus stimulates an immune response that could be dangerous for the patient, and its delivery system does not. With safety established, the company announced last July that its 150-patient, Phase 2 trial met its primary endpoint. VGX-3100 induced regression of cervical intraepithelial neoplasia, and it cleared the virus from the cervical tissue. Now we have both safety and proof of concept. TLSR : Back in September 2013, Roche Holding AG (RHHBY:OTCQX) made a deal to pay Inovio an upfront $10 million ($10M) for the rights to two therapeutic immunizations, INO-5150 for prostate cancer and INO-1800 for chronic hepatitis B (HBV). Roche returned rights to Inovio for the prostate cancer program. Can you comment on that? JW : The INO-1800/HBV program is still intact with Roche, and it should be hitting the clinic this year. As for the prostate cancer program with INO-5150, Roche has had some failures in its oncology space, where it once had a huge lead relative to the rest of the world. That lead has flipped a bit, so Roche has gone back and looked at its portfolio. I think that after some failures in prostate cancer, like with Dendreon Corp.’s (DNDN:NASDAQ) Provenge (sipuleucel-T), there are some questions about how effective immune therapies will be in prostate cancer. That’s part of why Roche made its decision. Returning the rights to INO-5150 was more about Roche’s own business models than about the promise of Inovio’s technology. TLSR : Since you brought it up, let’s address Dendreon. The company is in bankruptcy, and its assets are in the process of being acquired by Valeant Pharmaceuticals International Inc. (VRX:NYSE; VRX:TSX) . The development of Provenge was an amazing scientific achievement, but it is an autologous therapy, meaning that it’s not an off-the-shelf product. A patient’s own cells must be processed and returned to the patient. What did we learn from that? Is this something that investors in Sangamo might be concerned about since its lead candidates are autologous, genetically modified cells? JW : It’s true that Sangamo has an autologous model, but Dendreon’s Provenge problem went beyond just the production issues. There was some skepticism about the clinical trial results that flowed down into the product’s uptake by clinicians. Production was definitely expensive, but Provenge also has to be administered in three different treatments from three different white blood cell harvests and three different processings. That’s a lot of work. With Sangamo’s platform, you have a one-time process. Right there, you’ve cut the cost down. Sangamo also has done a lot of work to produce a messenger RNA-driven process, which will help with cost. If anything, Sangamo has learned from the failures of Dendreon and will, I think, be able to work around some of the cost issues. TLSR : Was there another company on your list? JW : Of the three companies I’m talking about today, Argos Therapeutics Inc.’s (ARGS:NASDAQ) program is probably closest to Dendreon’s platform. It has a vaccine that uses RNA from a cancerous tumor to direct an immune response. What caught my eye about its trial results with AGS-003, in metastatic renal cell carcinoma (mRCC), is that every piece of immune data aligned with what Argos expected. The therapy is generating memory T cells, and the number of T cells that it generates is directly correlated to the response of the patient. We saw more than a doubling in overall survival in these patients, which is quite an increase. These data were stronger than we’ve seen previously with vaccine companies. In addition, Argos is developing an automated manufacturing platform, which will greatly reduce the cost and address some of the problems that Dendreon ran into. TLSR : Argos has an HIV program as well. The company’s shares lost a third of their value on Jan. 9, when its Phase 2 trial in HIV failed to meets its primary endpoint. I should note that the stock has recovered quite well since then. But what was your take on that event? JW : First, that program is fully funded by the National Institutes of Health, and while the company is involved in this study, it is not spending its own funds to develop that product. The next thing I would say is that when Argos took that hit in January, the trading volume was not that high relative to the number of shares outstanding. Usually that means somebody is taking advantage of press release results instead of an event that impacts the company long term. TLSR : It sounds like you are positive on Argos. Is that right? JW : I do like the company. I think it has an interesting technology. TLSR : What about catalysts or milestones that Argos investors might look for? JW : We should hear about the final patient being enrolled in its Phase 3 mRCC trial. Interim data will follow within several months of that enrollment completion. The interim data will just be the data and safety monitoring board (DSMB) reviewing safety and looking for futility. Bad news would take the stock down, but good safety news probably won’t affect the stock much. TLSR : Thank you, Jill. This interview was conducted by George S. Mack of The Life Sciences Report . Jill Wahleithner worked as a research scientist in both industry and academia for 10 years before moving to the financial industry as a biotech consultant. Since 2004, she has focused on reviewing the science of emerging biotechs for equity investment firms. In 2006, she signed an exclusive contract with Wasatch Advisors, and in 2014 transitioned to a full-time employee of Wasatch, where she helps company portfolio managers navigate the complex world of biotech. Want to read more Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page. DISCLOSURE: 1) George S. Mack conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and he provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None. 2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Inovio Pharmaceuticals Inc. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services. 3) Jill Wahleithner: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Sangamo BioSciences Inc., Argos Therapeutics Inc., Inovio Pharmaceuticals Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent. 5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer . 6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes. Streetwise ? The Life Sciences Report is Copyright
    The U.S. Military’s Greatest Weapon Ever
  • By , 4/1/15
  • tags: SPY BA
  • Submitted by Wall St. Daily as part of our contributors program The U.S. Military’s Greatest Weapon Ever By Greg Miller, Senior Technology Analyst   We’ve witnessed extraordinary technological progress over the last several years. In some cases, the kind of fantasies only dreamed of in science fiction have now become real-life breakthroughs. Take our smartphones, for example, which are now akin to the communicator and tricorder from Star Trek – all in one bundle. Or the fantastic advancements in robotics that resemble the droids from Star Wars. Now, the newest mind-blowing innovation  comes from  Boeing ( BA ). The company has patented an incredible invention that could one day protect our troops from two of the most dangerous threats they face on the battlefield. Combating the Shock(wave) When an explosive device is detonated right on its intended target, the effects are devastating. But even when they don’t hit the bull’s eye, they can still cause untold damage. Explosives in air or water create shockwaves that travel faster than the speed of sound. The force can destroy buildings and overturn vehicles. These shockwaves also carry shrapnel and other debris from the explosion, which can cause serious injury or death, and damage equipment. Paradoxically, the very protective clothing designed to protect soldiers from the initial blast can actually increase the damage from the shockwave. Boeing has a better, ingenious solution for dealing with these shockwaves and shrapnel injuries . . . May the Force (Field) Be With You! It’s made a force field! Boeing’s patent application proposes the ultimate high tech in order to protect soldiers – using lasers, ionizing pellets, or even projectiles to place a high-energy electric arc between the shockwave and the target – e.g., ground forces, a vehicle carrying troops, or a battleship. How does it work? In its simplest terms, the electric arc superheats the air in the protection area, essentially creating a shockwave that moves in the opposite direction. This “anti-shockwave” deflects and dissipates the incoming shockwave and accompanying shrapnel so that what reaches the intended target is a pale shadow of the previously devastating shockwave. That’s the practical part. But in order for Boeing’s force field to work at all, the company has had to develop a way to detect incoming shockwaves in the first place. The system needs to find out where the wave is coming from . . .  then aim and deploy the lasers and other elements that create the electric arc . . .  and then actually make the arc. Oh, and the whole system needs to work in just a few milliseconds! The Military’s Greatest Weapon Ever With a system this complicated and high tech, it will take time for Boeing to push its force field technology from patent application to deployment. But the fact that it’s working on such a breakthrough means there could come a day when the threat of improvised explosive devices (IEDs) to our troops is vastly diminished. The future of this system could hold even greater potential, too. For example, while you think that this IED-fighting system is just another example of the Pentagon (or its contractors, in this case) “fighting the last war” with ground troops, the technology could be expanded. Imagine if every military vehicle had a virtually bulletproof shield installed. Or Navy ships had superheated force fields so large and strong that they could deflect missiles and torpedoes. Boeing’s force field isn’t quite the full-on force field of science fiction – yet. But its patent application could be just the beginning of an entirely new way of protecting our troops in battle. To living and investing in the future, Greg Miller Editor’s Note: In an age where technological advancements happen at warp speed, it bodes superbly well for the companies behind the remarkable innovations and breakthroughs. But how do you spot what insiders call a “super-momentum stock”? Well, look no further than the latest formula from Wall Street Daily Founder, Robert Williams – a formula that spits out 30% winners… every 14 days. Since January, it’s already identified 44 profit events worth $38 billion. The methodology comes with the backing of independent research from Harvard University, and is poised to trigger several more opportunities over the next three months. Put simply… if your retirement is 20 years out, this method can slash it to five. If it’s 10 years out, it can slash it to one. For the immediate details, go here now . The post The U.S. Military’s Greatest Weapon Ever appeared first on Wall Street Daily . By Greg Miller
    Are You Ignoring the Real Market Threat?
  • By , 4/1/15
  • tags: SPY TLT
  • Submitted by Wall St. Daily as part of our contributors program Are You Ignoring the Real Market Threat? By Martin Hutchinson, World Banking Analyst   Before the recent Federal Reserve meeting, hedge fund manager Ray Dalio warned Fed officials to be cautious about raising interest rates. Otherwise, they could trigger a nasty recession like that of 1937. Of course, we all know that the Fed has no plans to raise rates significantly in the near future. And when it was clear that any prospect of more than a tiny rise in short-term rates had been postponed until 2016, the market rejoiced. Well, I’m convinced that the celebration is a bit premature. What’s happening at the Fed is merely diverting our attention from the true threat to the market. As you’ll see, a 0.25% increase in the federal funds rate could be the least of our concerns. The Market Is Missing a Key Point The Nasdaq Composite Index recently jumped over 5,000. The last time it reached these heights, it was the year 2000 . . .  right before the dot-com crash. Now, when that benchmark was hit recently, the chairman of the Nasdaq came out and explained how today’s market was very different than that of 2000. Supposedly, we’re currently experiencing far less speculative activity and over-optimism. That might be true, but when you consider the state of the world today versus that of 2000, the opposite appears to be the case . . . At the time, the Middle East was the world’s most turbulent region. The principal risk was an aging dictator who had modest amounts of weapons of mass destruction. Yet he was generally isolated from the world. Russia, too, was more or less a basket case in 2000, with a gross domestic product (GDP) the size of Denmark – not to mention a new, untested President Vladimir Putin who was considered a breath of fresh air after the Yeltsin years. China was growing very rapidly and thought likely to become more pacific and less authoritarian as its citizens became richer. North Korea was no threat to anyone – even to South Korea, with whom it was thought likely to reunite in due course. Now, fast forward to 2015, and the picture has deteriorated notably . . . The U.S. administration and Congress are focused mostly on the Middle East, and will possibly intervene in a land war against ISIS. Russia has demonstrated its determination to intervene in Ukraine. Plus, Putin appears to think he can maintain his popularity at home by aggression abroad. Putin isn’t Adolf Hitler, whose aggressions came faster and faster. Yet even the more-cautious Putin could see the last months of the Obama administration as an opportunity to attempt a recovery of Latvia, Lithuania, or Estonia – all part of the Soviet Union until 1991 and now part of the EU and NATO. In that case, whether it wanted it or not, the NATO Western Alliance would have a full-scale war on its hands. Today, China also sees itself as a rising global superpower. It’s asserting itself against the apparently declining power of the United States – in the same way as the Kaiser’s Germany asserted itself against Britain, which, if we’re not careful, could lead to a 1914-like result. And then there’s North Korea, which has nuclear weapons . . .  and Iran, which seems almost certain to get them. Neither country can be relied upon to keep the peace. Economically, we are also not in the tranquil world of 2000. The “Washington Consensus” of free trade and relatively free markets – by which the World Bank and International Monetary Fund were going to lead us all into prosperity – has broken down. Today, protectionist “anti-dumping” actions are common and getting more so, with a massive surplus of Chinese steel production capacity the next flashpoint. Above all, our monetary policies are much more extreme than in 2000. Interest rates have been below the inflation rate for nearly seven years. And we’ve seen trillions of dollars of Fed purchases in government bonds, which the Washington Consensus taught emerging markets was a no-no. That has inflated asset prices and stock markets to astounding levels. Oh, and the S&P 500 Index is about 40% above its 2000 level. Bottom line: This market is not like that of 2000. The dangers today are much greater. And the cheap-money-fueled markets do not appear to be recognizing the threat. Good investing, Martin Hutchinson The post Are You Ignoring the Real Market Threat? appeared first on Wall Street Daily . By Martin Hutchinson
    Papa Murphy’s Profitable Business Trend
  • By , 4/1/15
  • tags: FRSH SPY
  • Submitted by Wall St. Daily as part of our contributors program Papa Murphy’s Profitable Business Trend By Richard Robinson, Ph.D., Equities Analyst   Millennials represent America’s largest generation – currently totaling around 80 million. And they’re subtly altering the nation’s landscape. Much like the “Baby Boomer” generation, they’re driven by cultural change. Yet they’re also committed to pragmatic change. This is perhaps most apparent in the way they approach their relationships with businesses – especially those in fast-casual food services . Gone are the days where established companies can operate under the status quo without facing a significant risk of irrelevancy. Millennials value healthy relationships, and will reward companies that do the same. Here’s one company that’s getting this generation on board in a big way . . . Papa Murphy’s Holdings ( FRSH ) has quietly positioned itself to cater to the Millennials’ demand for authentic diversity while maintaining a high social consciousness. Here’s what makes the pizza franchiser so special: Its pizzas are customized using locally produced and environmentally sustainable ingredients, which, once prepared, are taken home and cooked in the customer’s own oven. And Millennials are eating up this idea! Even better, by eliminating the need for expensive pizza ovens, the company has developed a budget-friendly format with an emphasis on quality and freshness that differentiates Papa Murphy’s from its competition. Booming Clientele, Booming Growth Shares of the Washington-based pizza franchiser spiked more than 5.7% in a decidedly down market on Wednesday (a small glimpse into the company’s promising future). Currently, Papa Murphy’s operates more than 1,460 Take ‘N’ Bake Pizza shops with promises to triple its U.S. store locations to 4,500 in the next few years. The company is targeting the Southeast and New England states – the most densely populated areas of the country. And for any doubters, the company isn’t getting ahead of itself. The proof is in the numbers. Papa Murphy’s recently released its Q4 2014 and full-year results – reflecting a very successful business model. Fourth-quarter revenue was a cool $28.3 million – 24.8% more than the $22.6 million reported in the same quarter a year ago. Same-store sales increased 8.4% in Q4, which included an incredible 10.5% increase at company-owned stores and an increase of 8.2% at franchised locations. Net income for the quarter was $2.8 million, or $0.17 per diluted share. This compares to a net loss of $2.9 million in Q4 2013. Better still, estimates for the current quarter are $0.18 per share on revenue of just over $30 million. Meanwhile, full-year estimates suggest $0.53 per share on revenue of $118 million. Calling All Investors Papa Murphy’s great performance has helped to push FRSH shares 67% higher year to date and more than 75.6% since going public last May. But that doesn’t mean this stock has reached a peak yet . . . Reason being, the company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will grow at a compound annual growth rate (CAGR) of about 10% for the next five years. That will go a long way in putting money in investors’ pockets. And investors won’t have to wait long, either! You see, assuming the company achieves its EBITDA goal of $30.5 million this year, Papa Murphy’s will likely have a $393-million market cap and a stock price of $23.16 by the year’s end – just by applying an enterprise value multiple of 16x. Thus, prudent investors would do well to buy FRSH shares on weakness, locking in a potential 20% gain inside of 12 months. That’s something even a Millennial can get behind! Good investing, Richard Robinson The post Papa Murphy’s Profitable Business Trend appeared first on Wall Street Daily . By Richard Robinson
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    Tesla Resets Its China Strategy
  • By , 3/31/15
  • A year ago when Tesla Motors ‘ (NYSE:TSLA) CEO Elon Musk visited China to announce the launch of operations in the country, he was greeted with enthusiastic crowds. Musk was met with rapturous crowds in the cities of Beijing and Shanghai, and handed over car keys personally to customers. At the time he said that the demand for Tesla vehicles from the world’s largest auto market was so strong that if the company tried to meet it, it’d have to sell all its products in the country. A year later, Musk was back in China this month, but this time it was to announce that the company needed to reset its business in the country. Initially, China seemed like an attractive market for the company.  China is already the world’s largest car market and also one of the most rapidly growing ones. The region is also one of the biggest markets for luxury cars as it is populated with a growing population of wealthy consumers with a growing appetite for luxury automobiles. Three cities from Greater China (Beijing, Hong Kong, and Shanghai) figure in the world’s top 10 cities with the highest population of Billionaires. Additionally, Tesla’s electric vehicle technology is seen as a great antidote to the air pollution in Chinese cities. Yet, sales have been slow. In the month of February, the registration numbers of Tesla vehicles were down from 469 in January to 260. CEO Elon Musk blamed the slow sales on a poor sales team, which he said had been misleading potential customers about the ease of charging in the country. Now, the company is reconfiguring its strategy for the country. Below, we take a look at how Tesla plans to make its vehicles attractive again to customers in the region. We have a  price estimate of $171 for Tesla, which is about 10% below the current market price. Wrong Signals Unlike the United States, where Tesla vehicle owners prefer to drive the vehicles on their own, wealthy Chinese owners of luxury vehicles prefer to be chauffeured around and expect a luxury experience sitting in the backseats of their vehicles. Tesla had completely missed out on this point initially and this is one reason why sales have been slow. Now, Tesla has introduced an additional option of “executive rear seats” that are leather wrapped and offer two-zone heating for a payment of $2,000 on top of the purchase price. In addition, the cars will now come equipped with the ability to control media, climate, and roof settings, with a smartphone. Tesla is also taking other measures in order to make its cars better suited to local tastes. Its cars are not equipped with popular local apps such as QQ Music and Xiami, and its navigation maps are unpopular because they aren’t the locally used ones from Baidu or Gaode. The Silicon Valley based auto maker is considering adding all these features into the new set of vehicles that will be sold in China. However, all these reasons aside, the two biggest complaints against Tesla from Chinese customers have been the time lag between orders and delivery and the poor after sales service. These are serious issues and can impact consumer perception of the company very negatively. Currently, it takes around a month between the time a car is produced and delivered in the U.S., but in China the wait has been even longer. According to some reports, customers who had ordered the car in April, only received them by September, implying a five month lag. Elon Musk has stated in the past that he plans to localize both production and engineering in China within the next two-three years, but until that happens the company is going to have to figure out a way to deliver its cars faster into China. This could mean having to pay extra for express shipping services and that could put a downward pressure on its margins. As far as after-sales service is concerned, this could be either a personnel problem or a problem with an inadequate number of service centers in the country. To resolve these problems the company will either have to hire new staff, or retrain current staff, and the company will have to open new service centers in the country. Both these measures will impact operating margins negatively. Range Anxiety The main problem that Tesla’s business has faced in China, according to Elon Musk, has been the wrong information passed out by its sales team in the country. Musk said that the customers had been informed that charging the cars is more difficult than it actually is. Now that that has become accepted wisdom, the company will have to take a set of measures in order to change popular perception. To this effect, Tesla, which already offered home wall-charging units for free in China, will start paying for the installation of these charging units, too. Additionally, the company is now also giving out mobile connectors that allow drivers to use any outlet to charge their cars. All of these are token measures, though, and the company will have to rapidly expand its network of superchargers in order to alleviate concerns that vehicles are going to run out of battery far away from charging stations. One measure that the company is taking in order to address this concern is to use the concept of “destination charging” that it has used in the United States. The auto maker is planning to install a network of charging stations at destinations Tesla users are likely to frequent, such as hotels and malls. Currently, there are more than 1,000 such charging stations in the country. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    How Can Introduction Of More FPS Titles By EA Impact Its Stock?
  • By , 3/31/15
  • tags: ERTS EA ATVI GME
  • Electronic Arts (NASDAQ:EA), the leader in the sports games genre, has changed its business strategy over the last 3 years, to developing fewer number of titles throughout the year, and to focus on improving their existing franchises rather than releasing numerous other small titles. As a result, the company enjoyed improved margins, with more energy and investment to further provide the gamers with better game features. In the case of Electronic Arts, the number of titles released per year decreased from 56 games in 2010 to 11 games in 2014. EA’s “hit rate,” the percentage of games in the top 100 list, improved from 23% in 2010 to 68% in 2013. However, the figure dropped to 55% in 2014, due to the absence of the Battlefield and Need For Speed franchises. EA’s strength is its sports titles, FIFA and Madden NFL, both of which are the most popular sports titles in their respective geographic regions. Furthermore, 2014 was even more special for  FIFA fans, as the company released a special edition of its soccer title:  2014 FIFA World Cup Brazil, ahead of the FIFA World Cup held in June. FIFA 15 was also given an overwhelming response by the fans, making it the second highest selling title worldwide in 2014. On the other hand, Madden NFL was the highest selling sports game in the U.S. in 2014. Over the last couple of years, the company is putting efforts to enter into the First-Person Shooter (FPS) genre, with its Titanfall and Battlefield franchises. However, Activision Blizzard (NASDAQ: ATVI) still remains the leader in the FPS genre, with its highly popular Call of Duty franchise. Shooter games are growing in demand, as the new storylines and high quality graphics are attracting more gamers. Our $54 price estimate for  Electronic Arts’ stock is 8% below the current market price. See our complete analysis of Electronic Arts stock here Trefis’ estimate for the EA stock is roughly 8% below the current market price. Considering all the industry and company trends, as well as the current financial condition of the company, there is one probable scenario that can impact the company’s stock price. Improving Market Share In FPS Category In 2014, EA released just one FPS title: Titanfall in March and it sold just 3.7 million units on next generation consoles till December 2014, whereas Activision’s Call of Duty: Advanced Warfare was released in November and it still managed to sell 9.5 million units on next generation consoles. This clearly indicates the dominance of Activision’s Call of Duty in the segment. In 2014, Activision’s market share in the shooter category was 66%, whereas Electronic Arts’ market share was just 16%. Electronic Arts would certainly want to tap into this market by introducing new FPS games in the future, as well as by releasing annual editions of Titanfall and Battlefield franchises. Let us take a scenario, where the company aggressively introduces FPS games in the coming 5-6 years. In March 2015, Respawn Entertainment, the developers of Titanfall, confirmed that the sequel of this game is in development, but has not yet announced the release date. Let us say Titanfall 2 is released close to November, just before the holiday period, giving the title 2 months till the end of the year. Titanfall sold 2.75 million units in its first 8 weeks on Xbox One, PS4, and PC. Considering the sales of titles gets 1.5X to 2X in November and December, it is safe to assume that Titanfall 2 might sell close to 4 million units in 2015. Moreover, Battlefield Hardline was released on March 17, and has gained a lot of attention, since it is the first major shooter game release of the year. Battlefield 4 sold close to 3.5 million units in 2014, which was the year when software sales were low. Taking a conservative estimate, we can say Battlefield Hardline might sell close to 4.5 million units in 2015. This would mean 8.5 million units from two FPS titles. Apart from shooter and sports titles, EA’s other titles account for another 4.5 million units on average. Since 2015 will witness a new Need for Speed title as well, we can say other titles might add up to 14 million units (8.5+4.5+1). After 2015, let us assume that the company releases Titanfall and Battlefield titles annually, and releases one more franchise in the next 3 years thereafter. Currently Trefis forecasts the number of game titles other than FIFA and Madden to remain 11 till the end of our forecast period. However, in the above mentioned scenario, this might go up to 14 by the end of 2021, if the company sticks to its present business strategy. Moreover, Trefis’ forecast for the number of units sold per title is 1.16 million per title for the year 2015 and 1.4 million per title by the end of 2021. In case of the above scenario, this figure might jump to 1.27 million units per title in 2015 and 1.67 million units per title by the end of 2021. This whole scenario would lead to 11% upside to our price estimate, and a significant improvement in the company’s market share in the shooter category. Moreover, according to our estimates, it would provide a significant boost to the segment’s gross profit as shown below. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Time To Reap Benefits Of High Investments For Daimler's Mercedes-Benz?
  • By , 3/31/15
  • Daimler AG ‘s luxury vehicle division Mercedes-Benz is the third largest luxury car manufacturer in the world behind compatriots BMW and Audi. The German vehicle brand forms approximately 63% of the Daimler’s valuation, according to our estimates. Not only does Mercedes lag BMW and Audi in terms of volume sales, but also operating margins. BMW and Audi had margins of 9.6% and 9.7%, respectively, in 2014, more than Mercedes’ 8% margins. However, Mercedes has been closing-in on its competitors in the last year or two and is a serious contender for the global luxury sales crown before the end of this decade. High investments in manufacturing facilities, product development and model makeovers hurt the company’s margins previously, but the time may have come when Mercedes starts reaping the benefits of its large investments. One-time costs associated with the launch of new/refreshed models had lowered operating margins to around 3% in the first quarter of 2013, but a favorable product mix and efficiency initiatives such as the ‘Fit for Leadership’ program has helped Mercedes sequentially improve its profitability. Mercedes improved operating margins to 8.3% in Q4 and 8% in the full year 2014, up from 7.5% in Q4 and 6.2% in the full year 2013. 8% might be a small figure in comparison with the figures reported by BMW and Audi, but Mercedes is slowly but surely getting closer to its near to mid term target of 9-10% operating margins. We have a $96 price estimate for Daimler AG, which is in line with the current market price. See Our Complete Analysis For Daimler AG Mercedes has also narrowed its gap with BMW and Audi volume-wise, increasing volume sales by 13% year-over-year in 2014. Mercedes’ gap with the worldwide sales leader BMW shrank to 91,000 unit sales from 114,000 in 2013. The German number three is in hot pursuit to take over the worldwide luxury sales lead before the end of this decade, and the company plans to launch at least eleven new models (with no predecessors) before 2020 as a part of its product offensive strategy. In order to stimulate additional demand this year, four new vehicles will be launched by Mercedes by July this year, including models from the Mercedes-Maybach brand, the sports car Mercedes AMG GT, the CLA Shooting Brake, and the sports SUV GLE Coupe. Super-Luxury Models Could Boost Average Pricing The resurrected Mercedes-Maybach brand launched first in China this year, with the S400 and S600 models launching there in February. The models are priced at more than 2x their prices in the U.S., mainly because of the high import tariffs and transportation expenses. However, foreign automakers do tend to scale-up the prices of their products in China, where demand for luxury vehicles and world-renowned brands remains high. In addition, Mercedes will also launch its sports car Mercedes-AMG GT this year, which was unveiled in September last year. This model is the second sports car entirely made by Mercedes-AMG, and will heat up the competition in the higher-end of the luxury vehicle market, competing with the likes of Jaguar F-Type and Porsche 911 Turbo. While the GT won’t be a volume model for Mercedes-AMG, with an estimated starting price of $130,000, the model will boost the average revenue per unit for the company, along with the Mercedes-Maybach models. If the average pricing of Mercedes’ super-luxury division (Maybach/S-/CL-/SL-Class) grows to $120,000 by the end of our forecast period, up from our current estimate of $94,000, and volume sales for this division grow at a CAGR of 8% through 2021, the price estimate for Daimler rises to $102.56, up 7% from our current estimate. The GT and Maybach models, being relatively more expensive, could carry fatter margins and help Mercedes reach 9-10% operating margins. Volume Models To Boost Revenues And Margins With the new wagon and sedan versions of the C-Class available in all markets, Mercedes will look to benefit from the high demand for compact saloons globally. The C-Class is a volume model for the German company, constituting nearly one-fifth of the net volumes for the brand last year. Demand for smaller premium vehicles is expected to remain strong in the near term as customers, with a higher purchasing power now owing to declining oil prices, trade-up from non-luxury large sedans. In the first two months of this year, sales of the C-Class have risen a massive 60% year-over-year to 63,878 units. Riding on this growth momentum in the early part of the year, Mercedes could be looking at a strong finish to 2015 in terms of volume sales growth. Apart from a strong volume growth, the new C-Class could also improve margins for Mercedes, despite its lower price points. The C-Class is Mercedes’ first model to be produced in four continents, being manufactured in Germany, South Africa, the U.S., and China. What the new C-Class underscores is Mercedes’ commitment to extracting meaningful volume growth by penetrating high volume segments such as compact sedans and SUVs, and simultaneously reducing its import tariffs and cost of production by manufacturing closer to the end customer. Speaking of SUVs, that’s another segment where Mercedes is looking to grow sales. The company will launch four new or revamped SUVs this year, and will also start producing the compact crossover GLA-Class in China. Unit sales of premium SUVs rose 14.2% year-over-year in 2014 in the U.S., representing the highest growth in any vehicle segment. Premium SUVs still form only 1.2% of the country’s vehicle market, and with a growing demand for luxury vehicles, especially crossovers, this segment could continue to expand. Mercedes renamed its M-Class model lineup the GLE-Class last year, and recently introduced the GLE Coupe, combining the looks of an SUV and a luxury coupe. Crossovers have become popular in recent years as they provide both the functionality of a utility vehicle and the comfort and design of a car. The GLE Coupe will compete with the new model year BMW X6 (launched in December last year) in the U.S., aiming to add incremental sales for Mercedes. Mercedes has made large investments in the recent past, in a bid to fuel growth in its volumes as well as margins in the longer term. Profit margins are rising for the German car brand, and with strong sales for super-luxury brands, the new SUV lineup, and the trusted C-Class, bolstered by lower costs of manufacturing, the 9-10% operating margins goal might be achieved within a couple of years. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    GMCR Logo
    Scenario: Is This The Stagnation Stage For Keurig Brewers?
  • By , 3/31/15
  • The Vermont based K-Cups maker,  Keurig Green Mountain (NASDAQ:GMCR), had a busy time last year with numerous partnership and distribution deals with coffee companies and some retail chains. The company reported its Q1 2015 report on February 4, as it delivered non-GAAP EPS of $0.88 in Q1, which was in-line with the guidance. However, the company’s revenue figures came in below expectations, due to a weak holiday period for brewers and other accessories in terms of sales. The weak brewer sales in the holiday season also included the negative impact of a recall on certain MINI plus brewers, and greater than expected retailer portion pack inventory reductions. The company mentioned that it was expecting a decline in the brewer sales year-over-year (y-o-y) due to the low promotional price points last year. However, the decline was more than the expectations due to the voluntary product recall. In the first quarter, the brewer and accessory sales declined 18% y-o-y to $307 million, and the brewer volume was down 12% y-o-y to 4.5 million brewers. Keurig released its new brewer: Keurig 2.0 in the fourth quarter (September ended quarter) of fiscal 2014, and was anticipating a great response from its customers in the initial phases. According to the data reported by the company, Keurig 1.0 and Keurig 2.0 U.S. reservoir shipments grew nearly 6% y-o-y, which was lower than the company’s expectations. Keurig 2.0’s launch was fairly unimpressive because of two major reasons — firstly, the delay in putting the new packs on the retail shelves, and secondly, consumer perception about the Keurig 2.0. Most of the customers were unclear whether the new version of Keurig brewer would brew all their favorite brands. This confusion led to lower brewer sales in the key holiday period. Keurig witnessed a 2% revenue growth in the U.S., whereas its Canadian business declined 12%, due to weaker brewer sales coming as a result of slower adoption of the Keurig 2.0. We have a  $102 price estimate for Keurig Green Mountain, which is 10% below the current market price. See our full analysis of GMCR here While Trefis’ estimates for GMCR stock price is 10% below the current market price, we estimate the net revenues to be in-line with the general consensus, as well as expecting higher than expected  expenses, due to launch and marketing of Keurig Cold this year. However, taking the current market and industry trends, as well as probable future scenarios in mind, there is one case that can impact the company’s stock price significantly. Stagnation In Brewer Volume Growth As discussed above, the brewer volume declined to 4.5 million brewers in Q1 2015 from 4.9 million brewers in Q1 2014. As a result, the sales of the brewers declined 18% y-o-y. However, the total brewers sold annually has increased drastically from 2.34 million in 2009 to 10.7 million in 2014. As seen before, Keurig’s share price is directly correlated to its customer base. GMCR stock rose more than 45% in the first 10 months, as the brewer sales figures outperformed previous year’s figures. Similarly, as the brewer volume growth declined, the stock price tumbled roughly 15% in the last 2 calendar months. Trefis estimates the brewer volumes to increase at an average rate of 8% in the next 6 years to reach the figure of 17.8 million annual brewer sales in 2021. As mentioned before, confusion among the consumers related to Keurig 2.0 was one of the reasons for poor performance of the new brewer technology. However, the company believes this might not be the case in 2015 and the brewer volume might increase in the remaining quarters. Now, let us assume that the decline in brewer volume growth might be due to stagnation in the market. Brewers are those products whose usage cycle can be for around 2-3 years, i.e. until the release of the next generation of brewer technology. Keurig Vue brewing system was introduced to the market in 2012, and then the Keurig 2.0 was introduced in 2014. However, the market is expecting this brewer cycle to continue for a longer time,  probably 3 years. In that case, stagnation in the market might lead to slower growth in the brewer volumes; say just an average of 2% for the next 6 years, so that the volume reaches just roughly 12 million units annually sold in 2021. With such slower growth, the company might have to keep the price increase of the brewers under check as well. Currently, Trefis estimates the average price per brewer to increase to $98 by the end of 2021 . In the above mentioned scenario, let us assume that the company controls its price hikes and the average price per brewer rises to just $86 by the end of 2021. In this scenario, there could be a 6% downside to our price estimate for the company . This can be a significant driver in the coming years, considering that brewer accounts for 16% of the total revenue of the company. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    These Scenarios In Asia Could Significantly Impact AB InBev's Valuation
  • By , 3/31/15
  • Anheuser-Busch InBev (NYSE:BUD) is the largest brewer in the world, and continues to get bigger with acquisitions of large breweries such as Grupo Modelo in 2013 and Oriental Brewery last year, as well as small craft breweries such as Elysian Brewing Company and Oregon’s 10 Barrel Brewing in the U.S. last year.  AB InBev is a good example of a steadily growing business, with the company’s stock jumping 16.7% in the last 52 weeks, while the overall S&P 500 Index rose 12.3%. Despite a small 0.6% year-over-year increase in volume sales last year, higher emphasis on premium products worldwide fueled a 5.9% top line growth for the brewer. Going forward, organic growth might be hard to come by, especially in mature developed markets such as North America and Europe, and also as AB InBev already boasts a strong 50+% volume share in most of its top markets. We have a  $122 price estimate for Anheuser-Busch InBev, which is in line with the current market price. See Our Complete Analysis For Anheuser-Busch InBev Looking ahead, AB InBev might look to acquire more small breweries and utilize the already established local brand recognition and loyal customer base of these brands to its advantage, thereby adding incremental volume sales. The smaller breweries will in turn leverage AB InBev’s large scale and marketing muscle to boost their distribution, reach, and availability. Here are two scenarios that could have a significant impact on AB InBev’s valuation. China Opportunity - In three of the four largest markets for AB InBev, namely the U.S., Brazil, and Mexico, the brewer has massive volume shares of 46.4%, 68.2, and 57.8% respectively. However, in China — the largest beer market in the world in terms of volumes, and the third largest for AB InBev — the brewer holds a smaller 15.9% volume share. This means that there is still a large growth opportunity for the world’s largest brewer in China, where beer industry volumes are also expected to grow at a fast pace going forward. Hurt by rough weather conditions and relatively slower economic activity in the latter part of the year, the industry-wide beer volumes in China declined by 4% in 2014. However, AB InBev’s volume growth remained positive at 1.6%, reflecting strong growth in the brewer’s focus brands in the country. The brewer’s core focus group in China comprising Budweiser, Harbin, and Sedrin grew by 7.8% last year, and accounted for approximately 73% of the company’s portfolio in the country. While the 1.6% volume growth figure represents organic growth, volume growth including M&A activities was approximately 9% in 2014. In April 2013, Anheuser acquired four breweries in China, with net beer capacity of roughly 9 million hectoliters, for $439 million, and also acquired Siping Ginsber last year. Anheuser might look to acquire more regional brands to boost its portfolio and penetrate deeper into China. The company improved its market share in the country by 90 basis points to 15.9%, and if we include the recent mergers and acquisitions, the share, in fact, becomes around 16.8%. Anheuser managed to grow volume sales in China, despite an overall fall in industry-wide volumes. AB InBev could be in good shape to further improve volumes organically in China, once demand for beer starts rising again, as beer penetration is still low in the country and incomes are rising. China formed 87% of the net volumes last year for AB InBev’s Asia-Pacific division, which forms approximately 12% of the company’s valuation by our estimates. Assuming  more acquisitions of breweries in the country, coupled with strong organic volume growth, pushes the brewer’s Asia-Pacific volumes to 16 billion liters by the end of our forecast period, up from the currently estimated 12 billion liters, and the average revenue per 12 ounce also rises simultaneously, there could be a nearly 11% upside to our current price estimate for the company to over $135. We have assumed a rise in average revenue per 12 ounce and operating margins, as we expect a larger contribution of premium beer sales going forward in China, where presently over 80% of the industry-wide beer volumes are formed by value lager. Possible Acquisitions In Asia - AB InBev’s underlying strategy seems clear — to grow its business organically by focusing on premium beers, especially in emerging markets where disposable incomes are growing, and also acquiring locally established breweries that could leverage AB InBev’s strong distribution channels and marketing muscle to grow even further. Seeing how there might not be a lot of growth potential in mature developed markets, AB InBev could invest further in Asia, apart from China. Anheuser-Busch InBev reacquired Oriental Brewery in 2014, the largest brewery in South Korea, boosting its presence in the country. Oriental Brewery formed slightly less than 3% of the net beer volumes for AB InBev last year. Oriental Brewery operates at fatter margins than AB InBev, so it fits right into the latter’s strategy of focusing more on premium brands and boosting profitability. 2015 will be the first full year for the South Korean brewery under AB InBev, and this acquisition could have a significant impact on the latter’s Asia-Pacific revenues and margins this year. The beer market in South Korea is expected to grow at a CAGR of 3% through 2017, and given that Oriental Brewery holds a massive 60.4% beer market share in the country, volumes for Anheuser-Busch could increase by even more than presently estimated. Oriental Brewery stands as an example of AB InBev’s growing ambitions in Asia. Anheuser could look to invest even more in this region, perhaps in India, Indonesia, or Vietnam. The premium beer segment in India has grown at a CAGR of 40% in the last two to three years, and could be a great opportunity for AB InBev and its premium beer brand portfolio. On the other hand, Vietnam is one of the largest beer markets in Asia, and is growing each year at approximately 10%. The government is cutting its share in Sabeco, Vietnam’s largest beer producer, to 36%, which presents a solid growth opportunity for both local and foreign brewers to invest in this budding beer market. Assuming that AB InBev backs its Asian ambitions with more mergers and acquisitions, Asia-Pacific volumes for the brewer could rise to approximately 15 billion liters by 2021, up from our current estimate of 12 billion liters, raising AB InBev’s price estimate by 8% from our current estimate. The forecasts and estimates can be further tampered with on the Trefis website. Remember, the possible Asia acquisitions exclude China. Acquisitions in China and the rest of Asia together make a strong case for almost a 20% jump in valuation for AB InBev. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    CVS Logo
    What The UnitedHealth-Catamaran Deal Means For CVS Health And The General Public
  • By , 3/31/15
  • tags: CVS RAD WAG UNH
  • Earlier this month, we wrote a piece on how the pharmacy benefit management market in the U.S. has transformed over the past few years and its effect on CVS Health (NYSE: CVS). As firms resorted to aggressive acquisition strategies to achieve scale, it resulted in the consolidation of the whole market. Another one that made the headlines yesterday (March 30th) is the acquisition of Catamaran Corporation (NASDAQ:CTRX) by  UnitedHealth Group (NYSE:UNH), further increasing the concentration in this market. Together, these companies will form the third largest pharmacy benefit manager with a market share of around 20%. From a total of about 100 companies in the market in 2008, it will come down to just 3 companies controlling almost three-fourths of the market, after the completion of this transaction. The acquisition will be completed by the end of fourth quarter of 2015, pending regulatory approvals. Before this transaction, CVS, along with Express Scripts Holding Co. (NASDAQ: ESRX), controlled about 50% of the PBM market. In the recently concluded fiscal year, the company filled about 750 million prescriptions, compared to more than a billion prescriptions filled by rival, Express Scripts. With this deal, the number of prescriptions United Health will manage will increase from 570 million to a billion prescriptions. What This Means For CVS View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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