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

COMPANY OF THE DAY : SPRINT

Within a week of taking over, Sprint's new CEO Marcelo Claure has given an indication of how he intends to turn the company around. On Monday, the company announced a new set of shared data plans that provide customers more data per connection at lower costs than rivals. In addition, the carrier said that it would reimburse customers for the cost of switching over from other carriers, similar to the initiatives launched by T-Mobile earlier.

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FORECAST OF THE DAY : ACTIVISION'S NUMBER OF WORLD OF WARCRAFT & OTHER MMORPG SUBSCRIBERS

The World of Warcraft was once the world's largest massively multiplayer online role-playing game (MMORPG) franchise.

However, the online gaming landscape has changed considerably as new free-to-play online MMORPGs have entered the fray.

Activision's Call of Duty, Skylanders, Diablo III and other franchises have filled the void.

Read more...
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RECENT ACTIVITY ON TREFIS

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Target To Focus On Growth And Salvage Its Canadian Expansion
  • by , 21 minutes ago
  • tags: TGT WMT
  • Target ‘s (NYSE:TGT) Q2 fiscal 2014 earnings fell by a staggering 62% as Canadian losses and aggressive discounting weighed heavily on its profits. The company lowered its guidance for the second time this year, citing a traffic decline and promotional activities as the main reasons. It now expects its full year earnings per share to be around $3.10-$3.30, down from its previous guidance of $3.60-$3.90. During the quarter, Target’s comparable sales remained flat as increase in average spending per customer was offset by 1.3% decline in store traffic. The cheap chic retailer ushered heavy markdowns to attract customers, which dragged its margins down to 30.4% from 31.4% a year earlier. Along with its dismal performance in the U.S., the 11.4% comparable sales decline in Canada summed up a lackluster quarter for Target. Store traffic at Target has declined in the past nine consecutive quarters and its comparable sales growth hasn’t been positive in the last six quarters. U.S. buyers are gradually moving to online shopping, where Target’s presence remains weak. The retailer was once known for its high value, stylish and affordable merchandise. But it seems to have lost this essence due to an aggressive push towards fresh foods, which has hurt its brand image. Also, last year’s data breach at Target has made customers wary of shopping at the company’s stores. These issues pushed Target’s CEO Gregg Steinhafel towards an exit earlier this year and it recently appointed PepsiCo (NYSE:PEP) executive Brian Cornell to succeed him. Mr. Cornell has made it clear that the company’s priorities are to bring customers back and fix its botched up Canadian expansion. The company is looking to gradually expand its small store network, where traffic trends have been much better than traditional big-box stores. It is also trying to make some changes to its store layouts to provide a better environment for the categories it is best known for. Target is augmenting its omni-channel portfolio to elevate web sales as well as drive greater store traffic. In Canada, the retailer is looking to rectify shortcomings with its supply chain, pricing and merchandise selection,  And expects to see some measurable improvements by this fall. Our price estimate for Target stands at $67.53, implying a premium of more than 10% to the market price. However, we are in the process of updating our model in light of the recent earnings release.
    LOW Logo
    Lowe's Earnings Review: Spring Sales Boost Q2 Results, But Slow Q1 Weighs On Full-Year Outlook
  • by , 1 hours ago
  • tags: LOW HD
  • American home improvement retailer  Lowe’s (NYSE:LOW) reported strong spring and summer sales on August 20, boosting the company’s Q2 results. Net sales grew 5.7% year-over-year to $16.6 billion, similar to the increase seen by Home Depot (NYSE:HD), Lowe’s primary competitor, during the period. However, around 100 basis points of this top line growth was incremental, contributed by Orchard Stores, a neighborhood hardware and backyard store chain acquired by Lowe’s in August last year. While Lowe’s’ sales in the first half of the year rose 4.2%, Home Depot’s sales grew 4.4%. This suggests how Home Depot could have further widened its lead over Lowe’s in the U.S. home improvement market. As of 2013, Home Depot and Lowe’s held 27.2% and 18.4% value shares in the domestic market respectively. Given the slow Q1 sales due to rough weather conditions, Lowe’s lowered its full-year sales guidance to 4.5% growth, down from 5% estimated previously. However, this means that sales in the second half are expected to have a solid growth of roughly 5%. This increase is expected to come from the anticipated income and employment growth, and appreciation of home prices, as the domestic housing industry regains momentum. We have a  $50.24 Trefis price estimate for Lowe’s stock, which is roughly 4% below the current market price. See our complete analysis of Lowe’s here Macro Conditions Improve To Boost Demand For Home Improvement Goods Lowe’s’ business is impacted by the number of house sales, as new occupants spend on home improvement supplies and construction products and services. Macroeconomic factors are starting to favor growth in this market, as seen by the increases in home sales in the second quarter. Hurt by the overall slowdown in economic activity, along with high lending rates, sales of existing homes declined from a seasonally adjusted annual rate (SAAR) of 4.87 million in December to 4.62 million in January, 4.6 million in February and 4.59 million in March. In fact, sales in March represented a year-over-year decline of 7.5%. New home sales also remained low, and fell to a SAAR of 384,000 in March from 449,000 in February. However, following the first quarter, house sales have picked up in the U.S. Existing homes sales improved in April, May and June to reach a SAAR of 5.04 million, which is the highest sales figure since seen in October last year, although 2% lower than June 2013 levels. Following tepid growth in the first quarter of the year, the domestic housing market seems to be regaining momentum, supported by declining lending rates and unemployment rate, and improving consumer affordability. Following a negative 2.1% contraction in the U.S. GDP in Q1, the country’s GDP returned to positive growth in the second quarter, increasing by 4%. In particular, personal consumption expenses rose 2.5%, with spending on durable goods increasing 14% percent, compared with only a 3.2% growth in Q1. Consumer spending could continue to improve in the latter half of the year and translate into higher sales for Lowe’s. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage declined to 4.13% in July from 4.43% in January and 4.37% in July last year. Potential home buyers have looked to take advantage of the lowered borrowing costs, boosting home sales. Lending rates had previously been on a rise since the first half of last year, fueled by the Federal Reserve’s announcement of reduction in bond purchases, which had kept the long-term interest rates low. Home sales are also impacted by the general business environment that affects job creation and incomes. The U.S. unemployment rate fell to 6.1% in June, the lowest rate since recession started in September 2008. Although the unemployment rate rose slightly to 6.2% in July, the figure is still much lower than the 7.6% rate in July last year. This bodes well for the housing industry as job creation would facilitate income growth and consequently also support home sales. In addition, with job stability, consumers might also look to increase spending on home improvement products. Rising house prices are closely associated with consumer affordability. After decreasing by more than 30% during the recession, home prices picked up momentum in 2012-2013, rising to within 20% of the peak 2006 levels. Home Depot, the main competitor for Lowe’s, expects home prices to grow by 6% in 2014, which although lower than the rise in 2013, reflects steadily growing incomes, affordability and consumer demand. While during their peak in 2006, home prices were almost 40% overvalued, as compared to metrics such as cost-to-rent and incomes, the domestic housing industry remained 4% undervalued based on the same fundamentals at the end of last year. According to Home Depot, home prices appreciated around 5-6% in the first half of the year. Despite increases in existing home sales, new home sales fell to a SAAR of 406,000 in June from 442,000 in May. However, housing starts jumped almost 16% in July to an annual rate of 1.093 million units, while home construction was up 22% through July. Higher rates of construction could mean that builders are confident of an uptick in new home sales going forward. In addition, although house sales are still lower than previously estimated by retailers, home sales might grow later in the year in anticipation of the Federal Reserve’s move to increase short-term interest rates in early 2015. Lowe’s Will Hope To Gain From Higher Pro Sales Going Forward With economic conditions starting to support home improvement sales, Lowe’s will also aim for professional (pro) customers to contribute higher to its top line. Why the pro customer base is crucial for Lowe’s is because it forms around 30% of the retailer’s net revenues, and is growing faster than the retail consumer market at present. In the first quarter, comparable sales growth for the pros business was three times the company average, and remained higher than the company average in Q2 as well. Pro applications increased 23% in the second quarter, but overall pro penetration for Lowe’s still lags that of Home Depot’s, which generates over 35% of its net sales from the pro business. Lowe’s relaunched LowesForPros during the second quarter, a dedicated online platform for purchase by professional customers, in a bid to further expand into the growing professional customer market. The site is presently being tested with a select group of pro customers and will release for a broader base by the end of the year. Growth in pro customer sales should also boost the company’s average ticket size in the coming quarters, as these customers typically have bulk purchases per transaction. The average ticket size in the quarter stood at $65.65 for Lowe’s, whereas the figure for Home Depot was $58.43. Lowe’s focuses relatively more on higher priced premium goods, as compared to Home Depot. With an estimated increase in disposable incomes, consumers might switch to premium goods and thus boost Lowe’s sales going forward. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    XOM Logo
    3 Key Trends Driving Our $107 Price Estimate For Exxon Mobil
  • by , 1 hours ago
  • tags: XOM CVX BP PBR
  • Exxon Mobil is the world’s largest publicly traded international Oil and Gas Company. It generates annual sales revenue of more than $420 billion with a consolidated adjusted EBITDA margin of ~14.7% by our estimates. We recently revised our price estimate for Exxon Mobil to $107/share, which values it at around 13.4x our 2014 GAAP diluted EPS estimate of $7.96 for the company. Here, we discuss the three key trends driving our price estimate for Exxon Mobil. See Our Complete Analysis For Exxon Mobil Improving Upstream Volume Mix Exxon’s total hydrocarbon production can be broadly split into two categories – liquids, which include crude oil, natural gas liquids, bitumen and synthetic oil, and natural gas. Liquids made up more than 60% of Exxon’s total hydrocarbon production in 2009. However, its percentage contribution declined significantly after the company acquired XTO for $41 billion in 2010, which increased its natural gas production by 31% y-o-y that year. More importantly, most of the increase came from the U.S., where natural gas prices have been significantly depressed by international standards due to a sharp rise in production from unconventional sources. (See:  Key Trends Impacting Natural Gas Prices In The U.S. ) Liquids have generally become more profitable to produce than natural gas because of higher price realizations. Last year, Exxon sold liquids at an average price of around $95 per barrel, compared to just around $41 realized per barrel of oil equivalent (BOE) of natural gas. This is the reason why the company has been trying to improve the proportion of liquids in its production mix over the last couple of years. Last year, liquids made up 52.7% of Exxon’s total hydrocarbon production, up from 51.5% in 2012. During the first half of this year, Exxon’s total liquids production decreased by 90,000 barrels per day, or ~4.1% y-o-y, primarily due to the expiry of the Abu Dhabi onshore concession agreement. The company lost its 75-year rights to the emirate’s oldest producing fields this January, when the Second World War-era contract expired. However, excluding the impact of the Abu Dhabi onshore concession expiry, Exxon’s liquids production actually increased by 1.8% y-o-y during the fist two quarters of this year. On the other hand, its natural gas production declined by almost 0.9 billion cubic feet per day, or more than 7.3% y-o-y over the same period. Although, lower weather-related demand in Europe exaggerated the decline in its natural gas production during the first quarter, we expect the overall trend of improving volume-mix to continue for the rest of the year. The company expects its liquids production to grow by ~2% y-o-y and natural gas production to decline by around 3% for the full year. This is expected to drive better price realization per barrel of oil equivalent and improve its unit profitability. Thinner Downstream Margins Exxon’s downstream margins have been under a considerable pressure over the past few quarters. This has been primarily due to industry overcapacity amid sluggish demand and higher crude oil prices. There have been certain bright spots as well, such as refineries in the Midwest U.S. that have been gaining from lower crude oil prices due to the fast-growing supply from unconventional plays in the U.S. and a lack of midstream infrastructure. However, a sharp decline in international crack spreads over the past few quarters has more than offset this advantage for Exxon. During the first half of this year, Exxon’s international downstream earnings declined by more than 44% y-o-y, primarily due to thinner margins. Going forward, we expect global refining margins to continue to remain under pressure in the short to medium term due to industry overcapacity, which stems from the fact that governments in different parts of the world are willing to run uncompetitive crude refineries at very low or no returns to sustain employment and reduce their reliance on imported fuels. We currently forecast Exxon’s adjusted downstream EBITDA margin to improve marginally to around 2% in the long run, which is more than 30 basis points below the historical average by our estimates. (See:  Key Trends Impacting Global Refining Margins ) Declining Capital Expenditures While Exxon’s total hydrocarbon production has remained relatively flat over the last decade, its capital expenditures have soared from around $18 billion in 2005 to over $42 billion in 2013. This is a clear indication of how difficult the oil drilling business has become over the years. However, the company believes that 2013 was a peak year of capital expenditures and it would not spend more than $40 billion on leasing rigs, floating oil platforms, installing pipelines and repairing oil-refineries this year. If we go by Exxon’s performance during the first six months of this year, the company is well on track to meet its 2014 capital expenditure target. It has so far spent just $18.2 billion on purchasing, repairing, and upgrading its physical assets, such as property, plant, and equipment, compared to over $22 billion during the first two quarters of last year. Beyond 2014, Exxon expects its capital expenditures to decline further to an average of less than $37 billion annually. We believe that it would not be an easy task for the company amid growing pressures to increase its production, as hydrocarbon finding and development costs continue to swell. Therefore, we currently expect Exxon’s total annual capital expenditures to remain around $40 billion in the short to medium term. However, if the company is able to successfully achieve this target through efficient capital allocation, it could provide a much-needed boost to its declining ROCE, which stood at just around 17% last year. Moreover, it could also result in additional upside of around 10% to our current price estimate for the company. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    UTC Is Expanding Its Aviation Service Business As Demand From The Global Commercial Aviation Sector Grows
  • by , 1 hours ago
  • tags: UTX BA
  • Rising demand for new airplanes from airlines around the world has increased shipments of engines and airplane parts from United Technologies ‘ (NYSE:UTX) aerospace division, consisting of Pratt & Whitney (P&W) and UTC Aerospace System (UTAS) segments. P&W which makes airplane engines and UTAS which is a leading global supplier of airplane components such as landing brakes and nacelles will likely constitute around 45% of United Technologies’ (UTC) top line in the current year. So, rising shipment volumes from both these segments is adding significant growth to UTC’s results. However, UTC is seeking to benefit from the ongoing upcycle in global commercial aviation not only through higher engine and component shipments but also through growing its aviation service business. UTC provides maintenance, repair and overhaul services to airlines covering their engines and other components. We currently have a stock price estimate of $119 for UTC, around 8% ahead of its current market price. See our complete analysis of UTC here A Growing Commercial Aviation Market Global airline passenger traffic is rising driven by a steadily growing global economy, rising trade and globalization. Forecasts from  Boeing (NYSE:BA) anticipate the global airline passenger traffic to grow by around 5% per year through the next two decades. At the same time, driven by higher global demand for air travel, airline profits are also rising. As a result, airlines are placing orders for new airplanes which has forced airplane makers such as Boeing and Airbus to hike their production rates. According to figures cited by UTC, driven by these higher production rates, about 35,000 new commercial airplanes are expected to be delivered to airlines over the next 20 years, up from about 19,000 commercial airplanes that were delivered to airlines over the past 20 years. This tremendous growth in commercial airplane deliveries is in turn expanding the global airplane fleet, growing the aviation service market. UTC’s Growing Service Business To benefit from this growing service market, UTC is expanding its aviation service network. The company has currently grown its service network to about 100 maintenance, repair and overhaul (MRO) sites spread across multiple geographies catering to airlines. Such a wide service network is attracting more and more airlines to sign up for long term service agreements with UTC. With a growing customer base, the company’s engine manufacturing segment, P&W, anticipates capture rate of about 80% for its latest Geared Turbo Fan (GTF) engine. This is a significant improvement from existing capture rates of about 45% and 60% for UTC’s PW4000 and V2500 engines, respectively. The company also expects a similar trend at its UTAS segment with steady revenue growth from long term service agreements covering airplane components. For airlines, good aftermarket engine and part service is essential to maintain high airplane utilization rates. These high utilization rates in turn directly aid an airline’s profitability. All in all, UTC by expanding its service network is growing its aviation service business in order to fully exploit the rising demand from the global commercial aviation sector. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Network Quality Differentiates Top U.S. Wireless Players
  • by , 2 hours ago
  • tags: T S VZ
  • AT&T (NYSE:T) is the second best wireless network in the U.S. after Verizon (NYSE:VZ), according to the latest mobile network performance report by RootMetrics. The second largest U.S. carrier was ahead of market leader Verizon in text performance and was almost on par with it in most of the other parameters, including network reliability, call performance and data performance. It scored an impressive 79.5/100 in the overall performance report, trailing Verizon by a single point. The only parameter where AT&T lagged significantly behind Verizon was network speed, likely due in part to the latter’s new upgraded LTE service, XLTE. In addition to highlighting the fierce competition at the top level, the latest RootMetrics report indicates that Verizon and AT&T are far ahead of smaller players T-Mobile and Sprint (NYSE:S) in overall network performance. Although both T-Mobile and Sprint reported an improvement in absolute performance compared to last year, they are a distant third and fourth in the latest report, with scores of around 70/100 each. It is therefore no surprise that the smaller players are trying to lure customers with highly competitive data plans and pricing, while the market leaders are focusing more on network quality and retaining their high-ARPU (Average Revenue Per User) customers.
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    USPS’ Rate Reductions May Pose A Threat To UPS And FedEx’s Market Share
  • by , 3 hours ago
  • tags: UPS FDX
  • The Postal Regulatory Commission (PRC) recently approved rate changes proposed by the U.S. Postal Service (USPS) for its Priority Mail Product, which may prove to be a threat for United Parcel Service (NYSE:UPS) and FedEx ’s (NYSE:FDX) e-commerce package business. These changes, which will be effective from September 7, 2014, will lead to lower rates for USPS’ Priority Mail services based on Commercial Base and Commercial Plus pricing. USPS’s Commercial Base and Commercial Plus pricing are options available to businesses that ship a high volume of light weight packages, for example, e-commerce businesses. It is likely that U.S. e-commerce players will find this move favorable and may choose to avail USPS’ services for their deliveries, instead of UPS and FedEx. See Our Complete Analysis of UPS USPS’s rate reduction, and UPS and FedEx’s change in pricing mechanism will lead to a vast pricing differential UPS, FedEx and USPS are the major players in the U.S. e-commerce package delivery business with volume share of approximately 54%, 30%, and 16% respectively between themselves. UPS and FedEx had recently announced a change in pricing mechanism for their ground segment (the segment that largely caters to e-commerce packages), from weight based to dimension based, in order to realize better price for the packages delivered ( Click here to read our article ). The change in pricing mechanism is expected to lead to a 30-50% increase in rates for package shipment. The reason behind the change in pricing mechanism was that e-commerce packages were generally light in weight but high in volume, and therefore occupied larger space in trucks, leading to depressed margins. Dimensional pricing would lead to better price realization and help in improving margins. Since both, FedEx and UPS, had announced the change in pricing mechanism at relatively the same time, and since they are the dominating players in the U.S. e-commerce package delivery, the price increase was expected to go unchallenged and their market shares unhindered. Most of the regional and local players were expected to follow the change in pricing mechanism. However, USPS decided to go the other way. USPS reduced prices for its Priority Mail Commercial Plus and Commercial Base services by 2.3% and 0.9% respectively. The reduction is expected to lead to a 30-50% decline in rates for weight categories most used by e-commerce players, which ranges from 6-20 pounds. Presently, USPS generates revenue per package of $7.60 from its Priority Mail services. This compares to $7.96 for UPS’s Ground service. FedEx’s revenue per package for its Ground segment cannot be directly compared to UPS or USPS. FedEx’s Ground segment comprises of two services – Ground and SmartPost (SmartPost utilizes USPS’ services to make final delivery). Ground service revenues are gross figures, whereas SmartPost revenues are reported net of postage paid to USPS. The combination leads to reduced overall revenue per package since reported revenues are lower. However, we believe that FedEx’s Ground segment revenue per package is somewhat in line with that of UPS’ Ground service. Therefore, a reduction in rates by USPS, followed by an increase in rates by UPS and FedEx, will lead to USPS’ rates being significantly lower than that of UPS and FedEx. E-commerce players will likely shift to USPS given its lower rates, leading to a decline in UPS and FedEx’s market share. E-commerce businesses are looking for alternative options to reduce costs In the past few years, there has been a general shift in preference towards lower shipping options. Retail customers and businesses are opting for cheaper means of shipping their letters, packages and freight, even if it means waiting for a few extra day. This is clearly evident from the volume mix of UPS and FedEx’s services. In their recent quarterly results, volumes of UPS and FedEx’s deferred and economical services increased, whereas time-sensitive and premium service volumes decreased or remained relatively stagnant (Click here to read our article on UPS’ recent quarter results, or here for  FedEx’s recent quarter results). Since the current scenario suggests that businesses are more likely to opt for lower priced shipping services, it is possible that they will choose USPS over UPS or FedEx. E-commerce companies prefer to avail low-cost delivery services in order to keep their shipping costs to a minimum. They use free shipping options as an incentive to attract customers. At the time when UPS and FedEx announced the change in their pricing mechanism, it was believed that e-commerce players will try to renegotiate their contracts or bear the higher costs themselves or pass it on to their customers, all situations likely to lead to a decline in profits. According to Kewill, a transportation-management software provider, shippers are looking for ways to minimize package size to keep their costs low. However, e-commerce companies now have the option to keep their costs low by availing USPS’ services. They may also choose to leverage this low-priced alternative in order to renegotiate contracts with their existing package delivery service provider. Additionally, major e-commerce players such as Amazon and eBay, are already developing in-house solutions for delivering their products. UPS and FedEx’s price increase offers further incentive for such companies to pursue their own package delivery solutions. If these in-house solutions prove to be sustainable and economical, then this may significantly reduce UPS and FedEx’s market share in the e-commerce package delivery business. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) |  Get Trefis Technology
    Golar Brings to the Fore Breakthrough LNG Technology
  • by , 5 hours ago
  • tags: GLNG KPELY
  • Submitted by Wall St. Daily as part of our contributors program Golar Brings to the Fore Breakthrough LNG Technology By Tim Maverick, Staff Writer   Despite the global LNG industry ’s current struggles, there’s a new technology that offers investors a nice profit opportunity. You see, infrastructure has become a major roadblock for LNG. Basically, it’s expensive to build out the LNG infrastructure, which includes terminals that liquefy natural gas for export, ships that transport the refrigerated gas, and receiving plants that convert natural gas back to its normal state. But what if there were a technology that could combine much of that infrastructure into one neat package? Well, for the first time, there is. The technology is being developed by Golar LNG ( GLNG ), a company controlled by Norwegian billionaire John Fredriksen, the preeminent player in energy shipping. The One-Stop LNG Shop Golar’s development is called a floating liquefied natural gas vessel, or FLNGV. The vessel can produce, liquefy, and store natural gas, and can be easily moved from spot to spot. In essence, it’s an offshore rig that can move from one cheap, stranded (inaccessible) natural gas field to another. And it’s cost-efficient, too, mainly because Golar isn’t building the vessels from scratch. Instead, the company is converting some of its aging fleet of LNG tankers (a sore point with investors for years) to this new type of vessel. Golar has asked Singapore’s Keppel ( KPELY ) to convert one of its old Moss LNG carriers into an FLNGV, and it’s expected to be ready for production in the first quarter of 2015. The vessel will be capable of producing two million metric tons of LNG annually, and it will have 125,000 cubic meters of storage space. On top of that, Golar plans to convert two more Moss carriers in the coming years. Now, this technology may look similar to the Prelude vessel being built for Royal Dutch Shell ( RDS-A ). But there are a few key differences: Golar’s vessel is far more mobile, and its price tag is about one-tenth of the cost. The Start of Something Big in LNG FLNGV offers a promising future for the LNG industry, even with all of its recent ups and downs. After all, the vessel creates a cheap way to tap into some of the world’s most inaccessible natural gas fields (of which there are many). In fact, Shell believes there are at least 300,000 billion cubic feet of natural gas lying in inaccessible offshore fields. Until now, these small gas fields have been ignored by energy companies because the traditional method of reaching the gas and converting it to LNG was far too expensive. But Golar’s FLNGV technology should change all of that. In fact, it could soon be drawing parallels to 1977, the year that the first floating oil production vessel was built. And “the chase” continues, Tim Maverick The post Golar Brings to the Fore Breakthrough LNG Technology appeared first on Wall Street Daily . By Tim Maverick
    Two Reasons Why Interest Rates Will Rise
  • by , 5 hours ago
  • tags: DIA SPY TLT
  • Submitted by Profit Confidential as part of our   contributors program Two Reasons Why Interest Rates Will Rise The U.S. dollar is still regarded as the reserve currency of the world. The majority of international transactions are settled in U.S. dollars and most central banks around the word hold it in their foreign exchange reserves. But since the Credit Crisis of 2008, and the multi-trillion-dollar printing program by the Federal Reserve, the supremacy of the U.S. dollar as the “world’s currency” has been challenged. The BRICS countries (Brazil, Russia, India, China, and South Africa) have agreed on starting a new development bank that will compete with the International Monetary Fund (IMF) and the World Bank. (Source: Washington Times, August 5, 2014.) Both the IMF and World  Bank are “U.S. dollar”-based. Since the year 2000, the U.S. dollar composed about 56% of all reserves at central banks. But after the Credit Crisis, that percentage started to decline. In 2013, the greenback made up only 32.43% of all foreign exchange reserves at foreign central banks. (Source: International Monetary Fund COFER data, last accessed August 11, 2014.) Yes, the $3.5 trillion in new money the Federal Reserve has created out of thin air has made other central banks nervous about holding U.S. dollars in their vaults. After all, if you were a foreign central bank with U.S. dollars as your reserve currency, how good would you feel to know the U.S. just printed more dollars as it needed them without any backing of gold? But it’s not just the money printing. It’s the massive debt the U.S. government has accumulated . . . currently at $17.6 trillion and soon to be $20.0 trillion. In the short-run, the U.S. dollar is still considered a safe haven during times of geo-political situations. But in the long-term, with the continued growth of China as a world economic power, backed by their BRICS partners, all with their own agenda, the future of the U.S. dollar as the world reserve currency comes into question. What does this mean for you? If you are holding American dollars, my first thought would be to diversify out of them. I’m not talking about converting all your U.S. dollars to another currency. I’m talking about taking 10% of your U.S. dollar net worth and diversifying that into something else (like gold or a stronger currency). Secondly, after almost 30 years of declining interest rates, I’m convinced interest rates have bottomed out and will need to start rising. Yes, after that $3.5 trillion in money printing, inflation will become a problem (which will push interest rates higher). But as investors stop running to the security of the U.S. dollar in times of uncertainty, as the BRICS’ effort intensifies, the U.S. will need to make owning U.S. dollars more attractive. And any currency that has a higher interest rate attached to it is more attractive.   The post Two Reasons Why Interest Rates Will Rise appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
    Unknown Winners from the Frac Sand Boom
  • by , 6 hours ago
  • tags: SLCA EMES UNP HCLP
  • Submitted by Wall St. Daily as part of our contributors program Unknown Winners from the Frac Sand Boom By Tim Maverick, Staff Writer   One of the beneficiaries of America’s shale boom has been the frac sand industry. You see, sand is a key ingredient in hydraulic fracturing. Basically, sand is mixed with water and chemicals, then pumped down a well to crack open rocks, which allows oil and natural gas to escape. Energy companies are expected to consume 95 billion pounds of sand this year, which is a remarkable 50% increase from just last year. The increase is due in large part to new methods, such as “superfracking,” that use more sand in the process. Energy companies have found that they can increase output by up to 30% with these methods . . . And this hasn’t escaped investors’ watchful eyes. In fact, frac sand companies have been among Wall Street’s biggest winners this year. For example, Emerge Energy Services LP ( EMES ) is up more than 550% since its IPO last summer, while competitors U.S. Silica Holdings ( SLCA ) and Hi - Crush Partners LP ( HCLP ) are closing in on triple digit gains in the last 12 months. These numbers all sound great . . .  But we haven’t even gotten to the real opportunity yet. Planes, Trains, and Automobiles The niche we’re interested in is the rail industry, which is busy shipping more than just oil. This year, rail companies will provide shipment for 25% of the sand sent to oil and gas companies. That’s up from a mere 5% last year. In fact, western U.S. rail companies like Union Pacific ( UNP ) are now shipping more than 20 million tons of silica sand annually to oil service companies that provide fracking services for the oil and gas firms. Union Pacific itself hauled almost 200,000 railcar loads of frac sand in 2013. That is a 26% jump from the prior year. The sand comes from mining companies like Emerge Energy, which now routinely loads 100 rail cars filled with sand from its silos. These silos are becoming more commonplace, particularly near drilling sites. For example, U.S. Silica and Union Pacific are jointly constructing a $12-million sand storage facility in Odessa, Texas. In 2015, industry observers – including U.S. Silica – forecast that half of all frac sand will be shipped by rail. Add to that a forecast of at least a 15% increase in demand, and the outlook for the western rail companies is bright. And “the chase” continues, Tim Maverick The post Unknown Winners from the Frac Sand Boom appeared first on Wall Street Daily . By Tim Maverick
    Why This Is Still My Favorite Entertainment Stock
  • by , 6 hours ago
  • tags: SPY DIS
  • Submitted by Profit Confidential as part of our   contributors program Why This Is Still My Favorite Entertainment Stock A top stock for investors and a strong equity market leader has been, and continues to be, The Walt Disney Company (DIS). It’s a Dow Jones component, a solid dividend payer and, similar to other dividend-paying blue chips, it’s offered earnings (growth) safety to date. Institutional investors have bid this business tremendously. The company ’s latest quarter, its third fiscal quarter of 2014 ended June 30, 2014, produced a very good increase in sales, from $11.58 billion in the same quarter of 2013 to $12.47 billion. Earnings grew impressively as well, coming in at $2.25 billion, or $1.28 per diluted share, compared to $1.85 billion, or $1.01 per diluted share, the year earlier. These are impressive gains for such a mature business, and they support the company’s strong capital gains on the stock market. Disney’s two-year stock chart is featured below: Chart courtesy of  www.StockCharts.com Within the numbers, there’s an excellent snapshot of what’s happening in the entertainment industry. Business conditions are really good. The company’s largest operations are its media networks division, which includes cable networks and broadcasting. This division continues to grow and remains highly profitable. Also growing is Disney’s theme park business, with fiscal third-quarter revenues coming in at $3.98 billion, compared to $3.68 billion last year. Along with Shanghai Shendi (Group) Co., Ltd., Disney is building the Shanghai Disney Resort theme park for approximately $5.5 billion. Completion is expected to be early next year. Shanghai Shendi owns 57% of the park, while Disney has majority ownership in its management. The company noted that it is seeing higher attendance and higher average guest spending at its domestic parks and resort. This is a trend that’s been ongoing for several quarters now. On the downside, Disney booked a $143-million foreign currency loss due to the devaluation in Venezuela (offset by a gain on property of $77.0 million). And restructuring charges (another way of saying the elimination of employees) cost $67.0 million over the last nine months. Like so many other blue chips, Disney is buying back its own shares with fervor. In the nine months ended June 30, 2014, the company bought back 68 million shares of its stock, spending a whopping $5.1 billion. However, this helped diluted earnings per share significantly. Management is still authorized to repurchase another 93 million common shares without expiration. From the investor’s perspective, there’s no reason to expect Disney’s price momentum on the stock market to stop. The company’s balance sheet is solid, there’s lots of cash in the bank for share repurchases and higher dividends, and business conditions at all of the company’s divisions are growing. I give Disney high marks for its detailed corporate disclosure, particularly in its documents for the Securities and Exchange Commission (SEC). Using these documents, investors can find out which TV channels are doing well, which movies were the most successful, and how much customers are spending per room per night at the company’s parks and resorts. All this information is highly useful as a shareholder (or potential shareholder) and it also helps hone your market view. At the end of the day, business conditions at Disney are very good and highly profitable. It’s a great business to be in currently with good near-term operating momentum.   The post Why This Is Still My Favorite Entertainment Stock appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
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