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

COMPANY OF THE DAY : BOEING

Boeing will announce its first quarter earnings on Wednesday. The company is coming off a good performance in 2014, with its revenue and profit rising on higher commercial airplane deliveries. In Q1, we expect the company to post higher earnings as its commercial airplane deliveries continued to grow. In our earnings preview we discuss our expectations for the quarter.

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FORECAST OF THE DAY : DISCOVER'S STUDENT AND PERSONAL LOANS

In 2014, Discover expanded its student and personal loan business, originating around $2.9 billion in personal loans and over $1.2 billion in student loans. Discover accounts for about 6% of the approximately $150 billion private student loans in the U.S. and can achieve significantly more growth in this area. As student loans have been increasingly rising, we expect Discoverâ s market share and interest revenue from this division to see a robust growth rate.


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RECENT ACTIVITY ON TREFIS

LRLCY Logo
Riding On Currency Tailwinds And Strategic Alliances, L'Oreal Delivers A Healthy First Quarter
  • By , 4/21/15
  • tags: LRLCY EL REV AVP
  • L’Oreal (OTC:LRLCY), the international leader in cosmetics and beauty care, released its first quarter 2015 earnings on April 20th. Riding on currency tailwinds, the company posted revenues of € 6.4 billion, reflecting a 14% year-on-year growth in sales. Like-for-like sales, which exclude currency effects and other inorganic growth effects, increased 4% during the first quarter. In line with 2014, L’Oreal Luxe emerged as the star performing division while the previously sluggish Consumer Products division showed signs of recovery. The company finalized its acquisitions of Neily in Brazil and is in the process of integrating its 2014 acquisitions-Magic, NYX, Decléor and Carita, into its business. (Read more about L’Oreal’s strategic acquisitions here .) L’Oreal’s cosmetics branch is further divided into four segments. Below, we give a description and the full 2014 sales performance of these divisions: Professional Products Division: Products sold and used in hair salons. (+16% reported growth); Consumer Products Division: Products sold in mass market retail channels. (11.6% reported growth); L’Oreal Luxe Division: Products sold in selective retail outlets i.e. department stores, perfumeries, travel retail, and, online sites. (+20.1% reported growth); and, Active Cosmetics Division: Products for “borderline” complexions, sold through pharmacies, parapharmacies, drug stores, and medispas. (+10.2% reported growth) According to L’Oreal, currency fluctuation had a positive impact of around 9.3% on the overall sales. In this article, we discuss the major factors that impacted L’Oreal’s performance in the first quarter. We have a  $33 price estimate for L’Oreal, which is at a slight discount to the current market price. See Our Complete Analysis for L’Oreal Here L’Oreal Luxe Was The Most Succesful Division Once Again; Consumer Division Showed Signs Of Recovery L’Oreal Luxe has been the most successful division for L’Oreal inQ1 2015, with a reported year-on-year growth of 20.1% to reach sales of €1.8 billion. The strong performance for L’Oréal Luxe was driven by robust sales of brands such as Yves Saint Laurent (which witnessed a double-digit sales growth), Lancôme (its fragrance “La vie est belle”, is a top selling fragrance in France, and is the second most popular brand in Europe), and Giorgio Armani. The alternative lifestyle brands Urban Decay and Kiehl’s continued their international expansion. In Q1 2015, L’Oréal Luxe outperformed the global beauty market especially in Western Europe and Asia. L’Oreal’s Active Cosmetics division recorded 10.2% year-on-year growth to record year end sales at €559.2 million. The division was boosted by brands such as Vichy, La Roche-Posay, and SkinCeuticals. The Active Cosmetics division, like luxury products, is also expanding its distribution through travel retail channels. The division’s first travel retail outlet was recently launched in Hong Kong. L’Oreal’s Consumer Products division reported an 11.6% year-on-year growth in revenue to €3.1 billion. The mass-market cosmetics growth was uplifted by the launch of makeup brands such as Infallible Matte foundation by L’Oreal Paris, Lash Sensational mascara by Maybelline and the growth of its 2014  acquisition, NYX Cosmetics. NYX Cosmetics is a high-growth mass market makeup cosmetics brand with a presence in more than 70 countries globally. The company is a direct competitor to Estee Lauder’s M-A-C brand of makeup cosmetics and has seen explosive growth in sales over the last two fiscal years. The sluggish European market dampened the division’s growth while it continued gaining market shares in North America, Eastern Europe, and Latin America. Research And Development Focus L’Oréal has the largest Research and Innovation team in the cosmetics industry with 3,782 researchers and a budget representing 3.4% of its sales. The R&D budget was over $1 billion in 2014, up by 1.6% as compared to the previous year. In April 2015, L’Oreal entered into a skin tissue research agreement with the bio-printing technology firm,  Organovo . The research will involve L’Oreal’s skin cell technology along with Organovo’s proprietary NovoGen Bioprinting Platform. The agreement will provide L’Oreal with exclusive rights to use the skin tissue models for the development, manufacturing, testing, evaluation and sale of non-prescription cosmetic, beauty, dermatology and skin care products and nutraceutical supplements. In December 2014, L’Oreal announced the acquisition of Israel-based hair research start-up, Coloright . Expanding Presence In Africa By Forging Strategic Partnerships L’Oreal had been on the lookout for more robust distribution channels in the African region. Distribution remains unstructured and hence cumbersome in Africa. In a move to further expand its African presence, L’Oreal signed an agreement with CFAO, the specialized distributor from Cote D’Ivoire, to cover the production and distribution of cosmetics in the Ivory Coast. The partnership will bolster L’Oreal’s distribution network as CFAO will be the sole distributor of L’Oreal products in French speaking West Africa. (Read about how L’Oreal is bolstering its Africa presence here and here ). L’OReal’s Body Shop Acquired Its Australian Franchisee L’OReal’s Body Shp recorded 9.1% year-on-year growth to generate net sales of €192.4 million. One of the growth drivers was the recently launched product called Drops of Youth Bouncy Sleeping Mask. On February 2015, The Body Shop announced the acquisition of its Australian franchise Adidem Pty Limited, which operates 91 stores in Australia. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    IBM Logo
    IBM Earnings: Margins Improves Even As Revenues Decline
  • By , 4/21/15
  • tags: IBM ACN HPQ
  • International Business Machines (NYSE:IBM) posted its Q1 results on April 20 th . The company continued to report a marked slowdown in business due to weak client spending, anemic demand in the software sector, divestitures of sizable businesses (the x-86 server, microelectronics and customer care divisions) and currency headwinds. As a result, the company reported 12% a year-over-year decline in revenues to $19.6 billion (flat if adjusted for currency effects and the impact of the divested businesses). However, improved profitability boosted its gross profit margins from continuing operations 80 basis points to 49.3%. As a result, diluted EPS from continuing operations grew by 9% to $2.91. The guidance given by the company for FY2015 indicates that revenues will continue to be under pressure, albeit with higher profitability in the absence of divested businesses. IBM expects operating EPS to be in $15.75 – $16.50 range in 2015. While its core software business posted 8% year over year decrease in revenue to $5.2 billion (down 2% in constant currency), Global Technology Services (GTS) revenues declined by 11% year over year to $7.9 billion (1% decline in constant currency). Furthermore, its Global Business Services (GBS) revenues declined by 13% to $4.3 billion (4% decline in constant currency), despite growth in new business initiatives (i.e. cloud, business analytics and big data). IBM’s system and technology division reported a 23% year-over-year decline in revenues to $1.7 billion, reflecting the recent divestitures of the x86-server  and semiconductor businesses.  On an adjusted basis, however, segment revenues grew 30%, reflecting a long awaited sales of its new z-Systems mainframe offering (up 130%). See our full analysis on IBM Software Revenues Decline The software business, which includes the branded middleware divisions and other middleware together with operating systems division, is the biggest contributor to IBM stock value and makes up nearly 62% of our estimate. During the quarter, the software segment (middleware and operating systems combined) reported 2% year-over-year decline in revenues to $5.2 billion. Its branded middleware segment, which makes up 43% of IBM’s estimated value, grew by 1% year over year driven by growth in Software-as-a-Service offerings, which were up nearly 50%. The Operating System also failed to report growth as the product cycles of the associated hardware platforms (Power and Z systems) have yet to gain momentum.  We expect the demand for its Power and Z systems will grow as both are on the cusp of major product upgrades picks up that (we suspect) are eagerly awaited. Thus, we expect revenues for operating system division will grow. GTS Revenues Decline Even As Softlayer Witnesses Double Digit Growth The Technology Services division (GTS) accounts for ~17% of IBM’s stock value according to our estimates. During Q1, GTS revenues declined by 11% year over year to $7.9 billion (1% decline in constant currency). As part of a long-term strategy, IBM sold its customer care business process outsourcing (BPO) services business in Q4 2013 to focus on higher margin verticals. The divestiture of this business was completed in Q1 FY14 and continued to negatively impact GTS revenues in Q1. Many of the larger contracts signed last year did not contribute to revenue in the first quarter and accentuating the decline in GTS’s revenues. However, the company continues to see clients sign large infrastructure outsourcing deals with embedded cloud and mobile initiatives, creating large-scale hybrid IT environments. The company also stated that it witnessed double digit growth in its Softlayer business that encompass strategic outsourcing (9% of estimated value) and integrated technology service (3.9% of estimated value) division. In the first quarter, IBM opened cloud centers in Montreal, Sydney and Amsterdam. New Business Initiatives Drive Growth at GBS The Business Services division (GBS) contributes over 10.6% to IBM’s stock value according to our estimates. In line with our expectation, GBS reported a 13% year-on-year decline in revenue to $4.3 billion (down 4% in constant currency), primarily due to declines in traditional packaged application implementation, especially from the U.S. that contributes most to GBS revenues. Moreover, the company continues to be impacted by pricing pressure and client renegotiations, as well as a reduction in elective projects. However, double-digit growth in digital front office, which includes business analytics (20% growth) and cloud (75% growth), offset the decline in packaged (on site perpetual licenses) implementations to some extent. As new verticals become a larger part of GBS, they’ll contribute more to the top line performance going forward. For the quarter, IBM reported that cloud delivered (as a service) $3.8 billion in annual run rate. Server and Storage Division Revenues Declines Yet Again During the quarter, revenues for server and storage division declined by 23% to $1.7 billion (up 30% in constant currency). The revenues for this division were boosted by increased MIPS (million instruction per second) for Z system and sale of Z13 system that went on sale at the end of March. As a result, Z system revenues grew by 130%. With Z13, the company has dramatically enhanced the capabilities around analytics, mobile, security and cloud to address the needs its clients. Therefore, we expect that the shipment and revenues from Z system will improve in the future and boost overall revenues for server divisions. Power Systems business is focused on high-end Unix and Linux computing. IBM has repositioned it as a systems business with an open Power consortium. During the quarter, IBM was able to increase its share in the declining Unix server market and also expanded to Linux server market. The company is looking to regain its lost market share in midrange systems through the POWER8 systems, and expanding its customer base in the entry-level Linux systems as well as with large cloud-based players. With good adoption in z13 and Power systems, and launch of the remaining P8 based systems later this quarter, we expect IBM to post good growth in the coming quarters. We are in the process of updating our IBM model. At present, we have a  $197 Trefis price estimate for IBM, which is about 19% higher than the 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
    DUK Logo
    Duke Energy Is Well Positioned To Make Good On Its Solar Investments
  • By , 4/21/15
  • tags: DUK CHK KMP
  • Duke Energy (NYSE:DUK) is the largest fossil fuel power holding company in the world, but in the past few months it has significantly ramped up its investments in solar PV (photovoltaics). In February, the company announced the acquisition of a majority interest in REC Solar, a provider of commercial solar solutions in the U.S. and internationally. The acquisition increased Duke’s presence in the large-scale commercial solar sector. Now the company is planning to install 500 MW worth of utility scale solar projects in the state of Florida by 2024. This move is atypical for a utility company, where most of the players are still fossil fuel based. It is also atypical for players in the solar energy segment, which is typically populated with companies with much smaller asset bases than Duke’s. The ignorance of solar by large utility players and Duke’s huge asset base gives it several competitive advantages in both the solar space and the utility space. Below, we discuss some of these in more detail. Competitive Advantages The solar energy segment is mostly filled with companies that are small and relatively new compared to established players in the power and utilities segment. In contrast to those companies, Duke Energy is a company with a massive asset base and a significant advantage in securing finances compared to pure solar players. This means that while the company has a solar asset base far smaller than established solar players like First Solar or Sun Power, it can increase its solar installations at a very fast pace, if it wants to. What’s more, Duke also has the added advantage of having access to a huge customer base should it choose to increase its presence in the solar energy market. The company’s regulated utilities business has almost 7 million customers in the states of Florida, North Carolina, and South Carolina alone. This means that should Duke decide to sell solar power to residential customers, it can do so to a market in these states alone compared to the entire residential solar segment (500K) in the U.S. Under-penetrated Markets Duke has a lot of customers in states that are under-penetrated by solar players. Last year, the company announced that it plans to invest $500 million in 278 MW worth of utility-scale solar PV projects in North Carolina. When the company completes that investment, it will become one of the leading PV providers in the state. Similarly, the company announced plans of building 110 MW worth of Solar PV in South Carolina over the next six years, making it one of the biggest PV providers in that state as well. The 500 MW investment in Florida will do the same for Duke in Florida, which is a promising market for solar, but only the 13th in terms of actual solar PV capacity installed. The company’s massive customer base in the region will allow it to cross sell its solar products should it feel the need to. Additionally, the absence of competitors in the state will allow it to establish a strong solar presence over the next few years. Understand how a company’s products impact its stock price on 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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    Travelzoo Displayed Promising Signs Of Recovery In Q1 2015
  • By , 4/21/15
  • tags: TZOO EXPE PCLN TRIP CTRP
  • Travelzoo (NASDAQ: TZOO), the global Internet media player, experienced a three month high 32% increase in its stock price after the release of its Q1 2015 earnings results on April 16th. Although Travelzoo still continued with its year-on-year losses, the company witnessed a 16% increase in its revenues over the previous quarter. It posted $36.5 million in revenues, representing a 9% year-on-year decline. This was due to a slump in Local Deals and Getaway sales coupled with the negative impact of a strong U.S. dollar versus the Euro. Travelzoo’s earnings per share (EPS) for the quarter was $0.13 as against $0.31 in Q1 2014. The EPS was impacted by the drop in revenue coupled and increased spending on product development and members acquisition. The company witnessed growth in its Search segment for the first time in over two years. The Local Deals segment also reflected promising growth lately. Travelzoo’s hotel booking platform is beefing up with quality content to roll out to a larger audience. For the second quarter of 2015, the company expects the revenue declines to continue due to the product and service transitions and unfavorable FX impacts. The company should continue investing in product development and member acquisition. Travelzoo is focusing on acquiring the right set of users, i.e., members who will genuinely help in revenue generation. Hence it is targeting its products to a particular audience and is not aiming at bulk acquisition of subscribers. Our price estimate of $11 for Travelzoo is at a discount to the current market price. We are in the process of updating our valuation for the company. See our full analysis of Travelzoo Hotel Booking Platform Is Gearing Up For Further Rollout Travelzoo brought about a transformation in its previous business model with its hotel booking website (launched in Q1  2014). The hotel booking platform (now available in the beta version to its 200,000 selected U.S. based subscribers) enables users to book hotels directly via Travelzoo’s website or through mobile platforms, allowing suppliers to promote deals in a more flexible manner.  Also, earlier, Travelzoo offered a platform to book discounted travel and entertainment deals. The new platform allows hotels to sell full-priced stays under the commission based model. Travelzoo’s Unique Selling Points According to Travelzoo’s management, the quality of offering on the hotel platform differentiated Travelzoo from the bigger players on the OTA space. Travelzoo will continue with the existing discounted deal format but will also keep an eye on the customers’ preferred timelines. Earlier, Travelzoo’s 25 million users could access attractive deals only for places nearby to them. The new booking platform will enable Travelzoo’s entire subscriber base to access all the deals on Travelzoo’s website, almost simultaneously. After observing a lack of traction for the new platform over the last few quarters, Travelzoo relaunched the hotel booking platform at the end of February 2015, with content pertaining to 6 destinations including New York, Las Vegas, Chicago. The current focus is on making the deals easy to find at any point in time and through any device. The promotional activities have not yet started in full swing as the platform is undergoing product adjustments and content enhancements. Search Segment Displayed Revenue Growth After Almost Two Years Travelzoo’s Search division performed poorly in the last few quarters on account of intense competition and the company’s delayed investment in the business. Given the weak results of 2013 (11% decline), the management reassessed the Search segment. Though marketing created the buzz for users to come and explore SuperSearch or Fly.com, that didn’t generate enough value per customer or repeat customers. Hence Travelzoo curtailed its Search related spending which further dampened revenues from the division. In Q1 2015, Travelzoo observed better monetization of its Search traffic, and hence has decided to slightly increase its spend on the Search products, i.e., SuperSearch and Fly.com. There was around 4% year-on-year growth in Search revenue to ~$5.1 million for the first quarter of 2015. Local Deals Segment Lately Showed Signs Of Recovery The Local Deals division, which is mainly driven by a voucher format, faced waning demand over several quarters. The Local Deals posted revenues of $5.7 million in Q1 2015 translating to ~19% year-on-year decline. For this segment, Travelzoo is trying to transform its supply-based push strategy into a demand-based pull strategy. Currently, the number of live deals  placed on its websites and applications had increased, along with the ease of searching for the deals. The company is still on the lookout for a suitable alternative for the rigid voucher format. Local Deals’ recent March 2015 performance had been promising after the removal of a few weak suppliers from the platform. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    GM Logo
    Earnings Preview: GM Set To Report Higher Profits On The Back Of Accelerating SUV, Cadillac Sales
  • By , 4/21/15
  • tags: GM F VLKAY
  • General Motors (NYSE:GM) is scheduled to announce its Q1 FY15 earnings on April 23. In the fourth quarter of FY14, the company showed improved core performance metrics due to strong sales in China and the U.S. but high recall and restructuring costs meant that the company reported a loss on an earnings per share basis. The company’s reported EPS for the full year fell by 33% despite a modest revenue increase. In the first quarter, we expect the company to continue its strong momentum. The revenue from GM North America should increase on the back of increased sales of all GM brands including Cadillac. Additionally, average transaction prices should rise due to better management of fleet inventory and the introduction of new models. GM’s China momentum also continued to be strong through the first three months of the year and the company finally seems to have come up with a plan that could make it profitable once again in Europe. ( GM Management Confident Of Returning To Profitability In Europe Soon, Trefis, January 2015) Some of the gains made in these areas might be offset by the negative impact of currency valuations. Below, we take a look at these factors in more detail. We have a  $40 price estimate for General Motors, which is about 10% more than the current market price. North American Margins Set To Rise North America accounts for about 35% of the company’s unit sales. In the first quarter, GM North America’s (GMNA) profits should rise considerably as the division sold twice as many Chevrolet Suburbans and Cadillac Escalades as compared the first quarter of 2014. The auto maker is targeting an increase in margins of close to 10% by 2016 from the region’s operations driven primarily by higher average unit prices in the region and an increase in wholesale volumes, driven primarily by full-size pickups and full-size SUVs. GM is also benefiting from the low supply of Ford F-150 pickups in the commercial trucks market in the U.S. While commercial sales of pickup trucks bring in lower margins than retail sales, they are profitable in their own right and should also contribute to the increased margins. Continuing from the previous two quarters, we expect the uptrend in retail sales to continue due to the effects of better management of retail fleets and the introduction of new models. When vehicles are retired from rental fleets, they are sold on the used car market in auctions. The price that a car company fetches for these vehicles depends quite a lot on their supply. An oversupplied market means that the average transaction price for a retired-from-rental-fleet model is usually quite low. Due to poor management of its fleet business, GM did not do very well in this area. However, since November 2014, the number of GM vehicles available at auctions has declined considerably. By temporarily cutting sales of these retired fleet vehicles, GM will be able to restrict the supply of these vehicles into the used car market. If the company had not done so, consumers would have been able to buy these cars from dealerships which bought these cars cheaply at these auctions. With a number of new or refreshed model launches throughout the year, margins as well as unit sales continued to remain strong. Furthermore, a slew of model refreshments under the Chevrolet and Cadillac brands have pushed up the average pricing and helped GM realize higher margins. Through the four quarters of 2014, the North American operating margins rose on the back of new models from the Chevrolet and Buick brands increasing their retail market shares in North America. European Operations Could Improve Europe has been a worry not only for GM but for a number of other automakers as well. The European automotive market was in a free fall till 2012. The market was in the red till the first half of 2013, but things improved in the second half of the year. Now with the market rising, there is once again a renewed optimism about Europe. GM plans to release 23 new or refreshed models by 2016 and hopes to become profitable in the region by the mid-decade. In 2014, the company’s subsidiary Opel Vauxhall showed continued strength in the region, with sales increasing by roughly 4-5% and market share increasing in 12 countries on a year-over-year basis. Even though GM’s overall market share in the region is down to 6.3% due to the shutdown of Chevrolet’s European operations, its overall market position in Europe is improving and this effect can be directly attributed to Opel Mokka and Insignia, the company’s new flagship brand. The company is planning to undertake investment well in excess of $5 billion over the next few years in order to develop 27 new cars and 17 new engines under the Opel brand, which will start offering budget cars for the first time under its nameplate. The U.S. based auto maker is trying to restructure its European operations in order to return to profitability by 2016 and aims to reach a 5% operating margin by 2022. Chinese Sales Should Remain Strong China is GM’s largest auto market and accounts for over 35% of the company’s unit sales. GM’s sales in China were up 12% for the fourth quarter (year-over-year comparison) and its share of the world’s biggest auto market stood at 14.8% for the quarter, up 0.6 percentage points from a year ago. GM’s market share is due to the growth in the company’s Cadillac, Buick, and Wuling brands. Global Cadillac sales in 2014 increased 5% on the back of a 47% increase in China, bringing the cumulative sales growth of the brand to 35% since 2012. Chevrolet also achieved a record sales figure as volumes of the new Trax crossover gathered steam. Crossover and SUV demand in China is expected to grow at about a 10% annual rate and reach about 7 million units by 2020. While previously, GM was targeting a higher market share in the Chinese auto market by using lower prices, it is now trying to improve its profitability by increasing the sales of SUVs and Cadillacs. If the proportion of higher priced vehicles rises, we could see a healthy increase in the average equity income earned per vehicle. Volkswagen overtook GM as the largest automaker in China in 2013, but GM is working to regain its position as the market leader in the country. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    T Logo
    AT&T Earnings Preview: Rising “Next” Adoption, U-verse Subscriber Adds To Drive Top Line
  • By , 4/21/15
  • tags: T VZ S
  • AT&T (NYSE:T) is scheduled to announce its Q1 2015 results on Wednesday, April 22nd. The wireless major had provided some insights about its expectations for the first quarter last month. Reiterating its earlier guidance of improving postpaid subscriber adds and expanding margins in the full year, the company had stated that it expected net postpaid subscriber adds to be in the 400,000 range in the first quarter, driven by growth in tablet adds. It also stated that postpaid churn was likely to improve both sequentially as well as year-over-year (y-o-y) in Q1 2015, highlighting the fact that the company had finally achieved some success in fending off competition from rivals. AT&T’s postpaid churn has increased drastically over the last couple of quarters, from 0.86% in Q2 2014 to 1.22% in Q4 2014, due to aggressive promotions from smaller rivals  Sprint (NYSE:S) and T-Mobile in the latter half of last year. In the previous quarter, AT&T’s overall revenues grew by about 4% y-o-y to about $34.4 billion, which was above the Thomson Reuters-compiled analyst consensus of $34.27 billion. The moderate revenue growth was attributed to the transition to no-subsidy plans, which shift revenue recognition from service to equipment (handsets), and a higher proportion of bring-your-own-device (BYOD) gross adds. The country’s second largest wireless carrier added 854,000 postpaid subscribers and about 1.3 million connected devices during Q4 2014, more than double the figure from a year ago. The carrier’s strategy to combat the innovative initiatives of rivals with equipment financing plans of its own worked well, as “Next” accounted for about 58% of its postpaid smartphone gross adds and upgrades in Q4. For the quarter ended March 31 2015, AT&T expects about 60% of its postpaid subscriber base to be on the no-device-subsidy plans, up from 58% at the end of Q4 2014 and about 30% at the end of Q1 2014. AT&T recently also announced that it will now have three reportable business segments – Wireless, Wireline and International, with International representing its acquisition of Mexican wireless player Iusacell in November last year. ( AT&T In Competition With America Movil In Mexico With Iusacell Acquisition ) It also stated that it is likely to incur a charge of about $130 million in the quarter to pay around 3,000 retirees who elected to retire as part of a special offer. We have a  $36 price estimate for AT&T, which is about 15% ahead of the current market price.
    MFC Logo
    Weekly Insurance Notes: Travelers, Manulife
  • By , 4/21/15
  • tags: TRV UNH
  • In this weekly roundup of recent developments in the U.S. insurance space, we take a look at how The Travelers Companies Inc. (NYSE:TRV) is strengthening its presence in the Brazilian property and casualty insurance business. We also review the status of Manulife ’s (NYSE:MFC) acquisition of New York Life’s Retirement Plan Services business. Travelers Increases Stake In Brazilian Joint Venture Earlier this week, Travelers announced its plan to acquire a 95% stake in the property and casualty insurance business of J. Malucelli Participações em Seguros e Resseguros S.A. (J. Malucelli). This is a joint venture between Travelers and J. Malucelli. According to the company’s official press release, the deal will strengthen Travelers’ position in the growing Brazilian property and casualty insurance market. Travelers’ stock, which was relatively stable through the week, witnessed a decline of more than 2% in reaction to a downgrade by Barclays, ending the week at $105. We have a price estimate of $112 for Travelers’ stock, valuing the company at approximately $36 billion. The company is expected to release its first quarter earnings report on April 21 and we expect prolonged winters to affect performance. See Full Analysis for Travelers Here Manulife Completes New York Life Acquisition During the week. Manulife completed its previously announced acquisition of New York Life’s Retirement Plan Services business. The business will be part of Manulife’s John Hancock Retirement Plan Services brand in the U.S. At the closure of this transaction, John Hancock’s retirement assets under management increased by nearly 60% to $135 billion. Also, the new entity now has about 55,000 retirement plans and nearly 2.5 million plan participants under its coverage, making it one of the largest providers of retirement services in the country. With this acquisition, Manulife expects to strengthen its position in the U.S. retirement market as well as increase growth of its wealth and asset management businesses internationally. Manulife’s stock ended the week’s trading at $18, remaining unchanged from Monday’s opening. We have a price estimate of $19 for Manulife’s stock, valuing the company at about $37 billion. See our full analysis of Manulife here
    BA Logo
    Earnings Preview: Commercial Airplane Deliveries to Lift Boeing's Revenues and Profits
  • By , 4/21/15
  • tags: BA
  • Boeing (NYSE:BA) will announce its first quarter earnings for 2015 on Wednesday, April 22nd. The airplane manufacturer is coming off a good performance through 2014, in which its revenue and profit rose on higher commercial airplane deliveries. In Q1 2015, we expect the company to post higher earnings as its commercial airplane deliveries continued to grow. Boeing delivered 184 commercial airplanes in Q1 2015, an impressive 14% rise in deliveries on a year-over-year basis. Given that commercial aviation constitutes nearly 65% of Boeing’s top line, this significant growth in airplane deliveries will likely lift the first quarter earnings. However, weak U.S. military spending could temper this growth from commercial aviation. For Q1 2015, average analyst estimate for earnings per share remains at $1.83. At the end of Q4 2014, Boeing estimated earnings for Q1 2015 at 20% of full earnings. We currently have  a price estimate of $156 for Boeing, approximately 4% above its current market price. See our complete analysis of Boeing here We Expect Higher Commercial Airplane Deliveries To Translate Into Higher Revenues Boeing raised its 737 production rate to 42 airplanes per month after a hike in March 2014. The company delivered 121 of these jetliners in the first quarter, up from 115 in Q1 2014. Boeing also hiked its 787 production rate around the start of 2014 to 10 airplanes per month, up from 7 per month. The company delivered 30 787s to airlines in Q1 2015, up from 18 that it delivered in Q1 2014. Boeing did not make any deliveries of the 767 in Q1 2014. However, in Q1 2015, five 767s were delivered. Total commercial aviation backlog increased to 5,800 airplanes with record net orders of 1,432 airplanes at the end of Q4 2014. In Q4 2014, Boeing also announced its intention to raise production rates of the 737 to 52 per month by 2018 in response to the increasing backlog. This intended increase in production rates to 52 per month is a move to avoid long waiting periods on airplane deliveries as it could compel airlines to look at other manufacturers, especially Airbus. We figure higher airplane deliveries driven by these rate hikes will be the primary driver of growth in Boeing’s results over the next decade. After a record net orders in 2014, Q1 2015 witnessed a slowdown in new orders moving from 275 in Q1 2014 to 116 in Q1 2015. However, the decrease comes due to a reduction in 737s ordered. This should not concern investors given the large backlog at Boeing, and the fact that orders for all other commercial airplanes except the 737 saw a year-over-year rise in Q1 2015. It is important to note that Boeing earns a higher margin on these wide-body air frames as compared to the narrow-body 737. We Anticipate Boeing’s Defense Revenues Could Temper Growth On the flip side, lower U.S. military spending could temper growth in Boeing’s first quarter results. The company generates the majority of its defense contracting sales from the U.S. government. In 2014, due to lower U.S. military spending, Boeing’s defense sales fell by approximately 3%. Boeing’s fighter jet program continues to witness low orders and an uncertain future in the global fighter jets market due to intense competition from Lockheed Martin. No significant recovery is anticipated in the U.S. military spending this year, and we expect it to witness a growing trend from 2016. In response to the slowdown in U.S. military spending, Boeing has been focusing on international markets for defense revenues. However, as of 2014, Boeing continued to derive over 85% of its revenues from the US, making it a major driver for the segment’s revenues. To temper the impact on profit from declining defense sales, Boeing is slashing operating costs at its defense segment through various measures, which include headcount reductions. Gains from these cost cutbacks were evident in the last quarter’s results, as the defense segment’s profit rose despite lower revenue. So, like in the Q4 2014, profit from Boeing’s defense segment could rise in the fourth quarter despite lower sales. In any case, strong profit growth from the commercial aviation segment should be sufficient to lift the company’s overall earnings. 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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    Capacity Additions and Lower Oil Prices to Lift Southwest’s Profits in 1Q15
  • By , 4/21/15
  • tags: LUV UAL ALK AAL
  • Southwest Airlines (NYSE: LUV) is set to announced its first quarter operating results on Thursday, 23 rd April 2015, along with Alaska Air Group (NYSE: ALK) and United Continental Holdings (NYSE: UAL). Based on preliminary statistics released earlier this month, the low-cost carrier is expected to report an increase of 5.5% year-on-year in its passenger traffic on a capacity increase of 6% during the first quarter. Consequently, the market expects the airline to earn a net income of $450 million or 65 cents per share, more than double that of its earnings in the previous quarter. We currently have a price estimate of $48 per share for Southwest, 12% ahead of its market price. See our complete analysis for Southwest Airlines here Capacity Expansion’s to Boost Top line Growth Southwest’s flying capacity is expected to record an increase of 6% year-on-year during the first quarter. This growth will be driven by the expiration of the Wright Amendment which had previously restricted the number and destinations of flights Southwest operated from its home base at Dallas Love Field. With the conclusion of this amendment, the Dallas-based airline has launched a number of non-stop flights from its home airport at Love Field, achieving an occupancy rate (percentage of seats occupied by passengers in a flight) of over 90% on these new flights. The high occupancy rates are expected to translate into an increase in passenger traffic, contributing to the carrier’s top-line growth during the quarter. For the full year, Southwest plans to increase its capacity by 6% on a year-on-year basis, unlike the legacy carriers who continue to adopt capacity discipline. To achieve this, the airline has acquired slots from American Airlines at New York’s LaGuardia Airport and Washington’s Reagan Airport which will add 2% to the airline’s capacity growth during the year. Further, the airline has plans to introduce non-stop flights to eight new cities from Dallas by August this year. The airline aims to offer 180 daily departures to about 50 destinations from Dallas by the end of this year, representing a 3% increase in its flying capacity. Additionally, the low-cost carrier is building an international gateway at Houston in order to serve the Latin American and the Caribbean markets, contributing 1% increase in the carrier’s international capacity. This capacity growth will boost the airline’s passenger traffic, resulting in a strong top-line growth for the full year. Low Oil Prices and Efficient Fleet Mix to Lift Earnings The airline completely phased out AirTran’s 717 airplanes in the last quarter and currently operates only Boeing 737s. Also, the airline has been substituting its older and less fuel efficient planes (B-737 Classic) with newer cost-efficient aircrafts.  As a result, the airline expects its occupancy rate to improve to 80.1% in this quarter versus 79.3% a year ago. Hence, we expect Southwest’s bottom-line to improve on the back of the cost savings from operating a single aircraft type and fleet modernization. In addition, Southwest uses future contracts (24-month period) to hedge itself against oil price volatility. At current prices, these contracts will result in an overall loss for the entire year. However, if the oil prices recover, as is anticipated by the market, this loss is expected to shrink, boosting the airline’s full year earnings. At the current earning pace, the analysts forecast Southwest to post an annual net income of approximately $2.5 billion or $3.55 per share. The low-cost carrier also has significant hedges for 2016 and 2017, which will enable it to take advantage of the current low oil prices well into the future. 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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    Roche Earnings Preview: Cancer Drug Growth Will Be Offset By Legacy Declines And Adverse Currency Movement
  • By , 4/21/15
  • tags: RHHBY JNJ PFE
  • Roche Holding s (NASDAQ:RHHBY) will report its Q1 2015 earnings on April 22nd. We expect overall revenue growth to remain low. The decline in legacy drug sales and adverse currency impact will offset the growth in the company’s HER2 franchise. While cancer portfolio will generally remain strong, incremental growth will be primarily driven by Perjeta and Kadcyla. The company’s pharmaceutical sales grew by 4% in 2014 on constant exchange rate (CER) basis but currency movement resulted in overall net sales remaining relatively flat. Something similar could happen this quarter as well. Our current price estimate for Roche stands at $3826, implying a premium of more than 5% to the market.
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    Coca-Cola Pre-Earnings: Little To No Growth In Top Line As Coca-Cola Enters Its Transitional Year
  • By , 4/21/15
  • tags: KO DPS PEP
  • The Coca-Cola Company (NYSE:KO) is scheduled to announce its Q1 results on April 22. Last year, while organic revenues grew 3% and organic operating profits rose 6%, for the world’s largest beverage manufacturer, negative currency translations in some of the key emerging markets and structural changes caused a year-over-year decline in both the top line and operating margins. 2014 was a difficult year, and 2015 is set to be a transitional year for Coca-Cola, which is looking to make certain operational changes and increase investments behind its portfolio, hoping to reap the benefits from 2016-2017 onward. We estimate a $41 stock price for Coca-Cola, which is slightly above the current market price. See our full analysis for  Coca-Cola Analysts estimate Coca-Cola’s top line to remain flat compared to $10.58 billion in Q1 last year, and a slight decline in earnings per share. Two main reasons why the operational results might reflect weakness this quarter, are continual decline in carbonated soft drink (CSD) volumes, and volatility in emerging markets. 43% of Coca-Cola’s net revenues came from the U.S. last year, and CSDs in the country alone form approximately 15% of the company’s net volume sales. As customers continue to ditch sodas for healthier beverage alternatives, CSD volumes in the U.S. fell for the tenth consecutive year last year, and are expected to have declined again this quarter. On the other hand, while Coca-Cola is heavily dependent on its domestic market, more than half of its net sales are contributed by international markets, including Mexico, China, Brazil, and Japan– the largest international markets for the company. Low oil prices through Q1 impacted economies that depend on oil exports such as Russia, Venezuela, and Mexico, and slower economic activity and lower customer spending in these countries could have also choked sales for Coca-Cola this quarter. Currency translations alone dragged down Coca-Cola’s top-line growth by 4% and 2% in Q4 and the full-year in 2014, respectively, and more of the same is expected this quarter. Now for some positives that could boost Coca-Cola’s Q1 earnings. Positive Price Mix- Declining soft drink volumes in developed markets have for a long time plagued beverage manufacturers. U.S. is a major contributor to Coke’s net sales, and so the question of deriving organic growth in a market where demand for soft drinks continues to fall becomes important. One notable trend in 2014 was the rise in unit prices of soft drinks, which meant that higher revenues per unit case made up for declining volume sales. The improving economic environment in the U.S. was instrumental in boosting customer purchasing power, and this, in turn, prompted strategic price increases by retailers and beverage makers. Despite a 1% decline in volumes in 2014, CSD revenues for Coca-Cola’s North America unit increased on a year-over-year basis, mainly on a strong 4% price mix in the second half of the year. Coca-Cola also put more emphasis on sales of its 7.5 ounce packs, which have higher price per unit compared to value packs. Mini-cans increased by 15% in the fourth quarter last year, and a similar growth this quarter is expected to somewhat offset the impact of otherwise falling overall CSD volumes. In the twelve weeks to February 14, dollar sales for Coca-Cola’s CSDs grew by 1.9% in measured convenience store channels in the U.S. As the company continues to drive top line growth through premiumization of sodas, and higher proportionate sales of small bottles and cans, domestic revenues could grow in Q1 despite an estimated slight fall in volume sales. Margins Could Grow- Despite a fall in net revenues, Coca-Cola’s gross profit margin increased to 61.1% in 2014 from 60.7% in 2013, impacted by the deconsolidation of the company’s Brazilian bottling operations in July 2013, and positive geography mix due to higher proportionate sales in international markets where the mix is skewed towards higher margin CSDs. Lower commodity costs, including lower energy costs, could boost margin growth this quarter as well. Although operating income for Coca-Cola fell 5% in 2014, the company is focusing on improving its operating performance in North America–looking to refranchise two-thirds of its bottling territories in the region by the end of 2017, and a substantial portion of the remaining territories no later than 2020, in a bid to move away from the capital intensive and low-margin business of distribution. This could boost the company’s operating performance, coupled with an increase in gross margins due to a positive price mix and lower commodity costs. Coca-Cola expects to save an incremental $1 billion in productivity gains by 2016, and raise that to $2 billion by 2017, and $3 billion by 2019, through system standardization, supply-chain optimization, and industrious resource and cost allocation. This will support the company’s investment plans to boost future growth, and also support margin expansion, in turn increasing return to shareholders. Coca-Cola is already well ahead of PepsiCo in terms of profitability, achieving 21.1% operating margins last year compared to PepsiCo’s 14.4% margins, and looks to derive more productivity savings to further expand margins. In fact, as PepsiCo’s operations include its snacks business, which includes its most profitable Frito-Lay division, operating margins for the company would be less than 14.4% if only drinks were considered. Q1 results for Coca-Cola might reflect an underlying weakness in the company’s operations, but as 2015 is supposed to be a transitional year for the company, these results might not be the exact representation of what lies ahead for Coca-Cola. In particular, the Monster and Keurig deals, and the premium milk brand Fairlife, could add incremental sales going forward. While Coca-Cola might not see another year of meaningful top line growth in 2015, the company has undertaken initiatives to lock-in its share in fast growing beverage segments that remain relatively nascent as of now, and also ventured into unfamiliar territories, which could reap benefits in the next few years. 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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    F5’s Q2 ’15 Earnings Preview: 2015 To Be Another Year Of Strong Growth
  • By , 4/21/15
  • tags: FFIV HPQ CSCO IBM
  • F5 Networks (NASDAQ:FFIV), which specializes in Application Delivery Networking technology, is set to report its Q2 2015 earnings on April 22nd. (Fiscal years end with September.)  Fiscal 2014 was a good year for the company as it reported a 17.2% and 12.2% growth in its revenue and net income, respectively. Growth in the year was driven by F5′s strength in the enterprise business, growing demand for its security products, the success of the Good, Better, Best bundles in driving million-dollar-plus deals, and broader adoption of its solutions. F5′s Q1 2015 results and Q2 2015 guidance were a bit below analyst consensus. December quarters for the company normally display seasonality, which was reflected in consensus. Yet there was also a marked decrease in million-dollar-plus deals (compared to previous quarters), which led to a slight sequential decline in the company’s revenue. F5 experienced a larger than expected drop in million dollar plus deals in both large enterprise and Federal opportunities in the U.S. However, it firmly believes that this is more of a seasonal issue and claims to have a strong pipeline of such deals for the current quarter. Based on the strength of its current pipeline, including the return in the number of large deal opportunities and continued momentum from key drivers, F5 anticipates Q2 2015 revenue to be in the range of $465 million to $475 million, up 12% year to year, and GAAP and non-GAAP EPS between $1.07 to $1.10 and $1.48 to $1.51, respectively. F5 anticipates another year of solid growth and profitability in fiscal 2015. Assuming no material impact to the industry from broader macro issues, the company believes that growth will continue in the current fiscal year, driven by: 1) an expanding product portfolio; 2) growing customer awareness and adoption of the Synthesis architecture; and 3) partnerships with key players in the emerging SDN market. F5 Networks (NASDAQ:FFIV)
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    McDonald's Earnings Preview: No Respite For The Burger Giant
  • By , 4/21/15
  • tags: MCD QSR DNKN CMG
  • McDonald’s (NYSE:MCD), the leader of the fast-food industry, is slated to announce its first quarter earnings report for fiscal 2015 on April 22. The Golden Arches witnessed one of the tough periods in fiscal 2014 with net revenues declining roughly 2% year-over-year (y-o-y). The company struggled in all its geographical segments, facing financial and operational headwinds in some of the major markets worldwide. Stiff industry-wide competition in the U.S., declining customer traffic in China and Japan, and sluggish economic conditions in Russia, led to poor financial results for the company. For fiscal 2014, the company reported a 1% y-o-y decline in comparable sales due to a major decline in customer traffic. As a result, the company’s net revenues declined 2% y-o-y and operating income declined 9% y-o-y. On January 28, the Board of Directors announced the retirement of Don Thompson as President and CEO of McDonald’s, to be succeeded by Steve Easterbrook, the then chief brand officer and senior executive vice-president, on March 1. Soon after the announcement, the stock jumped 5.6%. Don Thompson’s decision came as a result of the company’s sluggish performance over the last two years, especially in 2014, when the fast food leader faced challenges in  all its geographical segments. (See: Market’s Positive Speculation Ahead Of McDonald’s New CEO’s Business Plans Drives Stock Price Close To $100 ) We have a  $97 price estimate for McDonald’s, which is in line with the current market price. See Our Complete Analysis For McDonald’s Corporation Expect A Decline In Comparable Store Sales McDonald’s reported declines in comparable store sales growth for January and February. In January, the company’s global comparable store sales declined 1.8%, with a comparable store sales decline of 12.6% in Asian markets offsetting the slight growth in the U.S. and Europe. Growth in the domestic market was due to a positive performance in the breakfast daypart, slightly offset by tough competition from the fast-casual restaurants. On the other hand, poor economic conditions in Russia offset the growth in the U.K. and Germany. However, the major concern for the company still remains the Asian markets, where comparable store sales declined 12.6%, indicating the declining trust of customers in the brand’s food quality. Brand recovery efforts, including rebuilding customer trust and introducing innovative menu offers, remains the top priority of the company. The sluggish growth continued as the company reported a 1.7% decline in global comparable sales in February 2015, with sales declines in the U.S. and Asian markets. To add insult to injury, new issues emerged in Japan, as there were reports that a piece of vinyl was found in the chicken nuggets at one of the outlets in Aomori, Japan.  McDonald’s Japan might take much more time to return to a normalized level. As a result, we can expect a decline in comparable sales in the first quarter of fiscal 2015. McDonald’s Japan Forecasts Sales Decline In 2015 On April 16, 2015, McDonald’s Japan released its consolidated earnings forecast for fiscal year 2015. The company’s Japan unit expects a 14.4% decline in system-wide sales (combined sales of company-operated and franchised restaurants), and expects a 10% decline in its consolidated sales. As a result, consolidated net income loss is forecast to be roughly 38 billion yen. As mentioned before, recovery efforts in Japan might take more time than expected. The company’s recovery efforts include introducing new menu offerings, innovative value options, and local spices for corresponding regions to attract customers. McDonald’s Japan unit has described its revitalization plan as a four way strategy, which includes: Initiatives to bring back customers to restaurants by introducing new Happy Meals options, providing more customized choice and a wider variety, as well as introducing loyalty programs. Remodeling of existing restaurants to provide cleaner and inviting environment to the customers, and closing underperforming restaurants that don’t have long-term growth potential. Strengthening management and business structure in Japan to meet the demands of local customers. Improving cost efficiency and remodeling the cost structure. The Japan unit plans to renovate close to 230 restaurant locations by changing store interiors in fiscal 2015. On the other hand, new store openings will be reduced to 20, half of that in 2014. The company estimates a net 20 billion yen ($165 million) as cost of remodeling and new store openings. And for that purpose the company took out loans of 22 billion yen from lenders such as Mizuho Bank. In short, we can expect the first quarter’s sales to follow the same sluggish trend, indicating a poor start of the year for the burger giant. 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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    eBay Earning Preview: Expecting Marketplaces Segment To Under-Perform
  • By , 4/21/15
  • tags: EBAY AMZN BABA
  • eBay (NASDAQ:EBAY) is scheduled to report its first quarter earnings for 2015 on Wednesday, April 22nd. We expect its payments division PayPal to carry earnings during the quarter as the marketplaces segment is likely to show sub-par growth. We believe the latter will continue to be impacted by headwinds such as last year’s security breach and Google Panda update that have contributed to reduced traffic levels on eBay’s marketplaces. On the other hand, we believe PayPal’s business will be driven by high growth across the Braintree business and mobile payments. In terms of profitability, we expect a surge in sales and marketing expenses during the first quarter, as eBay will enhance measures to increase traffic on its marketplaces. We will be closely tracking the earnings call to know more about the planned divestiture of enterprise business, the progress with restructuring efforts, as well as the expected spin off of PayPal later this year. Our $67 price estimate for eBay’s stock, represents near-5% upside to the market. See our complete analysis for eBay Marketplaces Segment Could Continue To Drag Earnings Sales growth in the marketplaces segment slackened to 1% during the fourth quarter of 2014, as compared to 11%, 9% and 6% growth during the first three quarters respectively. This is mainly due to last year’s security breach and Google Panda update, which impacted traffic levels on the platform. Moreover, the addition of lower priced items, a change in user demographics, and the strengthening of the U.S. dollar also impacted eBay’s business. We think these headwinds will weigh on the segment’s results during the first quarter of 2015 as well. According to data by ChannelAdvisor, eBay’s performance came in below the overall e-commerce market during the first quarter, with same-stores sales increase being seen at 6.8%, 5.1%, and 7.3% during January, February, and March respectively. This compared to 24.8% (average) and 15% growth for Amazon and the e-commerce market respectively during the same period (as per Channel Advisor). While eBay auction sales declined significantly during the past three months, fixed-price sales also under-performed the broader e-commerce market. In an effort to boost business,  the company has prioritized on its marketing thrust and Search Engine Optimization (SEO). And it has enhanced its focus on core shoppers and its deals business to reinvigorate growth within this segment.  We will be looking for updates regarding these initiatives during the earnings call. PayPal Will Carry eBay’s Growth During The First Quarter Overriding the weakness in the marketplaces segment, the payments business recorded 18% and 24% rise in revenue and net total payment volume (TPV), respectively, during Q4 2014. We expect PayPal to report strong growth during the first quarter as well, with solid increases in account additions and TPV. Merchant services’ TPV could continue to see robust increase, owing to high demand in the Braintree business and an expansion in merchant coverage. Further, we expect mobile payments to rise rapidly and its share in total payments volume to surpass 20% during the first quarter. We estimate that PayPal’s net transaction revenues will rise at about 14.5% annually over our forecast period, due to rapid growth in the overall mobile payments market coupled with PayPal’s leading position in the market. The expected spin-off of this segment later this year will further accelerate growth, in our view, due to enhanced management focus and flexibility to partner with other Internet players. 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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    Continued Decline In Macau Gaming Will Weigh Over Las Vegas Sands’ Q1 Earnings
  • By , 4/21/15
  • tags: LVS MGM WYNN
  • Las Vegas Sands (NYSE:LVS) will report its Q1 2015 earnings on April 22 nd . We expect the casino giant to continue to face headwinds from the ongoing decline in Macau gaming. Macau gross gaming revenue fell by 37% in the first quarter amid the government’s crackdown on corruption, leading to the tenth straight month of decline. Its not just VIP gaming that is facing headwinds, mass-market gaming revenues also declined around 27% in the first quarter. Accordingly, we expect Las Vegas Sands to post lower revenues as compared to the prior year period and the shift of VIP gaming tables to mass-market gaming to continue. Looking at the company’s Singapore operations, we expect a slight uptick in revenues due to 2.1% growth in the economy during the first quarter. However, it will be interesting to see how the Singapore rolling chip win percentage trends during the quarter. Note that the win percentage came in at 3.41% in the prior year quarter. This was much higher than 2.51% seen in Q1 2013, and it aided the 10% jump in Singapore EBITDA for Q1 2014. We are eager to see how these trends weigh on Las Vegas Sands’ gaming revenues. An uptick has been anticipated for months and yet we wonder when the company sees gaming growth return in Macau. Meanwhile, Las Vegas Sands’ stock price has declined by 6% year to date. We currently estimate the 2015 EPS to be around $3.52 and maintain a  $69 price estimate for Las Vegas Sands, which we will update after the first quarter earnings announcement.
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    Dow Chemical Earnings Preview: Margin Impact From Lower Oil Prices In Focus
  • By , 4/21/15
  • tags: DOW DD MON
  • The Dow Chemical Company (NYSE:DOW) is scheduled to announce its 2015 first quarter earnings on April 23. We believe that the company’s margin-expansion streak that has been going on for the last nine quarters could be broken this time around, because of the sharp decline in benchmark crude oil prices that has narrowed the spread between crude oil-derived naphtha and ethane cracking. However, relatively lower natural gas prices in the U.S. during the first quarter, compared to the previous year, primarily because of ample inventories, could mitigate the impact of lower oil prices on the company’s margins. In addition, the positive impact of productivity cost savings from higher operating leverage could also provide a cushion to the company’s unit profitability. During a recent presentation at the Credit Suisse Basic Materials Conference, Dow officials pointed out that a 100 basis points improvement in the annual operating rate boosts its EBITDA by more than $200 million. Dow is a diversified chemical industry giant operating in basic and specialty chemicals, advanced materials, agro-sciences,  and plastics business segments. It delivers a broad range of technology-based products and solutions to customers in approximately 160 countries, and in high growth sectors such as electronics, water, energy, and agriculture. Last year, Dow reported annual sales of over $58 billion and adjusted net income of around $3.7 billion. We currently have a  $52/share price estimate for Dow, which is almost 17.8x our 2015 full-year adjusted diluted EPS estimate of $2.92 for the company. See Our Complete Analysis For Dow Impact From Lower Oil Prices In Fo cus Being in the petrochemical business, Dow relies heavily on hydrocarbon feedstocks for manufacturing its end products like packaging films and elastomers. As a result, dynamics in the oil and gas industry impact its results significantly. For example, the company has gained enormously from lower natural gas prices in the U.S. over the past few quarters, as it resulted in thicker margins on the production of ethylene – a key ingredient in the manufacturing of almost all plastic products. According to our estimates, the company’s Performance Plastics adjusted EBITDA margin has grown by over 670 basis points since 2012. Most of the products sold by the division are derivatives of the simplest unsaturated hydrocarbon, ethylene, which is most commonly derived from steam cracking of either naphtha or ethane. While naphtha is derived from crude oil (naphtha constitutes around 15-30% of crude oil by weight), ethane is a natural gas liquid that is extracted from raw gas streams at natural gas processing plants. With the shale gas revolution in the U.S., the production of ethane and other NGLs has also grown significantly, which has weighed on their prices. According to a consultancy firm, Envantage, ethane extraction capacity in the U.S. has risen by almost 60% over the past 8 years to over 1.23 million barrels per day (bpd) currently, and is expected to hit 2.2 million bpd by 2020. This has created a lot of incentive for chemical producers in the U.S. to crack ethane for producing ethylene and even led to a slew of new project announcements on the Gulf Coast. (See:  Cheap U.S. Natural Gas Is Attracting Huge Investments From Chemical Companies ) However, the recent decline in oil prices has resulted in the flattening of the global ethylene cost curve, as naphtha prices have come down along with crude oil. This is expected to reflect in the pricing of ethylene and its derivative products, which will pressure Dow’s top-line growth and limit its margin expansion as well. In addition, it is also expected to slow down the rate of development of tight hydrocarbon reserves in the U.S., which could further diminish the low-cost advantage enjoyed by the U.S.-based ethane-cracking plants. However, during the fourth quarter earnings conference call, Dow’s CEO, Andrew Liveris, pointed out that the company’s shrinking exposure to commoditized end products, as a result of the ongoing divestment program, and an anticipated pick up in demand growth fueled by lower oil prices, should mitigate the impact of the changed oil price environment on its profits. We currently estimate the potential negative impact of lower crude oil prices on Dow’s Performance Plastics division’s 2015 EBITDA margin to be around 250 basis points and will look for cues in the earnings release to update this forecast. 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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    Newmont Mining Earnings Preview: Lower Gold And Copper Prices To Weigh On Q1 Results
  • By , 4/21/15
  • tags: NEM ABX FCX VALE SLW
  • Newmont Mining (NYSE:NEM) will announce its first quarter results on April 23 and conduct a conference call with analysts the next day. We expect lower gold prices in Q1 2015, as compared to the corresponding period last year, to negatively impact Newmont’s results. The company has divested a number of high-cost, non-core assets since the middle of 2013. It continued with its strategy of divestment of non-core assets with the announcement of the sale of its interest in the Penmont joint venture in Q4 2014. The sale of non-core assets will help lower the company’s cost structure and put it in a better position to operate in a subdued gold pricing environment. However, these asset sales are expected to lower the company’s year-over-year gold shipments for the first quarter. In this article, we will take a look at what to expect from Newmont’s Q1 results. See our complete analysis for Newmont Mining Gold Prices Gold prices have fallen over the course of the last year, reacting to cues regarding the tapering of the Federal Reserve’s Quantitative Easing (QE) program. The tapering of QE implied strengthening U.S. economic growth. Gold as an investment is often viewed as a hedge against inflation and economic weakness. The strengthening of the U.S. economy reduced the investment demand for gold and led to a fall in prices of the metal. London PM Fix gold spot prices, which averaged close to $1,300 per ounce in Q1 2014, have averaged close to levels of $1,200 per ounce in Q1 2015. Revenues from gold sales accounted for around 90% of Newmont’s total revenues in 2014. Thus, lower gold prices are expected to negatively impact the company’s revenues and profitability in Q1 2015, as compared to the corresponding period a year ago. Going forward, the Fed’s outlook on the U.S. economy is important as far as gold prices are concerned. With the economy strengthening, the Fed is expected to raise interest rates sometime in 2015. However, the exact timing of an interest rate hike is contingent upon the pace of economic and jobs growth in the U.S. An interest rate hike is likely to lead to a decline in gold prices, as investors shift towards higher yielding assets. Copper Prices Copper prices have declined sharply from their levels in the middle of 2014, mainly due to concerns over copper demand from China. China is the world’s largest consumer of copper, accounting for nearly 40% of the world’s demand for the metal. Copper has diverse applications in industry, particularly in the manufacturing, power, and infrastructure sectors. A slowdown in Chinese economic growth, particularly in the manufacturing sector, has negatively impacted Chinese demand for copper. Chinese GDP growth is expected to slow to 6.8% in 2015, from 7.4% in 2014. Weakness in Chinese manufacturing activity is captured by the country’s Manufacturing Purchasing Managers’ Index (PMI). The Manufacturing PMI measures business conditions in the manufacturing sector of the concerned economy. When the PMI is above 50, it indicates growth in business activity, whereas a value below 50 indicates a contraction. Chinese Manufacturing PMI, reported by China’s National Bureau of Statistics, stood at 50.1 in March and below 50 in the remaining months of Q1, indicating weakness in manufacturing activity. London Metal Exchange (LME) copper prices averaged roughly $5,800 per ton in Q1 2015, as compared to approximately $7,100 per ton in Q1 2014. The weakness in copper prices will adversely affect Newmont’s year-over-year quarterly results. Portfolio Optimization Newmont has made efforts to optimize its portfolio of mines through the sale of non-core assets. The company has raised nearly $1.3 billion through non-core asset sales since 2013. Newmont intends to redeploy capital into projects that offer better returns. Asset sales and operational improvements have helped lower the company’s all in sustaining costs (AISC) metric, which stood at $927 per ton in Q4 2014, as compared to $1,043 per ton in the corresponding period of 2013. The AISC metric captures all of the expenditures incurred to discover, develop, and sustain production. AISC includes costs applicable to sales, remediation costs, general and administrative costs, advanced projects and exploration expenses, treatment and refining costs, sustaining capital expenditure, and other miscellaneous expenses. This metric helps investors better gauge the company’s performance. Focusing on its low-cost, core gold mines will lower the company’s average costs of production, as well as give it the flexibility to operate in a possible scenario of lower gold prices. Thus, just like in Q4 2104, the company is likely to report lower year-over-year AISC figures in Q1. The sale of high-cost mining operations will boost the company’s flexibility to operate in an environment of subdued gold prices. Given that gold prices are unlikely to increase significantly in the near term, these steps will stand the company in good stead in 2015. 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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    EMC Earnings Preview: Information Infrastructure Revenues Could Remain Subdued
  • By , 4/21/15
  • tags: EMC VMW NTAP
  • EMC (NYSE:EMC) is scheduled to announce its first quarter earnings on Wednesday, April 22. The company reported a 5% year-on-year increase in net revenues in Q4 2014 to just over $7 billion, while full year revenues were also up by about 5% y-o-y to $24.4 billion. EMC witnessed revenue growth in both combined services, which grew by almost 9% y-o-y to $10.4 billion, and consolidated product revenues, which rose by 3% y-o-y to $14 billion for the full year. EMC’s fast-growing businesses such as  VMware (NYSE:VMW) and Pivotal were largely responsible for driving top line growth, with its core information infrastructure business (including storage, data security and content management) growing by only about 2% y-o-y to $18.2 billion. Comparatively, VMware’s revenues were up by over 16% y-o-y to $6 billion while Pivotal’s revenues grew by 27% y-o-y to $227 million. Despite a slow year for information storage and EMC’s core businesses, the company has a positive outlook for the coming quarters. Management expects net revenues to rise by 7% y-o-y to over $26 billion in 2015 despite a possible negative impact of foreign exchange. According to management, FX could impact net revenues by as much as $550 million through 2015. We have a $30 price estimate for EMC, which is about 10% higher than the current market price.
    Why Individual Investors Do So Poorly in the Market
  • By , 4/21/15
  • tags: SPY SYLD
  • Submitted by Sizemore Insights as part of our contributors program Why Individual Investors Do So Poorly in the Market by Charles Lewis Sizemore, CFA Here is a sobering statistic for you: While the S&P 500 has generated annualized returns of 9.9% over the past 20 years—and a boring old asset allocation of 60% stocks and 40% bonds has managed to return a solid 8.7%—the average investor has eked out a measly 2.5%. Inflation has averaged 2.4% over the past 20 years, meaning that in real terms the average investor has returned pretty close to zero. And this during one of the best periods in this history of the U.S. stock market.   Source: JPMorgan How are returns that bad even possible? If the Efficient Market Hypothesis is to be believed, investors should roughly track the S&P 500 over time, not underperform it by 75%. There are a myriad of answers, including everything from overtrading to underdiversification, but the biggest contributing factor is peformance chasing. Investors don’t park their cash in the stocks or sectors promising the best value. They jump on whatever is trendy in a perpetual case of closing the barn door after the horse has already bolted. Late last year, veteran financial writer Mark Hulbert crunched the number s and found that following the investment newsletter portfolio that performed best during the previous calendar year resulted in annual losses of more than 17% per year. Not just underperformance, mind you, but actual losses. In looking at mutual fund performance, the numbers get a little better but are still remarkably bad. In a study done by Vanguard, a strategy of buying the top-performing large blend mutual funds over a rolling three-year period underperformed a naive buy-and-hold strategy by 34%. And while the numbers varied slightly across mutual fund market caps and styles (small-cap value, mid-cap growth, etc.), a naive buy-and-hold approach outperforms across all. Though we see these words so often we become blind to them, experience proves them true: “Past performance is no guarantee of future results.” To be more accurate, the data here more or less guarantees that past performance is a guarantee of future results . . . it just so happens that the future performance in question turns out to be terrible. So, what are we to do about this? Buy an S&P 500 Index Fund (NYSEARCA: SPY ), hold it forever, and wash our hands of the entire investing process? Well, we could do that. But there are better ways to skin this cat. Take a second look at the chart at the top of this article. You’ll notice that a 60/40 portfolio of stocks and bonds came awfully close to matching the performance of the S&P 500, but what you don’t see here is that it did so while taking far less risk. This is the essence of asset allocation: Essentially sprinkling “a little of everything” into a portfolio and regularly rebalancing with the understanding that there will be years when some pieces of the portfolio perform very well and others perform very poorly. There is an important catch that a lot of people seem to forget these days. A sset allocation works well when the constituent parts all have reasonably high expected rates of return and–importantly–returns that are not highly correlated. Asset allocation is going to look a little different today than it did in years past because we are in a very different interest rate environment. I think you can make a very good case for eliminating most bonds altogether or at least for replacing a traditional long-only bond allocation with a tactically-managed one. This is what I have done in portfolios that I manage for clients. And for those clients that qualify, I’ve been incorporating low-volatility, absolute-returns strategies into the mix. For a simple and easy-to-execute asset allocation, consider something along the lines of the following ETF allocation: Domestic U.S. Stocks (45%) 17% Cambria Shareholder Yield ETF ( SYLD ) 11% iShares Select Dividend ETF ( DVY ) 11% Vanguard Dividend Appreciation ETF ( VIG ) 6% iShares Core S&P Small Cap ETF ( IJR ) International Stocks (21%) 7.5% Cambria Foreign Shareholder Yield ETF ( FYLD ) 7.5% PowerShares International Dividend Achievers ETF ( PID ) 3% EG Shares Emerging Markets Consumer ETF ( ECON ) 3% Cambria Global Value ETF ( GVAL ) Real Estate / Infrastructure (24%) 12% Vanguard REIT ETF ( VNQ ) 12% JP Morgan Alerian MLP ETN ( AMJ ) Fixed Income / Cash (10%) 5% PIMCO Total Return Active ETF ( BOND ) 4% iShares TIPS Bond ( TIP ) 1% Cash There is nothing sacred about any of these specific ETF positions. I chose them because I believed them to be a solid proxy for the risk/return exposure I was looking for, but I periodically swap out ETF positions when newer, better alternatives come along. The takeaway is that, while the specific vehicles may change, the asset classes remain pretty constant. For another perspective, check out The Gone Fishin’ Portfolio . Alex Green chooses a few asset classes that I would avoid–such as gold miners–but his recommendations are solid and simple to implement. And if you really enjoy digging into asset allocation strategies, check out Meb Faber’s latest, Global Asset Allocation . It’s a short read and worth many times over the $3 price tag. There a million different ways to allocate a portfolio well, but most poorly-allocated ones have one point in common: They chase whatever has been recently hot. Don’t do that. Disclosures: Long AMJ, BOND, DVY, ECON, FYLD, GVAL, IJR, PID, SYLD, TIP, VIG, VNQ Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the  Sizem ore Insights blog. This article first appeared on Sizemore Insights as Why Individual Investors Do So Poorly in the Market
    A Robotic Revolution in Your Backyard
  • By , 4/21/15
  • tags: IRBT DE
  • Submitted by Wall St. Daily as part of our contributors program A Robotic Revolution in Your Backyard By Greg Miller, Senior Technology Analyst   Public Service Announcement: If you’re driving around your neighborhood and see a lawnmower buzzing across someone’s yard by itself, do not be alarmed . . . It hasn’t chewed up its human operator. Nor has it gone rogue and embarked on a wave of destruction like something out of a horror movie. It’s just the latest wave of robotic technology to hit the United States. Now, you might be familiar with the company driving this new landscaping revolution. But here’s what might surprise you . . . From the Battlefield to Your Backyard If I asked you to name a robotics company, chances are you’ll say iRobot ( IRBT ). Since being founded in 1990, the Massachusetts-based firm is renowned for its innovation in this area. But lest you think it’s just about consumer products like the Roomba, as well as ones that clean pools, gutters, and floors, it’s also heavily involved in designing robots for defense and military purposes, as well as healthcare. I’ve written before about how the company plans to use its expertise to expand its product line – and it recently petitioned the Federal Communications Commission (FCC) for more wireless spectrum that will enable such expansion. Namely, for robotic lawnmowers . . . Meet Your New Landscaper Robot lawnmowers are already a reality in Europe, where lawns are generally smaller and the price of landscaping services tends to be higher. But here in the United States, with our larger lawns and waves of immigrants willing to do the work for low wages, robotic lawnmowers are seen as too expensive to catch on. iRobot wants to change that. While the company hasn’t unveiled a product in this area yet, its petition to the FCC makes the intent clear – the firm wants to use wireless transmitters placed around your yard to coordinate the robot, so it will mow your lawn without also mashing up the flower beds. That plan contrasts with robotic mowers in Europe, where manufacturers like Deere & Company ( DE ) use guide wires to set perimeters for the mowers. But there’s a problem . . . Robots vs. Astronomers The area of the wireless spectrum that iRobot proposes to use is also used by astronomers. Specifically, they use radio telescopes to identify the presence of methanol from hundreds and even thousands of light years away. Why is this important? Methanol is an important indicator of mature star formation, and detecting it allows astronomers to better understand how our galaxy creates new stars. So if a bunch of robotic lawnmowers on the same system hog enough capacity to throw off astronomers’ measurements, they might as well close up their telescopes and go home. America’s astronomers have filed a complaint with the FCC over iRobot’s application to use this wireless spectrum – the latest in a series of ongoing battles over the very thing that’s crucial to making our connected future a reality. They claim that iRobot hasn’t taken sufficient precautions to prevent their wireless robot controllers from interfering with the giant radio telescopes. For its part, iRobot claims that the astronomers’ objections are baseless and that no interference will occur due to the low power of the transmitters and because the astronomers are overestimating the distance the signals can travel. Which seems kind of bold, since the signals the astronomers are looking for in the first place come from across the galaxy! So what’s going to happen here? Scrapping Over Spectrum Ultimately, iRobot and the astronomers will work this out, perhaps with an assist from the FCC. But what’s interesting about this spectrum dispute is that it’s not just isolated to iRobot’s robotic lawnmower use. There’s another proposed use for the very same spectrum that astronomers want to keep to themselves – autonomous cars ! Yes, the FCC has already allocated some of that spectrum to allow cars to “speak” to each other and allow for adaptive braking, collision avoidance, sharp curve warnings, even parking permits and highway tolls. This spectrum isn’t in use in the United States yet . . .  but it will be. And unlike robotic lawnmowers, the cars carrying wireless transmitters can roll right up to a radio telescope installation. What happens if an astronomer wants his Tesla ( TSLA ) to drive him to work? Or if the boss rolls up in a driverless car? Would they object then? More broadly, the astronomers’ objections are part of a supply and demand equation, where multiple bodies are scrapping for a relatively limited amount of radio spectrum as wireless applications increase. And it’s not just astronomers concerned about interference, either. Other radio users in the same spectrum, or in different spectrums that could be affected by proposed new uses, are increasingly coming into conflict with new applicants for that spectrum. Indeed, it was just such an interference issue that led to the bankruptcy of a company called LightSquared in 2012. Its plan to use frequencies next to those already used by GPS providers was turned down by the FCC. More recently, manufacturers and users of wireless microphones have petitioned the FCC to think of them when they auction off more spectrum. As we move towards an increasingly wireless future, these fights will continue. And for many of the participants, the stakes will be far higher than those for iRobot and America’s astronomers. To living and investing in the future, Greg Miller The post A Robotic Revolution in Your Backyard appeared first on Wall Street Daily . By Greg Miller
    Forget Corn! Sorghum and Barley Are the Hot Crops
  • By , 4/21/15
  • tags: ADM ICE
  • Submitted by Wall St. Daily as part of our contributors program Forget Corn! Sorghum and Barley Are the Hot Crops By Tim Maverick, Commodities Correspondent   Global trade in grains reached an all-time high last year at 309 million metric tons (mmt), according to the International Grains Council. But if one looks beneath the headlines, something startling jumps out . . . The staple crops of corn, wheat, and soybeans all moved into bear markets price-wise last year. Turns out the stars of the show, or – as the Financial Times calls them – the crops du jour, are two almost forgotten grains: sorghum and barley. Why the sudden interest in these particular grains? The answer is simple . . .  China. Chinese Demand Soaring According to the U.S. Department of Agriculture (USDA), Chinese imports of the two grains soared to 11.5 mmt in the 2014-2015 crop year. In the 2010-2011 crop year, imports were only 1.7 mmt. The USDA puts Chinese imports of sorghum at 4.8 mmt for 2015-2016. That’s a huge jump no one in the industry saw coming. Only a year ago, the USDA’s forecast for 2023-2024 sorghum imports to China was only 1.9 mmt. Obviously, a lot has changed in the marketplace . . . The USDA puts 2023-2024 imports of barley at 5.1 mmt. That’s up from the previous forecast of 2.8 mmt. You see, China is using both of these crops as a substitute for high-priced domestic corn for feeding livestock. Sorghum is also used in the production of China’s favorite alcohol, baijiu. Malting barley is extensively used, also. In addition, China doesn’t like genetically modified crops. But these ancient grains aren’t modified, so there aren’t any import restrictions slapped on them. Chinese demand almost single-handedly drove U.S. exports of sorghum to highs not seen in 35 years. Smart Farmers Benefiting All this Chinese demand is good for farmers smart enough to plant these crops as prices continue to rise. Sorghum – which is surprisingly priced higher than corn right now – rose 6% in March to $246 per ton, according to the World Bank. Another plus for sorghum farmers is that the crop is drought-resistant, which is a concern right now in the High Plains. It’s also cheaper to grow. Bloomberg says that, when all is considered (seed, fertilizer, and chemicals), sorghum costs just $142 per acre. In contrast, corn costs $350 per acre. The World Bank also said that barley rose in March to $189 per ton, up 15% this year. This isn’t surprising considering that the U.S. sowings last year were the third lowest on record. Canada’s stocks of barley also fell to a record low. In fact, the United States has had to import supplies of malting barley from Europe, which could possibly raise the prices of domestic craft beers. So how can the average investor participate in these hot crops? Planting Some Investments Well, barley is easy to invest in through futures that trade on the Intercontinental Exchange (ICE). Each contract is for 20 tons and is quoted in Canadian dollars. There is no futures contract for sorghum. So unless you’re a farmer or a grain handler, the best bet is to own large grain traders like Archer-Daniels-Midland ( ADM ). And the chase continues, Tim Maverick The post Forget Corn! Sorghum and Barley Are the Hot Crops appeared first on Wall Street Daily . By Tim Maverick
    Utilising an Oracle DBMS to Create a Neural Network that Is Useful To Traders and Investors
  • By , 4/21/15
  • tags: ORCL SPY
  • Submitted by John Bell as part of our contributors program . Utilising an Oracle DBMS to Create a Neural Network that Is Useful To Traders and Investors What if someone was to tell you that you could gain access to sophisticated technical analysis that only the best of the best have access to? Would you be interested? If you are, read on, you can begin to explore the scope of what you would need to do to make that possible. The best traders and investors are huge data hogs, and most traders tend towards using more and more data to help them feel more in control of their trading. This, as most professional traders will attest to, is like chasing the proverbial rabbit down the hole. Neural networks and algorithms can help you gain some sort of order and control over these huge amounts of data in order to help you achieve your goal of making profit. Neural networks are algorithms that can adapt to mimic the functioning of a human mind. Neural networks use historical data to try to extrapolate or make predictions about the future given similar conditions. Most people who have heard about neural networks and algorithms don’t understand how neural networks can benefit their trading and investment life. Their misconceptions range in a spectrum from those who don’t know anything about neural networks to those who expect too much from them. People either think about neural networks and algorithms as some sort of marketing gimmick, some complex and impractical scientific pursuit not relevant to their needs while other think of it as a holy grail or silver bullet that they can use to avoid making decisions and solve any problem that may come their way. If you have some experience trading in the forex markets, stocks, commodities or any other form of trading market, then you know that there is no Holy Grail method. You have to be able to see the markets from your point of view by having a trading strategy that will help you contextualize the bigger picture, in a way that will generate revenue for you. Especially when it comes to trading and investments, neural networks and algorithms are therefore a more sophisticated method of technical analysis that can help you to analyze data and therefore point you towards new opportunities that you may not have perceived before. They are not the best to utilize as forecasting tools. To gain control of all the input data that you will use in a neural network, you need to have access to a database. The database will allow you to organize the data in a way that you can query it in order to produce analysis that is relevant and usable. It is very important to remember that neither the neural network nor algorithm does the magic. The magic is more a factor of well thought out, input data on a specific area of the market. Benefits of an Oracle DBMS An Oracle database management system can be very helpful towards building a good neural network. The advantages of using an Oracle database management system include: Secure Data Making sure that your data is always secure is very important for any database management system, especially one that has the potential of making you lose strategies important to your livelihood. The Oracle database management system allows for the secure storage of data by preserving control lists that keep encrypted information about user privileges. Through the Oracle DBMS you can also encrypt transmission of data to and from the data storage. You can also keep track of all queries, access and attempted access of the data in the DBMS. The system can alert you in case there has been data access without your knowledge. Efficiency and universal When creating algorithms for your neural networks using different programming languages, you will realize that most programming languages such as .NET and Java have classes that work within Oracle databases. This means that your algorithms can be efficient and you will not need to find specialized skills to code algorithms specific to the database management system. This capacity to code programs within the database management system allows for more efficient data definition, input and manipulation. Oracle DBMS allows for better database design and better mining of the data The Oracle DBMS comes with inbuilt tools that will allow you to design and develop a database with a relative amount of ease when compared to other database management systems. The tools provided allow you to design and create transactions and tables with quite some flexibility and ease. The Oracle DBMS also allows you to capture transaction data and give surface maps that can help you investigate the data most often used or accessed. You can use this inbuilt analysis of your transactional behavior to make business and trading decisions that are more useful towards helping you make more profit and save time and money. Easy data management and administration With the Oracle DBMS you can easily administer data from your locale using management tools that are a part of the Oracle database management system. The management tools can allow you to stop and start instances, tools to help you do day to day administration of the DBMS through the Ops center, and tools to help you write SQL code to give instructions and queries to your database. Leverage on the services of a database administrator to run your DBMS Before you feel overwhelmed by too much information, you should know that it is possible for you to not stray away from your job or passion for investing or trading in order to learn how to program and maintain a neural network and its accompanying database management system. You could make use of the services of remote DBA experts. A database administrator manages activities related to maintaining an efficiently running and successful database environment. Once you have developed a neural network, all you will have to do is monitor the input data into the system and leave the rest to the DBA. The beauty is the DBA expert can manage the system remotely leaving you to focus on your work and less on the support work like maintaining the database and neural network. Sources- http://www.investing.com/analysis/top-8-things-you-need-to-know-when-investing-in-the-stock-market-248534 http://www.trefis.com/stock/orcl/model/trefis?easyAccessToken=PROVIDER_abf63f6571783300ac1f008338373ad5284bac3c http://www.trefis.com/stock/msft/model/trefis?easyAccessToken=PROVIDER_4f3bafbafd3829ea10eeb9593465b445f02c1004 For Database Image Credit – http://bigdropinc.com/ For Oracle Image Credit- https://farm3.staticflickr.com/2740/4309373529_91c253aed7_o.jpg For Data Files Image Credit - http://upload.wikimedia.org/wikipedia/commons/0/0e/Oracle_Database_Disk_Structures.png
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    How GM Is Making Big Strides In The U.S. Auto Market This Year
  • By , 4/20/15
  • tags: GM F
  • General Motors (NYSE:GM) is making big strides in the U.S. auto market as its marquee pick-up truck Chevrolet Silverado posts heavy gains without any incentives. The U.S. pick-up truck market is dominated by three vehicles: Ford’s F-150 series of trucks, Fiat-Chryslet’s Dodge Ram, and Chevrolet’s Silverado. However, the market is in a state of transition as Ford slowly rolls out its all new 2015 F-150 series. Ford retooled its factories last year to replace the older version of its trucks with a new series of trucks made from an aluminum body instead of a steel body. In that process, the production rate of the trucks slowed down and dealerships were operating with inventory levels below full capacity. According to the Ford management, the Ford dealerships will have full inventory only by mid-to-late summer. In the meantime, it looks as though GM has an opportunity to capture significant market share and grow its profits. We have a  $40 price estimate for General Motors, which is about 10% more than the current market price . Slow F-150 Roll out Ford makes the F-150 series of trucks at two factories — one in Dearborn, Michigan, another in Kansas City. The two factories were closed down to install tooling for the launch of the 2015 version and a reasonable estimate can be made of having lost 100,000 units in sales because of the long shutdowns. The Michigan plant began production again in November, while the Kansas City plant started in March. But the two factories are not operating at full capacity right now and it will be a while before they will be. As a result, dealerships are running shop with very few trucks to sell. According to Ford management, a pick-up truck on average spends 50-60 days in inventory at a dealership, but the popularity of the F-150 trucks in the U.S. has meant that each existing stock unit is spending around 20 days in inventory. In order to maximize profit, the company is prioritizing retail sales, which fetch higher margins, over commercial sales. The auto maker posted a 10% year-over-year gain in retail sales for March. From Ford’s perspective, this strategy makes sense. While supplies are low, it makes sense to sell to retail buyers who prefer higher-trim trucks than commercial buyers buying for their fleets. But commercial sales are a big part of Ford’s business around F-150 and it is losing out to GM on that front. GM Capitalizing In the first quarter of 2015, Ford’s F-series sales, which include the F-150 and other Super Duty stylings, grew by 2% year-over-year. In comparison, sales of Chevrolet Silverado grew by 17.6% over the same period. However, GM isn’t raising the sales of Chevrolet Silverado by offering incentives to buyers. It appears that the auto maker is simply taking those commercial sales at a time when Ford can’t or isn’t willing to. In the month of March, commercial sales of Silverado and GMC Sierra grew by a massive 41% compared to the same month last year. Sales of trucks to commercial fleets -contractors, mining companies, and large corporations who buy 100′s of pickups at a time – are not as profitable as sales to retail buyers, but they are profitable in their own right, and usually Ford and GM compete hard for those sales. Presently, GM is winning out on that terrain quite comfortably. It would be difficult to argue that Ford will not win back those sales when its plants return to full production capacity and dealerships have sufficient stock to meet demand, but the recent GM rally will put some doubt in the mind of investors. There is a chance that buyers will like the Silverado enough to keep buying it in the future. This matters because pick-up trucks are the main drivers of profits for both Ford and GM in North America, and small shifts in pick-up sales can have a significant impact on the bottom lines of both companies. 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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    Weekly Beauty And Personal Care Notes: L’Oréal, Avon, Revlon
  • By , 4/20/15
  • tags: AVP REV EL
  • This week has been strategically significant for two leading beauty players.  Avon Products (NYSE:AVP) is mulling over the decision to sell off its North America segment. The division (contributing 14% of Avon’s revenues in 2014) has been  incurring losses for the last three years. In contrast, Revlon (NYSE:REV) is contemplating the purchase of  Procter & Gamble ‘s (NYSE: PG) cosmetics division. On a separate note,  L’Oreal (OTC:LRLCY) is making significant strides with its sustainable development program. In 2014, the company reduced carbon dioxide emission by 50% from its 2005 levels. Below, we give a quick rundown on the most notable events in the last week related to these companies. See Our Complete Analysis for These Companies Here L’Oreal A year after the launch of its sustainable development program for 2020 called ‘ Sharing Beauty with All ‘, L’Oreal has attained significant progress as was evidenced by its first progress report . The company reduced carbon dioxide emission by 50% from a 2005 baseline, while growing production by 22%. 67% of its new products are more environment-friendly or have an improved social profile . Along with this, L’Oreal created 54,000 jobs for underprivileged communities. L’Oreal would hereby produce an annual report quantifying its progress around key performance indicators towards sustainable development. We have a  price estimate of $33, which is slightly lower than the current market price. Our full 2015 revenue estimate stands at approximately $31.6 billion and we have an IFRS diluted EPS estimate of $2.66 and a diluted cash EPS estimate of $3.43. L’Oreal’s stock price experienced negligible movements over the last week. Avon Products Avon Products, the direct selling company of  beauty, household, and personal care products experienced a rough year in 2014. The company’s sales declined by 12% to $8.6 billion. The company is on a downhill trend, having posted its last profit back in 2011. Avon’s direct selling model through representatives is losing market share to retail outlets and online shopping. In view of its losses, Avon is contemplating on strategic changes, and this might include the sale of its North American business, according to the Wall Street Journal. The company has not yet commented on the issue. In North America, Avon’s sales have been hit due to a drop in the representative pool. In 2014, North America experienced 17% constant dollar decline in revenues and an 18% decline in the active representative base. North America contributes over 10% to Avon’s net sales. Avon had nearly 470,000 representatives in North America in 2009, which declined to 258,000 representatives by the end of 2014. This continued decline in active representatives is likely to weigh on sales and put margins under pressure going forward. The recovering North American economy and the subsequent creation of full-time jobs is expected to pile on an additional pressure on Avon’s representative base because Avon representatives are usually non-contractual workers. We have a  price estimate of $10 for Avon Products, which is at slightly higher than the current market price. Our full 2015 revenue estimate stands at approximately $8.6 billion compared to a consensus estimate between $7.1 billion to $8.0 billion. Avon’s stock price experienced a significant 10% growth over the last week. Revlon According to industry sources, companies such as Revlon, Coty, and Henkel are gearing up to bid for parts of Procter & Gamble’s beauty business. Leading consumer processed goods company Procter & Gamble  has commenced the process to sell some of its beauty brands, according to Bloomberg. The global behemoth has reportedly sent out sale documents for its Wella hair care unit, the fragrance business, and certain unnamed cosmetic brands. Bloomberg reports that the combined value of these businesses could be as high as $19 billion, making it P&G’s biggest divestment so far. The three companies are working jointly with investment banks before the first-round bid deadline that has been set for next week. Revlon is eyeing P&G’s cosmetics business, including brands such as CoverGirl and Max Factor. The annual EBITDA for this business is estimated to be around $350 million. Henkel is keen on buying P&G’s haircare business, including brands such as Clairol and Wella. The annual EBITDA for this business stands at around $500 million. Coty, the owner of brands like OPI and Rimmel is likely to buy P&G’s fragrance unit. Coty might also be interested in P&G’s cosmetics division. P&G’s fragrance division including brands such as Hugo Boss and Gucci has an EBITDA of around $250 million. It is still unclear whether P&G intends to sell its brands as the part of a package (whose value can vary between $10 billion to $12 billion) or in a piecemeal manner. The company might even decide to spin off the unit, instead of selling it. Neither P&G nor the potential bidders have confirmed these developments. We have a  price estimate of $31 for Revlon, which is at a considerable discount to the current market price. Our full 2015 revenue estimate stands at approximately $1.94 billion compared to a consensus estimate of $1.85 billion. We expect non-GAAP earnings per share of $1.93 this fiscal year, compared to consensus estimates of $1.80. Revlon’s stock price experienced a 2.5% decline over the last week. Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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  • By , 4/20/15
  • tags: UBS HSBC DB
  • European bank shares got off to a strong start last week as investors reacted positively to the European Central Bank’s (ECB) continued focus on buying bonds to jump start the region’s economy. The optimism was fueled further by improvements in key economic metrics for the Eurozone. However, concerns about the slow progress of talks between Greece and its creditors figured high on investors’ minds over the end of the week, resulting in a slump in share prices across sectors on Friday, April 17. The banking sector-specific STOXX Europe 600 Banks index lost 3.2% over the week – underperforming its multi-industry equivalent, the STOXX Europe 600 index which shed 2.2% over the same period.
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