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COMPANY OF THE DAY : CSX CORPORATION

At a recent conference, CSX announced that it expects a 5% decline in its domestic coal volumes and some moderation in growth of crude oil carloads, which should have a negative impact on its top line. Export coal will also present headwinds. However, we believe that there are several factors that will more than offset the negative impact of coal and crude oil. In a recent note we discuss its potential growth opportunities.

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FORECAST OF THE DAY : NUMBER OF ACTIVE EBAY USERS

eBay's active user base has been growing rapidly in recent years, and we expect it to continue growing going forward, albeit at a slower pace. The company is facing significant competition from rivals such as Amazon, but there is still significant scope to add additional users, particularly in international markets.

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RECENT ACTIVITY ON TREFIS

FB Logo
Here's Why We Have Changed Facebook's Price Target To $88
  • By , 3/5/15
  • tags: FB TWTR LNKD
  • We have revised our price target for Facebook ‘s (NASDAQ:FB) stock from $67.13 to $87.52, which reflects a change of around 30%. The current valuation reflects our revised estimates of Facebook’s three main businesses — advertising on the core Facebook platform ($190 billion), the monetization opportunity on Instagram and WhatsApp ($52 billion), and the Payments and other fees business line ($ 6 billion). We believe advertising revenues on core Facebook platform will continue to grow rapidly over the coming years, fueled by several drivers including strong user base growth, an increase in ad pricing and the number of ad impressions, as well as higher mobile monetization. We believe the company’s ARPU (average revenue per user) could triple on the core platform in the long-run, bolstered by more targeted ads and additional monetization on Messenger and Search. Instagram and WhatsApp represent large sources of value since their user base is likely to more than double by the end of our forecast period. At the same time, we have conservatively forecasted ARPU on Instagram and WhatsApp to reach $9.00 and $5.00 by 2021.
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    American Eagle Outfitters Rises On Better-Than-Expected Results; Shows Progress On Merchandise And Omni-Channel
  • By , 3/5/15
  • tags: AEO ANF ARO
  • American Eagle Outfitters ‘ (NYSE:AEO) stock rose by more than 7% after it reported better-than-expected results for its Q4 fiscal 2014 and guided its Q1 fiscal 2015 EPS ahead of the street estimates. The retailer’s net revenues for the fourth quarter increased 3% to $1.07 billion, just ahead of the market consensus of $1.06 billion. Its EPS increased a much more sizable 33% to 36 cents a share, beating analysts’ estimate of 34 cents a share. While comparable sales for the quarter remained flat, American Eagle’s gross profits increased 13% driven by 320 basis points improvement in gross margins. The level of promotional activities for the retailer during Q4 fiscal 2014 was considerably below what it was in the year ago period, as it was able to deliver better merchandise. Although American Eagle started the year 2014 with a number of problems that were centered on the fact that its product portfolio had a limited fashion variety and its online channel was insufficiently sized, it improved considerably half way through the year. During the quarter, American Eagle offered an updated merchandise variety in a better store environment, which resonated well with customers, allowing the company to dilute the impact of the ongoing online shift. Our price estimate for the company at $13.45, is over 15% below the current market price. However, we are in the process of updating our model in light of the recent earnings release.
    NVDA Logo
    Nvidia Adds A Set-Top Box To Its Shield Family
  • By , 3/5/15
  • tags: NVDA INTC QCOM AMD
  • At the ongoing Game Developer Conference in San Francisco,  Nvidia (NASDAQ:NVDA) expanded its Shield lineup, which includes the Shield Android handheld console and the Shield tablet, by adding an Android TV console to its portfolio. Available for $199, the Shield set-top box comes with a controller and runs on Google’s recently launched Android TV platform. The device is powered by Nvidia’s Tegra X1 processor which has a 256-core Maxwell architecture GPU and 64-bit CPU. Nvidia claims that more than 50 Android titles will be optimized for Shield, including Crysis 3 and Doom 3, and some of the world’s leading game developers and publishers have embraced Shield and the GRID service. The company also unveiled a 1080p game-streaming service enabled by its Grid server GPU platform. ( Read Press Release ) Though the Shield set-top box is costlier than Apple TV ($99), Amazon’s Fire TV ($99), and Roku’s hardware ($50-$100), its gaming capabilities are far superior. But whether Nvidia is successful in shifting loyalties of gaming enthusiasts from PlayStation 4 ($400) or Xbox One ($350-$450) to Shield, we can only wait and watch. Nvidia Eyes The Android Gaming Market To Expand Its Tegra Revenue Base Nvidia launched Shield, its maiden attempt as a gaming hardware provider, in July 2013. Last quarter, Nvidia powered the holiday season’s two best-reviewed Android tablets, the Google Nexus 9 and its own SHIELD Tablet. More than a dozen media outlets recommended SHIELD in their holiday gift giving guides. Over the course of last quarter, SHIELD, which has pioneered a premium gaming experience for tablets, became one of the very first devices to be upgraded to the Google’s latest OS, Android 5.0 Lollipop. The gaming hardware market was worth $23.6 billion in 2012 and the global gaming market is estimated to cross $30 billion by 2015. Nvidia aims to focus on developing the Android gaming market. Android is the world’s largest operating system platform, and the company believes that over time it will also be one of the world’s largest gaming platforms. Nvidia intends to leverage the capability and expertise it has developed in the PC industry in the last 15 to 20 years for the Android gaming market. Nvidia claims that the mobile gaming market is a $70 billion market and is growing rapidly internationally. The mobile cloud is probably one of the most important disruptions in the history of computing, and yet there’s really no computer gaming architecture that serves mobile cloud very well. According to Nvidia, SHIELD offers  the platform that allows the mobile cloud to bring gaming to an under-served and new market. Given its strong graphics and processing capabilities, the company is able to delivers a compact powerful and optimized system to eager gamers. Our price estimate of $22 for Nvidia is in line with the current market price. See our complete analysis for Nvidia View Interactive Institutional Research (Powered by Trefis):
    ANF Logo
    Abercrombie & Fitch's Dismal Q4 Results Raise Concerns Around Revival Strategies
  • By , 3/5/15
  • tags: ANF AEO ARO WMT TGT
  • There seems to be no respite for  Abercrombie & Fitch (NYSE:ANF), even though it’s trying hard to win customers back. Bogged down by weak demand for both   Hollister and ANF, a decline in foot traffic, weak growth in online sales and negative currency headwinds, the company’s Q4 fiscal 2014 revenues fell 14% to $1.12 billion and non-GAAP net income decreased by over 20% to $80.8 million. Abercrombie’s revenue decline came from a 13% fall in comparable store sales, partially offset by 1% rise in direct-to-consumer revenues. Also, the retailer had a fewer number of stores operational at the end of Q4 fiscal 2014 as compared to the year ago period, which contributed to the revenue decline. By geographies, Abercrombie’s revenues fell 10% in the U.S. and 20% in international markets. While declining store traffic and weak customer response to product offerings were responsible for the retailer’s domestic performance, negative currency headwinds suppressed its international revenues. Abercrombie stated that strengthening dollar had a negative impact of 3% on its results, while the remaining decline can be attributed to its long standing problems. For the full year, Abercrombie reported a 9% decrease in its revenues, a 12% decline in comparable store sales and 10% increase in direct-to-consumer revenues. Its earnings per share declined close to 20% year over year to $1.54, barely meeting its revised guidance $1.52-$1.65. It is worth noting that the retailer had slashed its full year EPS guidance from $2.15-$2.35 at the end of the third quarter. Following these results, Abercrombie’s stock fell a sharp 15%, raising questions about the effectiveness of its revival strategies. The company is phasing out its logo business, testing new storefronts and pricing for Hollister, investing heavily in direct-to-consumer and omni-channel retailing, and consolidating its under-performing store network. While it can be said that Abercrombie is headed in the right direction with these strategies, it still does not have any sort of results to show for it. Our price estimate for Abercrombie & Fitch stands at $37.30, which is about 80% above the current market price. However, we are in the process of updating our model in light of the recent earnings release. See our complete analysis for Abercrombie & Fitch Abercrombie Continues To Lose Customers The present scenario in the U.S. is such that buyers are reluctant to spend much on basic logo merchandise from specialty brands such as Abercrombie, American Eagle Outfitters (NYSE:AEO) and Aeropostale (NYSE:ARO). Instead, they prefer cheaper private labels from Wal-Mart (NYSE:WMT), Target (NYSE:TGT) and J.C. Penny for their basic apparel needs. However, they are prepared to spend a higher amount on fashion-forward merchandise, that are being offered by brands such as Zara, Forever 21 and H&M. Since Abercrombie’s product portfolio mainly had basic logo products and a limited fashion variety, it has lost a number of its customer during the last couple of years. Last year, the retailer decided to phase out its logo business within 12 months to make way for fresh fashion inventory. However, while the company has been aggressive in reducing its logo inventory, it hasn’t been equally proactive in replacing it with fashion-forward inventory. As a result, for the last couple of quarters, basic as well as fashion inventory in Abercrombie stores has been limited, which explains why it continued to lose customers. Trying to justify this loss, the management reiterated during the recent earnings call that the company is in its transition phase and ongoing strategies will take some time to show meaningful results. Executive Chairman Arthur Martinez said that this transition will trouble the company for another couple of quarters, but will help the brand in the long run. However, there is no certainty that customers will get enough incentives to return to Abercrombie, even if the retailer successfully revamps its portfolio. Efforts To Entice Customers May Have A Marginal Positive Impact Abercrombie’s brand image has taken a beating over the past couple of years due to several unwanted controversies and criticism for failed strategies. Couple that with a sluggish transition in product portfolio and a near term turnaround seems unlikely. While things won’t change for the company overnight, its strategies to improve the shopping experience may leave a positive impression on customers. Abercrombie has been testing new storefronts for its Hollister brand, and the initial rollout in 50 U.S. stores and four U.K. stores has been pleasing. This format will be added to another 50 stores in 2015. Also, the company has come up with a new store management incentive plan, which encourages store and district managers to strive for better store performance. The retailer’s outlet format in the U.S. saw 20% comparable store sales growth during the fourth quarter, which should encourage it to expand this further. Abercrombie plans to open 11 such stores in 2015. However, all these strategies are small scale efforts and they will not help Abercrombie unless its merchandise portfolio improves considerably and it finds a way to better  respond to the ongoing online shift. Resorting to Direct-To-Consumer And Omni-Channel Won’t Do Much Good Similar to most participants in the retail industry, Abercrombie has been aggressively deploying its omni-channel strategies. The retailer now ships directly from 375 stores and its order in-store service is live in over 650 U.S. stores. This figure will continue to increase in 2015, and the company has several omni-channel strategies planned for Europe as well. However, the fact remains that direct-to-consumer business constitutes a very small fraction of the company’s overall revenues. Even with rapid growth in online revenues and continued store consolidation, this channel is unlikely to become strong enough to drive overall results in the foreseeable future. Moreover, the online industry in itself is very competitive and Abercrombie’s performance in this arena has not been outstanding. For instance in 2014, Abercrombie’s comparable store sales fell 12% and after factoring in 10% growth in online sales (which is not too good considering the industry standards) the fall in comparable sales could come down by only 2 percentage points. Undoubtedly, online growth is having a notable offsetting impact on Abercrombie’s revenue decline, but the company cannot rely on this channel alone for its future growth. It needs to get its store business right. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    MS Logo
    A Look At Common Equity Tier 1 Capital Ratios For The Largest U.S. Banks
  • By , 3/5/15
  • tags: BAC C GS JPM MS WFC
  • Investors and regulators around the world have kept a close eye on banks’ common equity tier 1 (CET1) ratio figures over recent years, with the Basel committee prescribing stricter capital requirement norms for the largest global financial institutions. This key metric has been under particularly sharp scrutiny over the last few weeks as the Federal Reserve prepares to release the results of its Comprehensive Capital Analysis and Review (CCAR) for banks. Also referred to as the bank stress tests, this annual exercise by the country’s financial regulator relies considerably on the CET1 ratio figure for each bank. U.S. banking giants have put in a considerable amount of effort over recent years to prioritize Basel III compliance – on several occasions shrinking profitable operating units to clean up their balance sheets. Investors in the banking sector have also felt the impact of the tighter regulatory oversight, as dividend payouts and share repurchases from the banks have remained low since the economic downturn. And with the Fed adopting capital surcharges for the U.S. banking system that are more stringent than those laid out under the Basel III norms, the banks may also have to delay their capital return plans further in order to pass the stress tests. But how do these banks fare in terms of existing Basel III requirements? In this article, we highlight the degree to which the six largest U.S. banks have improved their Tier I common capital ratios over the last two years. While all these banks have already surpassed their CET1 ratio targets as proposed by the Basel committee – something they need to achieve by the end of 2019 – some of them are in significantly better shape in terms of capital structure compared to their peers. Notably, JPMorgan is the only bank which falls short of its capital target under the Fed’s more stringent requirements.
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    How Citigroup Benefits From The Sale of OneMain
  • By , 3/5/15
  • tags: C LEAF BAC GS CS BCS
  • Earlier this week, Citigroup (NYSE:C) finalized a deal to sell its consumer lending unit, OneMain Financial, to Springleaf Holdings for a neat sum of $4.25 billion. The decision marks an end to the year-long dual-track process undertaken by the globally diversified banking group towards divesting the business, with plans of an initial public offering (IPO) moving in parallel with talks for an outright sale. Notably, the deal values OneMain only slightly higher than the initial estimate of $4 billion despite the fact that Springleaf will achieve significant cost synergies from the merger of its operations with the newly acquired business. Citigroup’s advisory arm handled the deal on the bank’s behalf, whereas Springleaf was advised by  Bank of America (NYSE:BAC), Barclays (NYSE:BCS), Credit Suisse (NYSE:CS) and Goldman Sachs (NYSE:GS). While the deal will make Springleaf the single biggest sub-prime lender in the country, Citigroup stands to gain a lot from the disposal of what is its most profitable business in terms of return on assets (RoA). The cash generated from the sale will allow the bank to retire some of its debt over the coming months – in turn bringing in additional savings on interest expense. The deal and the subsequent interest savings should boost Citigroup’s pre-tax profit figure for the year by $1 billion. The sale also means that Citigroup is no longer a player in the sub-prime lending industry – something that should marginally reduce regulatory scrutiny on the bank in the future. More importantly, the disposal is an important step towards the eventual divestment of all of Citigroup’s non-core operations as OneMain represents roughly 10% of Citi Holdings’ total assets at the end of 2014.
    CSX Logo
    CSX Could See Growth Despite Coal Weakness
  • By , 3/5/15
  • tags: CSX NSC UNP
  • At the JPMorgan Aviation, Transportation and Industrials Conference, CSX Corporation (NYSE: CSX) announced that it expects a 5% decline in its domestic coal volumes and some moderation in growth of crude oil carloads, which should have a negative impact on its top line. Export coal will also present headwinds. However, we believe that there are several factors that are likely to more than offset the negative impact of coal and crude oil.
    VALE Logo
    Vale Announces Streaming Agreement With Silver Wheaton As Part Of Ongoing Response To Subdued Commodity Prices
  • By , 3/5/15
  • tags: VALE SLW RIO CLF MT
  • Vale (NYSE:VALE) has announced the signing of an agreement with Silver Wheaton (NYSE:SLW) to sell an additional 25% of the gold by-product stream produced at its Salobo copper mine in Brazil for a period that extends until the end of the mine’s life. Vale already had a streaming agreement in place with Silver Wheaton for the sale of 25% of the gold by-products produced at the Salobo mine. With the signing of the new agreement, Vale will receive an upfront payment of $900 million from Silver Wheaton. In addition, Silver Wheaton will pay Vale the lesser of $400 per ounce (plus a 1% annual inflation adjustment from 2017) or the prevailing market price for gold delivered to it, which is the same as the terms of the previous agreement. The signing of the additional streaming agreement with Silver Wheaton is a part of Vale’s ongoing response to an environment of low commodity prices, particularly those of iron ore. The upfront cash payment will lessen the burden on Vale to finance its capital expenditure needs, with the company looking to deleverage in order to boost its financial flexibility. See our complete analysis for Vale Iron Ore Prices Iron ore is an important raw material for the steel industry. Thus, demand for iron ore by the steel industry plays a major role in determining its prices. Benchmark international iron ore prices are largely determined by Chinese demand, since China is the largest consumer of iron ore in the world. It accounts for more than 60% of the seaborne iron ore trade. Chinese steel demand growth is expected to slow to 2.7% in 2015, from 6.1% and 3%, in 2013 and 2014, respectively. Weak demand for steel has indirectly resulted in weak demand for iron ore. On the supply side, an expansion in production by major iron ore mining companies such as Vale, Rio Tinto, and BHP Billiton has created an oversupply situation. A combination of weak demand and oversupply is likely to result in weak iron ore prices in the near term.  The worldwide surplus of seaborne iron ore supply is expected to rise to 300 million tons in 2017, from an expected surplus of 175 million tons in 2015, and a surplus of 72 million tons and 14 million tons, in 2014 and 2013, respectively. Due to the persisting weak demand and oversupply situation, iron ore prices will remain under pressure in the near term. The average realized price for Vale’s iron ore fines stood at $75.97 per ton in 2014, nearly 32% lower than the average realized price in 2013, which stood at $112.05 per ton. The sale of iron ore pellets and fines collectively account for around 65% of Vale’s net operating revenues. Thus, the fall in iron ore prices has severely dented Vale’s business prospects. Funding Capex Through Streaming Agreements The upfront payment of $900 million will lower the company’s funding needs for its capital expenditure requirements, including the remaining capital expenditure for the expansion of the Salobo mine. The company has $9.6 billion of expansion capital requirements in 2015 and 2016, mostly for the expansion of its iron ore production capacity. Due to the subdued commodity pricing environment, sentiment is negative regarding the mining sector in general. Equity valuations are subdued, which makes issuing stock less desirable as a mode of raising capital. Debt is hard to come by for mining companies, most of which have highly leveraged balance sheets, and are looking to deleverage. In such a scenario, precious metal streaming agreements allow mining companies to raise capital to fund their capital expenditure requirements without taking on additional debt. Thus, Vale’s streaming agreement with Silver Wheaton, for gold produced at the Salobo mine, fits in well with the company’s ongoing response to the subdued commodity pricing environment. It will allow the company to partially fund its capital expenditure requirements without taking on additional debt. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    The Bangladesh Butter Indicator Says Buy!
  • By , 3/5/15
  • tags: SPY TLT
  • Submitted by Sizemore Insights as part of our contributors program The Bangladesh Butter Indicator Says Buy! by  Charles Lewis Sizemore, CFA Get ready to buy. Our most reliable technical indicator—one that has historically been 99% accurate—is  suggesting that stocks are poised for a major breakout. Bangladesh butter production surged in February, as moderating grain prices allowed Bangladeshi dairy farmers to boost production by getting higher milk yields from their existing stock of cows. Meanwhile, butter production in neighboring India dropped significantly in February, as a change in government farm subsidies forced Indian dairy farmers to cull their herds. With Bangladeshi butter production set to rise further, we should be looking at a massive rally in the S&P 500 throughout March and April. By now, I sincerely hope you realize I’m joking. Whether the S&P 500 goes up, down or sideways over the next two months will have absolutely nothing to do with the Bangladesh butter indicator. But in a paper published two decades ago, David Leinweber and Dave Krider found that butter production in Bangladesh had the tightest correlation to the S&P 500 of any data series they could find. It wasn’t GDP growth . . . it wasn’t earnings . . . it was Bangladeshi butter, which “explained” 99% of the S&P 500’s movements. The authors weren’t quacks. They knew the correlation was a random coincidence and completely meaningless. But they published the paper to get a good laugh and to make an important point about number crunching. Correlation does not mean causation, and if your model doesn’t make intuitive sense, it’s probably bogus. I’m not bashing quantitative models here. Done right, they can help you build a really solid trading system. Various value and momentum models have been proven to work over time. But the trading system needs to reflect some sort of fundamental reality or it’s one ( small ) step removed from voodoo. Adam touched on the same idea two weeks ago in Economy & Markets . As Adam wrote, “Computers, databases and statistically sound algorithms can only refine the discovery and implementation of a fundamentally sound investment strategy. At the end of the day, computer algorithms or not, you still need a rock-solid investment strategy.” The model isn’t the strategy. It’s a tool to help you execute; nothing less, nothing more. Whenever you see someone touting a trading strategy, ask them to explain why it works. Back-tested returns aren’t good enough. If they can’t explain the fundamentals behind their model, it’s probably a matter of time before they blow up. Oh, and one more thing about Bangladeshi butter. Leinweber wrote in Forbes a few years ago that he still gets phone calls—20 years later—asking for current butter production figures. This article first appeared on Economy & Markets . 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 The Bangladesh Butter Indicator Says Buy!
    Four Ways That Virtual Reality Will Upgrade Your Life
  • By , 3/5/15
  • tags: SPY FB
  • Submitted by Wall St. Daily as part of our contributors program Four Ways That Virtual Reality Will Upgrade Your Life By Nikia Wade, Technology Correspondent   Imagine your wildest dreams or fantasies . . . Maybe it’s to be a billionaire or a famous actress? Travel the globe, and see the world’s most spectacular sights? Or maybe to have your own private island? While some things might be entirely out of reach in the real world, technology is making it possible to have them in the virtual world. Specifically, through virtual reality – one of today’s fastest-growing and fascinating technologies. If you need proof, just look at the $2 billion that Facebook ( FB ) paid to buy virtual reality firm, Oculus, which makes the Oculus Rift virtual reality device. It didn’t do that for kicks. Facebook knows that this is a major field to expand into. But virtual reality isn’t just about fun and games. The technology can actually broaden your mind and help us be happier and healthier. Here are four ways it’s doing just that… VR Upgrade #1: The Virtual Doctor Will See You Now . Doctors have shown that technology helps improve and expedite medical recovery for hospitalized children in a very easy way: video chat . Yep . . .  as simple as it sounds, video chat reduces stress. After all, what we experience affects how we feel, so it stands to reason that positive experiences result in a healthier mind and body. Take 3-year-old Malia Ramirez, for example. She suffers from a painful inflammatory bowel disease called Ulcerative Colitis, which has prompted an extended hospital stay. While there are toys, games, and other activities, Malia sometimes gets scared when her parents aren’t there. At this point, her nurse will usually hand over an iPad, so she can have an instant, comforting video chat with her father. In the future, virtual reality will enhance this experience even more. Rather than just being faces on a screen, parents and children alike will actually be able to feel like they’re in the room together. So if just seeing a loved one’s face can help improve your mood and health, virtually being with them will speed the recovery even more. VR Upgrade #2: The “Empathy Machine.” One of the major reasons why certain situations are so often misunderstood is that it’s impossible to actually be there to experience it for yourself. But veteran print and video journalist, Nonny de la Peña, has a plan to change that. And she’s using one of today’s most desperate events to prove it. She’s spearheaded Project Syria – an experiment to immerse people into the tragic situation in Syria via virtual reality. The main objective of the project is to induce empathy in the participators. She explains her project below.   And here it is in full, no-holds-barred action… The virtual reality headset has been dubbed, “The Empathy Machine.” As de la Peña says, “I sometimes call  virtual reality an empathy generator . It’s astonishing to me. People all of a sudden connect to the characters in a way that they don’t when they’ve read about it in the newspaper or watched it on TV.” She isn’t the only one, though. Many other experiments have tested the connection between VR technology and empathy – from living the life of a cow, versus adopting vegetarian eating habits, to living life in a completely different race or age. The limits here are endless. VR Upgrade #3: A More Tolerant Society. As a direct by-product of the second upgrade, virtual reality can make us more tolerant, too. The U.S. Department of Justice defines hate crimes as “the violence of intolerance and bigotry, intended to hurt and intimidate someone because of their race, ethnicity, national origin, religion, sexual orientation, or disability.” And the reason for such hate crime? Per the National Crime Prevention Council, one of the top reasons is: “They are ignorant about people who are different from themselves (and terrified of the difference).” It’s typical to fear the unknown, of course. But what if we weren’t so ignorant? And what if people could be “trained” to replace fear with understanding and tolerance? With virtual reality, the ability to walk in someone else’s shoes will turn what was once unfamiliar and fearful into a new, more tolerant reality. VR Upgrade #4: Change Your Scene, Change Your Mood. Sometimes, you need to detach and unwind from the daily routine. But this is easier said than done sometimes, of course. Especially if you want to take a trip to Europe or the beach when you live in Nebraska! But virtual reality can transport you there. This would prove particularly beneficial for people who suffer from seasonal affective disorder (SAD) – a type of depression related to seasonal changes. Symptoms usually start in the fall, and last throughout winter, sapping your energy, and making you feel down. They don’t call it the “winter blues” for nothing! But let’s face it . . . who couldn’t do with a change of scene now and again? And with virtual reality, you’re not just watching someone else relaxing in sun. You are the person in the sun. Eliminating the Wooziness The only drawback with virtual reality headgear, at the moment, is the lingering feeling of nausea that can accompany it. But at this year’s Consumer Electronics Show (CES), Oculus CEO, Brendan Iribe, revealed that its newest version, The Oculus Rift Crescent Bay prototype, has all of the great VR features, minus the nausea. While you can buy the Oculus Rift Development Kit 2 for $350 here, the newest prototype will run you about $999.99 on Amazon ( AMZN ). Pricey? Yes. But as the technology develops further, the price is likely to decline. Make no mistake, virtual reality technology is becoming increasingly popular and advanced as the major players enter the field. After all, the next best thing to real reality is virtual reality. Where innovation meets investing, Nikia Wade The post Four Ways That Virtual Reality Will Upgrade Your Life appeared first on Wall Street Daily . By Nikia Wade
    “Roach Motel” Tech Company Trumps Ridicule
  • By , 3/5/15
  • tags: ORCL CRM N
  • Submitted by Wall St. Daily as part of our contributors program “Roach Motel” Tech Company Trumps Ridicule By Richard Robinson, Ph.D., Equities Analyst   Two years ago, Oracle ( ORCL ) Founder Larry Ellison called salesforce.com ( CRM ) the “roach motel” of cloud computing . Fast-forward to today, and the company has made remarkable progress. Just on February 26, CRM shares jumped more than 11.7% after meeting analysts’ Q4 2015 estimates. Even more impressive, Salesforce reached $5 billion in annual revenue faster than any other enterprise software company in history . Salesforce’s primary goal now is to hit $10 billion! And to the chagrin of Ellison, salesforce.com just might get there . . . Strong, Solid Results . . . Salesforce is certainly following the path of success: The company disclosed its Q4 2015 revenue of $1.44 billion, a 26% increase over the fourth quarter last year. When looked at in terms of constant dollars, the increase was 29%. The strong revenue growth was partly attributed to its subscription and support revenue, which increased by 25% to $1.35 billion. Salesforce reported adjusted earnings of $0.14 per diluted share, which was in line with analysts’ estimates. However, on a generally-accepted-accounting-principles (GAAP) basis, the company lost $0.10 per share. And concerning the full fiscal year, total revenue reached $5.37 billion. That’s an increase of 32% over fiscal year 2014, and a 33% increase in constant currency terms. On an adjusted basis, diluted EPS was reported to be $0.52, while the GAAP loss per share was a -$0.42. Total deferred revenue on the balance sheet, as of January 31, was $3.32 billion, an increase of 32% over the previous year. Strong Guidance Leads to Upgraded Price Targets For the first quarter of fiscal 2016, salesforce.com expects revenue to be in the range of $1.48 billion to $1.50 billion, reflecting an increase of 21% to 23% over Q1 2015. The company also expects non-GAAP earnings to be in the range of $0.13 to $0.14 per diluted share. But in a nod to investors, the company raised its guidance for the full year. Salesforce now expects revenue in the range of $6.47 billion to $6.52 billion, representing a year-over-year increase of 20% to 21%. Those figures take into account a foreign exchange headwind of $175 million to $200 million. The company also projects higher non-GAAP earnings of between $0.67 and $0.69 per diluted share, which prompted no fewer than 10 investment banks to raise their price targets on February 26. The highest price target comes from Cowen and Co. It raised its target from $73 to $83, a 13.6% increase. The remaining banks raised their target to a median price of $79. Bottom line: The company’s robust top-line performance and higher number of platform deals indicate solid growth opportunities in the fast-growing cloud segment. But with valuations in nosebleed territory – the company trades at roughly 100x its earnings estimates – salesforce.com just never gets anywhere close to becoming a compelling “Buy” for conservative investors. Good investing, Richard Robinson The post “Roach Motel” Tech Company Trumps Ridicule appeared first on Wall Street Daily . By Richard Robinson
    Weight Watchers Repeats Henry Ford’s Blunder
  • By , 3/5/15
  • tags: F WTW
  • Submitted by Wall St. Daily as part of our contributors program Weight Watchers Repeats Henry Ford’s Blunder By Richard Robinson, Ph.D., Equities Analyst   Henry Ford’s vision of the mass-marketed automobile was instrumental in his early success. In 1921, the Ford Motor Company ( F ) sold about two-thirds of all American-made cars. Yet the company’s failure to continuously innovate sparked a catastrophic market-share loss. Within five years, Ford’s market share had fallen to about one-third of all U.S. car sales . By the end of 1927, it was down to about 15%. It wasn’t that Ford failed to listen to his customers. He just refused to continuously test his own vision of reality against market forces. And to its detriment, a renowned weight-loss company is making the same mistake . . . The Beginning of the End? Weight Watchers International ( WTW ) is learning quite a painful lesson right now. On February 27, WCW shares sank by more than 35.4% to $11.33. The selloff followed news that the New York-based weight loss-company issued current-year earnings guidance significantly below previous estimates. Weight Watchers now expects earnings in a range of $0.40 to $0.70 per share for 2015, which means that the high end of its range is still more than 50% below Wall Street estimates of $1.43 per share. As the chart below illustrates, WTW shares fell off a cliff, and found a new intraday low of $10.90 before regaining some of its losses. As of Friday’s close, the stock was down 54.4% year to date. Dismal Efforts Breed Gloomy Results . . . Just like Henry Ford, Weight Watchers took its eye off the prize. It hasn’t discovered new innovations to keep it relevant and successful. As consumers embrace free apps and other fitness tracking devices, Weight Watchers is becoming increasingly irrelevant. Its Q4 results prove it… Weight Watchers reported fourth-quarter revenue of $327.8 million, a 10.4% decline from the same quarter a year ago. The company’s quarterly filing indicated a drop of 82.4% in its operating income on a constant-currency basis, falling from $79.1 million in Q4 2013 to $14.2 million in its most recent quarter. The operating income decline was driven primarily by lower revenue and higher marketing expenses in North America, per management. Weight Watchers’ Q4 2014 net income was -$16.1 million, a 152% decrease versus the net income of $30.8 million in the prior-year period. Fortunately, the company’s profit matched analysts’ estimates of $0.07 per share, but the results were a far cry from the $0.56 earnings per share earned in Q4 2013. Hidden Gem or Value Trap? Now, investors may look at the Friday’s decline, in combination with the company’s P/E of 6.59 and EV/EBITDA of 8.61, and conclude the company makes a compelling value play at current prices. But that would be a mistake. Weight Watchers just hasn’t seemed to keep up with the mobile phenomena in the weight-loss and fitness world. And despite the company’s attempts to rebrand itself, its efforts have failed miserably thus far. Plus, with more than $2.3 billion in debt on the books, further rebranding will be infinitely harder. Henry Ford was ultimately able to solve Ford’s questions concerning his company’s long-term viability. But unfortunately, the management at Weight Watchers hasn’t done so. Good investing, Richard Robinson The post Weight Watchers Repeats Henry Ford’s Blunder appeared first on Wall Street Daily . By Richard Robinson
    EOG Logo
    EOG Resources Could Be Significantly Undervalued If The OPEC Changes Its Stance
  • By , 3/4/15
  • tags: EOG-BY-COMPANY EOG COP APC
  • Crude oil prices have been extremely volatile of late. After falling sharply by more than 60% in a short period of slightly over six months, oil prices have risen by over 33% from their lows over the past few weeks. In hindsight, the sharp decline in oil prices makes sense because of slowing demand growth and surging tight oil production in the U.S., but the billion dollar question is, what will they do next, and how would that impact the valuation of oil companies. We currently expect oil prices (Brent) to average around $70 per barrel for this year, below the global marginal cost of production due to the current oversupply scenario, and increase gradually towards the $85 per barrel mark over the next two years, as the supply becomes tighter due to the recent cutbacks in capital spending by almost all major oil companies and the growth in demand picks up to more normalized levels. But there could be a much sharper, V-shaped recovery in global oil prices led by higher demand growth in response to lower prices and a decline in tight oil production in the U.S. Or the recent decline in oil prices could also sustain for a much longer period because of a continued slowdown in economic activity in China — the world’s second largest oil consuming nation and the key driver of demand growth over the past few years — and a rapid penetration of alternative fuels due to advancements in biofuels or fuel cell technologies. In this article, we assess the potential impact of a V-shaped recovery in oil prices on our estimate of EOG Resources’ (NYSE:EOG) valuation. We currently have a  $80/share price estimate for EOG Resources, which is around 10% below its current market price. See Our Complete Analysis For EOG Resources V-Shaped Recovery In Oil Prices There could be a V-shaped recovery in global oil prices if the growth in demand for oil products picks up significantly on the back of lower oil prices and simultaneously, tight oil production in the U.S. declines because of a sharp, sustained slowdown in drilling activity. However, we believe that oil prices cannot sustain above the $100 per barrel mark for long under normal geopolitical conditions unless the Organization of Petroleum Exporting Countries (OPEC) decides to sacrifice on some of its market share for better prices. This is because oil production in the U.S. can quickly start growing again at an annual rate of around 1 million barrels per day if oil prices sustain above the $100 mark and that would once again create an oversupply scenario, which will weigh on benchmark oil prices. But if for some reason there is a change in OPEC’s stance and it takes some of its oil off of the market, that would provide an artificial lift to oil prices and EOG Resources, one of the leaders in the shale oil industry, would gain significantly from that. Apart from better price realizations, this would also improve its E&P EBITDA margins and boost production growth. Currently, the company has voluntarily slowed down its tight oil development program in the U.S. by deferring well completions to maximize asset returns. EOG Resources believes that it can sacrifice on production growth now, to generate higher returns in a more favorable commodity price environment, and a sustained V-shaped recovery in oil prices would provide just that. (See: EOG Resources Revised To $80 Per Share On Lower Oil Prices, Slower Production Growth ) We believe that in case the company’s annual average wellhead price realizations for crude oil increases to $100 per barrel by 2017, its E&P EBITDA margins could recover to around 75% and crude oil production could increase to 386 thousand barrels per day, implying a CAGR of just over 10% from 2014 levels, compared to the 40% CAGR it has achieved between 2010 and 2014. As you can see the impact of modifying these key drivers in our analysis, in this scenario, the company could be fairly valued at a price of around $110 per share, implying an upside of more than 20% from current levels. You can check out our detailed analysis of this scenario here . View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    UL Logo
    Unilever: Key Trends to Watch in 2015
  • By , 3/4/15
  • tags: UL PG CL EL KMB
  • Unilever (NYSE: UL) is one of the world’s largest consumer packaged goods companies and operates in Personal Care, Home Care, Foods, and Refreshments segments. Its market capitalization of about $125 billion is next only to that of  Procter & Gamble (NYSE: PG) in the CPG (Consumer Personal Goods) industry. Unilever’s shares have gained 8% year to date, primarily on account of a 7% uptick after the company announced mixed results for fiscal 2014 (Read: Unilever’s Revenues Decline in 2014 on Emerging Markets Slowdown, Profits Jump on Cost Savings ). In 2014, Unilever’s revenues took a hit from severe currency headwinds and a slowdown in emerging markets, resulting in a decline of 2.7% in revenues. Year on year, the revenue comparison was also negatively impacted by disposal of a number of businesses in the foods segment during 2014. On the other hand, acquisitions in the personal care segment were not large enough to have a meaningful impact on overall performance. Unilever’s bottom lines fared slightly better as operating profit expanded 6% year on year on account of cost savings, despite a decline of 20 basis points in gross margin. In view of the above, it can be surmised that the key trends that are likely to have the most impact Unilever’s performance in fiscal 2015, are: Acquisition-fueled growth in Personal Care segment Divestments in Foods business Cost savings In this report, we take a look at the each of the above trends and how they may impact Unilever’s performance. We have a price estimate of $40 for Unilever, which is about 10% lower than its current market price. See our complete analysis of Unilever here Acquisition-fueled Growth in Personal Care Segment We believe that the most important factor to watch out for in 2015 will be Unilever’s inorganic expansion strategy in the Personal Care segment. Unilever’s CEO Paul Polman has repeatedly stressed the company’s strategy of initiating acquisition-fueled expansion in the personal care business, specifically in the premium segments. However, so far the company has been slow on the draw and has made only a few minor acquisitions. Recent acquisitions include the purchase of Camay and Zest soap brands from Procter & Gamble (Read: P&G Unloads Camay and Zest Brands to Unilever ), and the British skincare brand, REN Skincare. The combined incremental revenues from the aforementioned acquisitions will be less than $300 million. In comparison, Unilever’s revenues from the Personal Care segment amounted to nearly $29 billion in 2014, putting the incremental revenue from the above acquisitions at just over 1%. Therefore, these acquisitions are relatively inconsequential additions to Unilever’s Personal Care portfolio. The lack of a groundbreaking move in Unilever’s attempts to consolidate its position in the global personal care industry has made investors restless. This is despite Mr. Polman’s specific announcement in the fourth quarter earnings call that more acquisitions in the personal care brand is one of the company’s top agendas in 2015. In light of the above, it is highly likely that Unilever will accelerate its acquisitions drive in the premium personal care segment in 2015, making it the top factor to watch out for this year. We conservatively estimate that Unilever’s share of the global skin and hair care market will expand from 10.5% in 2014 to 10.7% in 2015. Divestments in Foods Business The flip side of Unilever’s expansion in the personal care business is its growing disinterest in the Foods business. The company has been divesting components of its Foods business since as far back as 2008, and it upped the tempo in 2014. Last year, Unilever announced the sale of seven slow-growth food brands, including the Ragu, Bertolli, and Royals pasta sauce brands, and the Jack Link’s meat sauce business. It also announced that it will split its spreads business into a standalone company. (Read: Personal Care Companies Shed Weight In 2014 ) Unilever has said that it will continue “modest pruning” of its non-core brands in 2015, indicating that some more of its foods brands may be up for sale this year. Consequently, we believe that Unilever’s market share in the global Grocery market will decline from 41.2% in 2014 to 37.2% in 2015. However, the move is also paying off dividends as profitability of the Foods business improved substantially in 2014. Thanks to sale of under-performing and low margin businesses, the EBITDA margin of Unilever’s Foods segment expanded to 32.7% in 2014, compared to 25.8% in 2013. Continued disposal of more low-margin brands is expected to further improve margins of the Foods segment in 2015. We estimate that the Foods division’s EBITDA margin will expand to 37.7% in 2015, from 32.7% in 2014. Since the Foods business still accounts for over a quarter of Unilever’s total revenues, improvement in its margins will have a considerably expand the overall bottom lines as well. Cost Savings In 2014, Unilever improved its core (non-GAAP) operating margin by 40 basis points despite a decline in revenue as well as gross margin. It was able to achieve this feat by a combination of across the board price hikes and wide-ranging cost savings. The deceleration in revenues was primarily because of unfavorable currency movements, while the decline in gross margin occurred due to commodity cost inflation from higher import costs. Unilever countered these adverse macroeconomic factors by cutting overhead costs and achieving efficiencies in advertising costs. The company has stated that it expects unfavorable currency movements to persist in 2015, although commodity costs may provide a low single digit tailwind. Since price hikes can offset foreign exchange headwinds on revenues only to a limited extent, Unilever needs continue cutting costs to prevent margin erosion. Therefore, the quantum of cost savings that Unilever actually generates in cost savings and the resultant impact on bottom lines will be a closely watched factor in 2015. We forecast Unilever’s overall adjusted EBITDA margin to expand by 1 percentage point to reach 20.9% in 2015, compared to 19.9% in 2014. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    ADBE Logo
    Why Adobe Is Worth $70 Per Share
  • By , 3/4/15
  • tags: ADBE IBM MSFT ACN
  • Adobe (NASDAQ:ADBE) has successfully transformed its business from perpetual licensing to a cloud-based subscription model. Investors have given a thumbs up to this transition as indicated in the stock’s performance over the past few years. While the rise in stock price has been meteoric over the past two years, when it rallied from $38 in 2013 to over $70, its performance has faltered over the past few months. However, the stock has rallied from $70 in January to its current market price of over $77. This translates into a return of over 10% in the last month alone. While we have recently revised our price target from $62 to $70, we believe that the current market valuation of Adobe is stretched, even though the company has significantly improved its Creative Cloud (CC) offering by extending functionality to mobile developers and strengthened its digital marketing portfolio through timely launches. In this note, we will discuss the factors that justify our price estimate of Adobe. Check out our complete analysis of Adobe Growth of Addressable Market for Creative Cloud Supports Our Valuation The Creative Cloud (CC) division together with the Adobe’s packaged division makes up 62% of Adobe’s estimated value. The key drivers for this division are the average revenue per subscriber and total creative software market. While Creative products (Creative Suite and Creative Cloud) contributed nearly 45% to Adobe’s revenue in 2014, the total number of licensees for Adobe’s creative products stood at 14.7 million, according to our estimates. In 2014, Adobe added 3.45 million subscribers to its CC services, which translates into a growth rate of 140% over 2013’s 1.43 million. We estimate that the subscriber base will continue to grow at a robust 75% in 2015 and add over 2.55 million subscribers during the year. We also believe that the company is on track to add 16.39 million paying subscribers by the end of 2021. This figure represents 64% of the 25.8 million point and suite licensees, which we estimate will grow at a CAGR of 8.6%. However, to justify Adobe’s current market price, the number of subscribers will have to grow to over 18 million, which in turn will require a higher growth rate in the total addressable market (TAM). Average revenue per subscriber (ARPS) for the company consists of a blend of subscribers that have enrolled to different levels of cloud services. While access to the complete Creative Cloud suite costs $74.99 per month, access to standalone Photoshop is priced at $9.99 per month. We estimate that the blended ARPS for the company was $31.74 in 2014. The recent trend in subscriptions indicates that users are subscribing to the annual full version of Creative Cloud. The company has also reported good growth in its enterprise term licensing agreement (ETLA), which have tenure of three years. This leads us to believe that the ARPS will increase in the coming years as it converges to the sticker price of $74.99. However, since the company is adding products at lower price points, it will lower the blended ARPS for the company. We estimate that the ARPS will grow to $39 by the end of our forecast period. However, the market expects ARPS to grow at a much faster pace, which might be difficult to achieve if more products with lower price points are introduced within the cloud portfolio. Market Share in Online Marketing Cloud Adobe’s cloud marketing division is the second biggest division and makes up 17.3% of its value. Over the past few years, Adobe has built a comprehensive digital marketing platform that addresses most of the needs in digital marketing. This build up started in 2009 with the acquisition of Ominiture. Since then, the company has scaled up the functionality and product offering of its marketing platform through organic and inorganic growth. Currently, Adobe offers six products under its marketing cloud solution. The Adobe marketing cloud includes a complete set of analytics, social media optimization, consumer targeting, web experience management and cross-channel campaign management solutions. It generated around $1.2 billion in annual revenues in 2014. Having been built from the acquisition, the business has had a compounded annual growth rate (CAGR) of 83% over last five years. Well positioned in a growing market, this division is expected to witness robust growth in the coming years. Adobe is aiming to increase its revenues from cloud-based marketing solutions by expanding in new geographies and verticals.  Recently, the company has launched new data-driven marketing capability that delivers personalized mobile experience, thus supplementing its marketing cloud capabilities. According to the CEO of Adobe, Shantanu Narayen, the marketing cloud is easily a $10 billion opportunity. Currently, we project revenues from its digital marketing division to reach $3.3 billion by the end of our forecast period. However, to justify the current market price of Adobe, the company will have to rake in over $4.5 billion in revenue for marketing division. We believe that this would be a difficult feat considering the intense competition in this space from companies such as IBM, Accenture, Salesforce and Oracle. Acrobat Family Revenue To Grow Acrobat family is the third largest division and makes up ~11% of Adobe’s estimated value. In the past few quarters, revenues from this division have been on a decline, primarily due to launch of document cloud services that have subscription fee spread over the period of usage. The company has amassed over 2.17 million subscribers for document cloud service. We expect this trend to continue and forecast the subscriber base to grow to 8.83 million by the end of our forecast period. Furthermore, as this service gains momentum, we expect the ARPS to increase from $8 in 2014 to $12.7 by the end of our forecast period. Despite this growth rate, we expect revenue to grow from $768 million to $1.35 billion by 2021. Transition to Cloud Services to Negatively Impact Smaller Divisions Smaller divisions of Adobe, which include Adobe packaged software, LiveCyle software and Print & Publishing, makeup 6% of its estimated value. The adoption of Creative Cloud will negatively impact Adobe’s packaged software, while up-selling to Adobe marketing cloud will pressure LiveCyle & Connect pro revenues. We expect revenues from these divisions to decline in the future. We estimate average selling price of packaged software and LiveCycle software will decline in the future to $165 and $85,160 respectively. We also expect the number of licenses sold for both the divisions to decline. Even if these metrics were to improve for both the division, it will have little impact on our stock price valuation, since the contribution from these divisions is small. Changes To Discount Rate And Terminal Growth Rate We have increased the terminal growth rate for Adobe from 1.5% to 2.5% based on the improvement in the U.S. GDP and expected hike in interest rate in the coming quarters. Furthermore, we have lowered the discount rate from 11% to 9%. While the equity risk premium for the U.S. market has increased from 5.45% in 2013 to 5.75% in the beginning of 2015, the Fed continues to keep interest rate (and the risk free rate) at record low. We have taken these factors into consideration to calculate the new discount rate. However, we believe that the market participants are factoring in an even lower discount rate to jutify Adobe’s current market price. We currently have a  $70.43 price estimate for Adobe, which is 10% below 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
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    Best Buy Ends FY 2015 On A High Note. Large Screen Televisions And Mobile Phones Drive Q4 Growth.
  • By , 3/4/15
  • tags: BBY RSH AMZN EBAY WMT
  •   Other Sources: Best Buy Q4 2015 Results – Earnings Call Transcript, Seeking Alpha Best Buy Investor Relations
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    Why American Eagle Outfitters Seems A Little Overpriced
  • By , 3/4/15
  • tags: AEO ARO ANF GES
  • American Eagle Outfitters (NYSE:AEO) is one of the many casual apparel retailers in the U.S., who have struggled to drive store traffic over the last couple of years. The company’s comparable store sales declined 6% in 2013 as it made a few off-pitch fashion calls that drove customers to other relatively fashion-forward brands. This even highlighted the retailer’s weakness in the fashion segment, which continues to trouble it to date. For the first three quarters of 2014, the company’s comparable store sales declined 10%, 7% and 5%, respectively. A major part of American Eagle’s product portfolio comprises of basic logo products that no longer entice fashion conscious teenagers and young adults. Due to this, the retailer has seen a number of its customers switch to fast-fashion brands such as Zara, Forever 21 and H&M, which are currently among the best performers in the U.S. apparel market. The market itself is highly saturated and its growth has slowed down considerably over the past few years, indicating that consumers are no longer focusing as much on apparel. In fact, they have diverted their limited apparel spending to online channel, where American Eagle’s presence remains terribly weak. Keeping these factors in mind, we believe that American Eagle Outfitters is a little overpriced and  our price estimate for the company at $13.45, is over 10% below the current market price.
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    Expedia Plans To Acquire Orbitz: How Will The Various Stakeholders Be Impacted?
  • By , 3/4/15
  • tags: EXPE PCLN TRIP TZOO CTRP
  • On February 12, Expedia (NASDAQ: EXPE) announced its intention to acquire Orbitz Worldwide, the Chicago-based online travel agency (OTA) responsible for brands like Orbitz.com and Cheaptickets.com.  Expedia is to pay $12 per share in cash, generating an enterprise value fo rthe transaction of $1.6 billion. The companies, having received the go-ahead from their respective boards of directors, are still awaiting regulatory approvals. Given Expedia’s recent spate of acquisitions, the antitrust authorities may express concern over the deal. Expedia expects the deal to close by the second half of 2015, once the approvals are achieved. On January 23, Expedia acquired Travelocity for $280 million, from its parent company Sabre Corp. (Read more about the deal here ). In this article, we will discuss how the Orbitz acquisition will impact various stakeholders related to Expedia. Our  $90 price estimate for Expedia is marginally below with the current market price. See our complete coverage of Expedia Orbitz: A Brief Background Orbitz Worldwide, was founded in 2000 as a shared booking platform by a number of airlines, including Continental Airlines, Delta Air Lines, Northwest Airlines, United Airlines, and American Airlines. Since its launch, the company has undergone several ownership changes, which acted as a hindrance to its whole scale development. The company also suffered due to a lack of direction, even as the OTA industry grew around it. Additionally, internal conflicts and poor strategic decisions further stunted the growth process for the company. Though its main brand Orbitz.com, is the third largest player in the domestic U.S. market,  it is nowhere close to its rivals on a comparative basis. To add some color, for Q3 2014,  Priceline (NASDAQ: PCLN) experienced a 27% room night growth and Expedia experienced a 24% growth. Orbitz experienced a 19% growth rate and, notably, from a much smaller base. Orbitz derives 74% of its revenues from the U.S. Markets. Implications For Expedia The deal might benefit Expedia in the following ways: Orbitz currently has $12 million in gross bookings. Also, the Orbitz partner network and Orbucks loyalty programme would be beneficial for Expedia’s growth. This would propel an increased number of hotel partners on the Expedia platform and eventually a bigger scale for its operation. Orbitz strong technology team will aid in Expedia’s best practice sharing. Orbitz’s airfare search technology is one of the most advanced for combining fares across different airlines. Orbitz is more adept than Expedia at displaying results in line with consumer preferences as against those with the best payout to the booking engine. The travel market is valued at $1.3 trillion currently, and Expedia commands almost 5% of the market. If we look into the past couple of years, the forerunners in the online travel space have been growing through acquisition. The rule in the OTA space seems to be: the bigger the scale and the more diversified the offerings, the higher  the chances are of generating profitability. Expedia’s management believes that the consolidation in the online travel space will continue this year as well. (Read about Expedia’s major deals in 2014  here ). Expedia might own up to 75% of the U.S. online travel market as a result of this acquisition, according to the 2013 market shares provided by PhoCusWright. However, online travel agencies (OTAs) together account for 16% of total gross travel bookings from the U.S. Implications For The Hoteliers The partnering hotels might witness a rise of commissions which they pay to Expedia, with fewer OTAs available in the market place.   Wotif, after being acquired by Expedia in 2014, is already increasing the commissions it charges to accommodation operators from 12% to 15%. The hotels would also need to put in greater effort to attract customers to directly book from their own websites. The clout of a consolidated OTA entity will be significantly greater. Implications For The Customers Even though the acquisition might lead to Expedia gaining a significant percentage of the American online travel market,  users need not be worried. Euromonitor estimates that Expedia has 6.3% share in the global travel market, while Priceline enjoys a 4.9% market share. Expedia’s CFO Mark Okerstrom suggested that Expedia’s share would remain in single digits even post the acquisition. The travel market is flooded with smaller players, and the travel related bookings have high price elasticity of demand. This implies that if Expedia tries increasing booking prices then consumers are likely to switch to other brands. Under these circumstances, it would be difficult for Expedia to establish a conventional monopoly. Besides, Expedia has strong competitors. TripAdvisor is gearing up with its instant booking platform. Priceline is equipped with its globally largest hotel booking platform, Booking.com, to pose substantial threat to Expedia. Also, newer entrants such as Skyscanner are posting strong growth in the U.S. online travel market. In its Q4 earnings call, Priceline’s management did point out that Priceline and Expedia jointly occupy a mere 10% of the $1.3 million global travel market. This again implies Expedia’s consolidation strategy wouldn’t give it a pricing advantage given the significant scope for growth for new entrants in the market. Finally, if we consider Porter’s rules of competitive advantage, the online travel agents don’t have much of a scope of product differentiation and cost reduction is only possible to a certain extent. So, the only means of differentiation is through improved customer experience. Consequently, customers don’t lose out on any advantage by a consolidation strategy, at present. However, with this rapid momentum of consolidation, there will be fewer unique OTAs for users to choose from in the future. Additionally, the rebates on bookings might significantly decline with fewer OTA competitors remaining, to drive up rebates in cash and miles. 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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    SanDisk Continues To Revamp Removable Storage Product Line, Reveals 200 GB microSD Card
  • By , 3/4/15
  • tags: SNDK AAPL GOOG SSNLF MSI
  • Over the last few years, SanDisk (NASDAQ:SNDK) has witnessed a declining revenue mix of its core offerings such as removable storage cards for smartphones, tablets, cameras and other digital media devices. The contribution of removable storage to SanDisk’s net revenues has gone down from 58% in 2011 (or $3.5 billion out of $5.7 billion) to 38% in 2014 (or $2.5 billion out of $6.6 billion). The company has made attempts to boost removable storage revenues in the long run, with a revamped product line and newer products to attract customers. SanDisk launched the iXpand flash drives for Apple devices and USB flash drives for Android-based devices in the last few months and more recently introduced flash memory cards designed for use in the automobile industry . To add to this, the company announced a capacity increase in its microSD cards from the existing 128 gigabytes (GB) to 200 GB. The card is scheduled for release in the second quarter this year.
    UL Logo
    Unilever Continues Expansion of Its Personal Care Portfolio With Acquisition of REN Skincare
  • By , 3/4/15
  • tags: UL PG CL EL
  • Unilever (NYSE: UL) announced on Monday that it has agreed to purchase the British brand, REN Skincare, for an undisclosed sum. The move furthers Unilever’s bid to strengthen its presence in the premium personal care segment, even as it moves away from the stagnating foods business. The transaction is expected to close in May 2015, subject to regulatory approvals. REN Skincare, a niche brand that specializes in natural ingredients, has pioneered a new type of high performance skincare. It had sales of $62.6 million in 2013, 70% of which were derived from 50 countries. This underscores REN’s global reach despite a relatively small scale of operations. We have a price estimate of $40 for Unilever, which is about 10% lower than its current market price. See our complete analysis of Unilever here Acquisition Unlikely to Shift The Needle Meaningfully Unilever is gradually moving away from its underperforming foods business and is planning to expand its personal care business through acquisitions. The company’s shifting priority is evident from the fact that the revenue share of its Foods unit has fallen from 35% in 2008 to 26% in 2014, while share of its Personal Care unit has grown from 28% to 37% over the same period. (Read: Personal Care Companies Shed Weight In 2014 ) As part of this strategy, Unilever recently acquired Camay and Zest soap brands from Procter & Gamble (NYSE: PG). (Read: P&G Unloads Camay and Zest Brands to Unilever ) However, REN’s revenue of $62.6 million pales in comparison to Unilever’s revenues from its personal care business, which amounted to $20.9 billion in 2014. The personal care segment is Unilever’s largest business, yet the company is struggling to revive its growth amidst a slowdown in most major emerging markets. It is going to take a far bigger acquisition for Unilever to revive its flailing personal care segment through inorganic expansion. Therefore, Unilever’s acquisition of REN Skincare is a positive but small step towards consolidation of the former’s position in the global personal care market. Investors Frustrated With Pace of Change at Unilever Unilever’s latest announcement follows reports of a survey that brought to light investors’ frustration with the pace of execution of Unilever’s strategy. Unilever’s CEO Paul Polman has repeatedly stressed his intention to move the company away from the foods business and towards the premium personal care business. However, a recent survey of 100 investors by Bernstein Research showed that many investors are frustrated with the perceived lack of momentum in executing Mr. Polman’s vision. In light of the above, it is unlikely that this minor bolt-on acquisition will be enough to appease investors’ calls for a faster shift of focus to the personal care segment. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Two Scenarios That Could Boost Newmont's Stock Price
  • By , 3/4/15
  • tags: NEM ABX FCX SLW
  • Newmont Mining (NYSE:NEM) is one of the largest gold mining companies in the world. However, like most gold producers, the company has been adapting to an environment of low gold prices. Gold prices averaged roughly $1,266 per ounce in 2014, as compared to $1,411 per ounce in 2013. The decline in prices has primarily been due to the fall in investment demand for gold due to strengthening economic conditions, particularly in the US. Gold as an investment is often viewed as a hedge against inflation and economic weakness, and investors typically shift towards other asset classes such as equities and interest-bearing securities with an improvement in macroeconomic conditions. With improving macroeconomic conditions, the Federal Reserve is expected to raise interest rates some time this year. Expectations of an interest rate hike in 2015 have played a role in the reduction in gold prices, and we have factored in similar expectations in our model. However, this is contingent upon the pace of economic and jobs growth in the US. If macroeconomic and jobs data improves at less robust rates than expected, the Fed may delay an interest rate hike or moderate the pace of its interest rate hike cycle. This would present an upside to gold prices, which would positively impact the prospects of gold mining companies such as Newmont. Though short-term demand for gold will be influenced by expectations of an interest rate hike, long-term strength in gold demand will continue to be governed by the jewelry demand for gold, which constitutes roughly 55% of the global demand for the metal. The jewelry demand for gold is positively correlated with economic growth, particularly growth in emerging economies, which account for the bulk of the jewelry demand for gold. If economic growth picks up faster than expected, there may be a significant increase in both gold prices and the demand for the metal, which would positively impact the prospects of gold mining companies such as Newmont. In this article, we will take a look at how these possible scenarios would impact Newmont’s stock price. Delayed or Moderated Interest Rate Hike The Federal Reserve has been keeping a close eye on U.S. macroeconomic and jobs data. The Federal Reserve is expected to start its interest rate tightening cycle only if these metrics display consistent robustness. Whereas the unemployment rate fell to 5.7% in January, as compared to around 6.7% a year ago, the Fed is also looking at the pace of increase in wages. Wages have risen around 2.2% on average over the last 12 months. However, with a decline in energy prices over the past year, US inflation rates are comfortably below the Fed’s 2% target. If inflation rates remain muted or if other macroeconomic indicators falter, the Fed may push back its expected hike in interest rates. Alternatively, the Fed may choose to moderate the pace of increase in interest rates. This scenario would present an upside to gold prices. In order to model this scenario, we have factored in a 3% increase in gold prices and an increase in margins in our stock price estimate for Newmont. This increases our price estimate by around 3% from $24.82 to $25.49 and our EPS estimate for 2015 by 14%, from $1.14 to $1.30. See our analysis for the Delayed or Moderated Interest Rate Hike scenario here Increased Jewelry Demand for Gold The demand for gold can broadly be classified into demand for gold as an investment, demand for gold in industry, central bank purchases, and the demand for gold jewelry. The jewelry demand for gold is the largest component of the overall demand for gold, accounting for around 55% of the overall demand for gold. The demand for gold jewelry is strongly connected to cultural traditions in many countries, particularly in China and India. In addition, the demand for gold jewelry is aspirational, and tends to rise with increasing income levels. China and India are the two largest consumers of gold jewelry, accounting for nearly 56% of the jewelry demand for gold. The trends in gold consumption by these two countries will largely determine the trends in demand for gold jewelry. China is the world’s largest consumer of both gold and gold jewelry. Private sector demand for gold in China stood at 1,132 tons of gold in 2013, out of which the demand for gold jewelry stood at 669 tons or around 59%. This accounted for around 30% of the global jewelry demand for gold. China is characterized by robust trends in urbanization, and industrialization. These have led to rising income levels in China. As per estimates by Ernst and Young, China’s middle class population will grow to around 500 million by 2020, as compared to 150 million in 2010. These robust trends in growth in income levels are expected to result in an approximately 20% growth in Chinese private sector gold demand to 1,350 tons by 2017, as compared to demand in 2013. Jewelry demand for gold from China is expected to rise by around 17% to 780 tons in 2017. India is expected to witness trends in urbanization and growth in income levels comparable to China over the same period. As per estimates by Ernst and Young, India’s middle class population is expected to grow from 50 million in 2010 to around 200 million in 2020.  This would boost gold jewelry consumption at similar rates to those anticipated for China. However, these estimates of growth in gold consumption are contingent upon the pace of economic growth in these countries, particularly China. There are question marks about the pace of Chinese economic growth, with a slowdown in economic activity, particularly in manufacturing, dragging down the expected GDP growth rate to 6.8% and 6.3% in 2015 and 2016 respectively, from 7.4% in 2014. However, if Chinese growth recovers faster than expected, it would provide a fillip to global gold demand. In addition, Indian GDP growth is expected to pick up in 2015 and 2016, partially due to the efforts of the reforms-oriented new government. In the scenario of a faster than expected global economic recovery, driven by China and India, global demand for gold would rise at rates mentioned previously, which are higher than those currently factored into our model. In order to model this scenario, we have  factored in a 2% upside to gold prices, around 4% higher shipment volumes and a corresponding increase in margins. This would increase our price estimate by around 6% from $24.82 to $26.22 and our EPS estimate for 2015 by almost 30%, from $1.14 to $1.47. See our analysis for the Increased Jewelry Demand scenario here Thus, these two scenarios may result in changed business conditions for Newmont which would have varied impacts upon Newmont’s stock price and EPS. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    CAT Logo
    Caterpillar Revised To $85 On Oil Prices, Continued Mining Weakness
  • By , 3/4/15
  • tags: CAT DE
  • Caterpillar ’s (NYSE:CAT) revenue been suffering from a decline in its Resource Industries segment due to weak demand for machinery and equipment in the global mining sector since the end of 2012. To add to its woes, crude oil prices have declined to a level where Caterpillar’s (CAT’s) Energy and Transportation segment will feel the pinch. This is a cause for concern for the company, since Energy and Transportation was the segment that it was relying on for growth in the short term, as the company’s Construction Industries segment also took a dive in the third quarter of 2014. The strong U.S. dollar is also likely to have an impact on the company’s revenues. Given these headwinds, we have revised our price estimate for Caterpillar to $85.
    CME Logo
    CME Delivers Record Volumes For February, Driven By Interest Rate Derivatives
  • By , 3/4/15
  • tags: CME ICE NDAQ
  • Global exchange operator CME Group (NASDAQ:CME) recently reported its monthly trading metrics for the month of February. After a solid end to 2014 with high trade volumes in Q4, CME has sustained growth in its trading metrics in 2015 thus far. CME’s trade volumes in Q4 stood at 14.8 million contracts traded per day, with October volumes (17.6 million contracts per day) contributing significantly to the high quarterly average. As a result, CME witnessed a 24% annual growth in clearing and transaction fee revenues to $713 million in the December quarter. The growth spree has continued in Q1’15 thus far, with combined volumes in January and February averaging 15.7 million contracts per day, respectively, which is about 17% higher than the comparable prior year period. Interest rate derivatives and energy derivatives drove much of the growth in these two months. Below we take a look at CME’s February performance across key asset classes.
    CLF Logo
    What Would Be The Impact Of A Restart Of Mining Operations At Bloom Lake On Cliffs' Stock Price ?
  • By , 3/4/15
  • tags: CLF RIO VALE MT
  • Cliffs Natural Resources (NYSE:CLF) has been grappling with an environment of weak iron ore prices for some time now. Iron ore prices have declined sharply over the course of the last year, with weak demand and oversupply resulting in prices declining around 47% year-over-year to $68 per dry metric ton (dmt) at the end of January. In response to the weakening pricing environment, the company idled its high-cost Bloom Lake iron ore mine in Canada at the end of December. Though it made sense for the company to idle the Bloom Lake mine, it was an unpopular decision in Quebec, resulting in the loss of around 500 jobs. The Government of Quebec was engaged in talks with the company over restarting operations at Bloom Lake in January. However, the company stuck to its guns, with operations at Bloom Lake still in the idled state. In addition, the Bloom Lake Group, the legal entity which operates the Bloom Lake mine, recently filed for bankruptcy protection. In this article, we will take a look at why it makes sense for Cliffs to keep operations at Bloom Lake firmly shut. We will look at the impact of a possible restart of the Bloom Lake mine on the stock price and EPS for Cliffs Natural Resources. See our complete analysis for Cliffs Natural Resources   Iron Ore Prices Iron ore is an important raw material for the steel industry. Thus, demand for these raw materials by the steel industry plays a major role in determining their prices. Though a majority of Cliffs’ iron ore sales are to the North American steel industry, sales agreements are benchmarked to international iron ore prices. International iron ore prices are largely determined by Chinese demand, since China is the largest consumer of iron ore in the world. It accounts for more than 60% of the seaborne iron ore trade. Chinese steel demand growth is expected to slow to 2.7% in 2015, from 6.1% and 3% in 2013 and 2014, respectively. Weak demand for steel has indirectly resulted in weak demand for iron ore. On the supply side, an expansion in production by major iron ore mining companies such as Vale, Rio Tinto, and BHP Billiton has created an oversupply situation. A combination of weak demand and oversupply is likely to result in weak iron ore prices in the near term. The worldwide surplus of seaborne iron ore supply is expected to rise to 300 million tons in 2017, from an expected surplus of 175 million tons in 2015, and a surplus of 72 million tons and 14 million tons in 2014 and 2013, respectively. In view of the persisting oversupply situation, iron ore prices will remain subdued in the near term. The Bloom Lake Mine Cliffs reports a sales margin figure for each of its iron ore mining segments, which is an indicator of the segment’s operating performance. The sales margin for the Bloom Lake mine stood at a loss of $30.13 per ton of iron ore produced in 2014.  This compares unfavorably with the company’s U.S. Iron Ore business segment, which reported a sales margin of $32.53 per ton in 2014. Cliffs’ management had stated that the then ongoing Phase I mining operations at Bloom Lake were not economically viable. With the company unable to attract equity investors for further development of Bloom Lake, it decided to idle the mine. Given the prevailing iron ore pricing environment, it was a wise decision as we will show in the following section. Impact on Cliffs had Bloom Lake been Operational The Bloom Lake mine is a part of the North American Iron Ore division in our model. Had the loss-making Bloom Lake mine been operational, it would have augmented shipments from the North American Iron Ore division, with Bloom Lake producing around 6 million tons of iron ore concentrate in 2014. However, it would have weighed on realized prices and margins for the division. Iron ore concentrate sold by Bloom Lake sells at lower prices as compared to iron ore pellets sold by the company’s US Iron Ore division. Realized prices for Bloom Lake stood at $81.19 per ton, as compared to $102.36 per ton for the US Iron Ore division. In addition, the loss-making Bloom Lake mine would have brought down margins for the whole division. In our stock price estimate to factor in the impact of a restart of operations at Bloom Lake, we will keep the company’s capital expenditure at the levels given by the company in its current guidance. If we factor in these cumulative impacts of the operation of the Bloom Lake mine on our model, our estimate of Cliffs’ stock price declines by around 57% from $7.25 to $3.09. In addition, our estimate of the company’s EPS for 2015 declines to a loss of $0.52 from our current estimate of $0.29, in which we have assumed that Cliffs keeps the Bloom Lake mine in an idled state. Looking at the drastic impact on the company’s stock price and EPS, Cliffs should certainly keep the Bloom Lake mine shut. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    CHU Logo
    China Unicom Reports Mixed 2014 Results On Slowdown In Subscriber Adds
  • By , 3/4/15
  • tags: CHU CHA CHL
  • China Unicom ‘s (NYSE:CHU) net profit rose about 16% year-over-year (y-o-y) to over RMB 12 billion ($1.92 billion) in full year 2014, on modest service revenue growth and lower costs. Mobile broadband service revenue from high-speed subscribers (3G and 4G) grew by 18% y-o-y to about RMB 106 billion ($16.9 billion) driven by a net addition of 26.5 million high speed subscribers in 2014. This increase in 3G-4G subscribers was about 40% lower than the corresponding figure in 2013 (46 million). Although the company registered robust bottom line gains, the company’s overall revenues witnessed a decline of 3.5% owing to a 30% drop in telecom product sales, partially offset by a low single-digit rise in service revenues. On the cost side, interconnection charges paid by the carrier to its peers  China Mobile (NYSE:CHL) and  China Telecom (NYSE:CHA) declined by about 28% to RMB 14.6 billion, owing to a favorable revision in interconnection fees in January last year. Mobile subsidy costs also declined by a significant 40% in 2014 to RMB 4.7 billion ($750 million), primarily because of the carrier’s increased focus on low-cost smartphones to gain subscribers. In the fixed-line business, China Unicom’s service revenue grew by 2.3% y-o-y to RMB 88.5 billion ($14.1 billion), driven by almost double-digit (9.2%) sales growth in broadband services. The total number of broadband subscribers grew 6.4% y-o-y to reach 68.8 million by the end of the year. Going forward, we expect the company to continue expanding its broadband network across the country as part of its commitment under the government’s ‘Broadband China’ plan. Our current price estimate for China Unicom is $17, which is slightly ahead of the market price.
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