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COMPANY OF THE DAY : SAMSUNG ELECTRONICS

Samsung is set to report earnings on Thursday, reporting on a crucial quarter that saw the company launch the Galaxy S6 devices that it is banking on to turn around its struggling smartphone unit. In our pre-earnings note we discuss what to expect for the quarter and second half.

See Complete Analysis for Samsung Electronics
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FORECAST OF THE DAY : TOTAL MERCEDES BENZ VEHICLES SOLD GLOBALLY

Mercedes Benz has seen solid growth in China this year, closing the gap on rivals Audi and BMW, which are the leaders in the Chinese luxury car market. We expect this to drive overall auto sales for the company, with total annual unit sales exceeding 2 million by 2016.

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United Technologies Logo
  • commented 7/28/15
  • tags: UTX
  • Middle East and North Africa (MENA) Nutraceuticals Market Anticipated to Expand at a CAGR of 7.1% through 2020

    Future Market Insights (FMI), delivers key insights on the Middle East & North Africa (MENA) nutraceuticals market in its latest report titled, "Nutraceuticals Market: Middle East and North Africa (MENA) Industry Analysis and Opportunity Assessment, 2015 - 2020". According to the report, the nutraceuticals market in MENA is expected to register a robust single-digit CAGR of 7.1% during forecast period 2015 - 2020. Nutraceuticals are any products derived from food sources, and which offer extra health benefits besides the basic nutritional values other foods offer.

    Assessing the various factors driving market growth, FMI analyst said, "Advancements in product offering is fuelling the demand for nutraceuticals for application in a wide range of products such as medicines and food & beverages." The analyst added that increasing awareness among consumers in MENA about the benefits of nutraceutical products over conventional medicines is expected to further fuel market growth, which in turn will prompt manufacturers to diversify their product offerings and introduce nutraceutical products to keep up with the demand.

    The MENA nutraceuticals market is segmented on the basis of product type into dietary supplements, functional food and functional beverages. Among these, demand for dietary supplements was most robust, accounting for 37.0% share of the MENA nutraceuticals market in 2014. As per FMI estimates, this segment will register a CAGR of 7.0% during the forecast period.

    Browse Full "Nutraceuticals Market: Middle East and North Africa (MENA) Industry Analysis and Opportunity Assessment, 2015 - 2020" Research Report at http://www.futuremarketinsights.com/reports/details/mena-nutraceuticals-market

    The dietary supplement segment is further sub-segmented into vitamin & mineral supplements, herbal supplements and protein supplements, among which, vitamin & mineral supplements and protein supplements collectively accounted for over 75% market share in 2014. FMI estimates that protein supplements will register a CAGR of 6.9% between 2015 and 2020, accounting for US$ 1.15 Bn in terms of revenue in 2014. Functional beverages was the second most lucrative segment after dietary supplements, accounting for over 27.9% share in 2014, which is forecast to increase at a 7.3% CAGR through 2020.

    Increasing demand for natural products coupled with technological advancements is expected to fuel demand for nutraceuticals products in the region. In addition, increasing trade liberalization, which has changed the food consumption pattern globally, has enabled numerous nutraceuticals manufacturer and distributors to supply products to various countries in the region. This is one of the major factors driving growth of the nutraceuticals market in MENA region.

    Results of the end-user survey conducted by FMI among leading nutraceuticals distributors/retailers operating in the Middle East & North Africa, with a special focus on GCC, reveals that preference for natural products is a major trend in this region. Hypermarkets/supermarkets emerged the most preferred buying channel for these products, with highest score of 1.8 on the scale of 1 to 4; with 1 being highest and 4 being lowest. This was closely followed by pharmacy/food stores with a rating of 1.9.

    For more insights on Middle East and North Africa (MENA) Nutraceuticals Market, you can request a sample report with TOC at http://www.futuremarketinsights.com/reports/sample/rep-ma-681

    GCC on the other hand emerged the most lucrative market for nutraceuticals in MENA, accounting for US$ 3.53 Bn in 2014, which FMI estimates will increase at a CAGR of 7.3% to account for US$ 5.32 Bn by 2020. The nutraceuticals market in Rest of Middle East meanwhile was valued at US$ 2.06 Bn in 2014. Market growth in North Africa, the other key region in the MENA nutraceuticals market, is anticipated to expand at a healthy single-digit CAGR over the forecast period.

    Key players across the value chain in the MENA nutraceuticals market include BASF SE, Danone, Nestlé SE, Amway, General Mills, Arla Foods and Kellogg's. Major players operating in the MENA are adopting various strategies such as merger and acquisition and partnership with other companies in order to expand share in the growing nutraceuticals market.

    Browse Press Release: http://www.futuremarketinsights.com/pressreleases/details/mena-nutraceuticals-market
    [ less... ]
    Middle East and North Africa (MENA) Nutraceuticals Market Anticipated to Expand at a CAGR of 7.1% through 2020 Future Market Insights (FMI), delivers key insights on the Middle East & North Africa (MENA) nutraceuticals market in its latest report titled, "Nutraceuticals Market: Middle East and North Africa (MENA) Industry Analysis and Opportunity Assessment, 2015 - 2020". According to the report, the nutraceuticals market in MENA is expected to register a robust single-digit CAGR of 7.1% during forecast period 2015 - 2020. Nutraceuticals are any products derived from food sources, and which offer extra health benefits besides the basic nutritional values other foods offer. Assessing the various factors driving market growth, FMI analyst said, "Advancements in product offering is fuelling the demand for nutraceuticals for application in a wide range of products such as medicines and food & beverages." The analyst added that increasing awareness among consumers in MENA about the benefits of nutraceutical products over conventional medicines is expected to further fuel market growth, which in turn will prompt manufacturers to diversify their product offerings and introduce nutraceutical products to keep up with the demand. The MENA nutraceuticals market is segmented on the basis of product type into dietary supplements, functional food and functional beverages. Among these, demand for dietary supplements was most robust, accounting for 37.0% share of the MENA nutraceuticals market in 2014. As per FMI estimates, this segment will register a CAGR of 7.0% during the forecast period. Browse Full "Nutraceuticals Market: Middle East and North Africa (MENA) Industry Analysis and Opportunity Assessment, 2015 - 2020" Research Report at http://www.futuremarketinsights.com/reports/details/mena-nutraceuticals-market The dietary supplement segment is further sub-segmented into vitamin & mineral supplements, herbal supplements and protein supplements, among which, vitamin & mineral supplements and protein supplements collectively accounted for over 75% market share in 2014. FMI estimates that protein supplements will register a CAGR of 6.9% between 2015 and 2020, accounting for US$ 1.15 Bn in terms of revenue in 2014. Functional beverages was the second most lucrative segment after dietary supplements, accounting for over 27.9% share in 2014, which is forecast to increase at a 7.3% CAGR through 2020. Increasing demand for natural products coupled with technological advancements is expected to fuel demand for nutraceuticals products in the region. In addition, increasing trade liberalization, which has changed the food consumption pattern globally, has enabled numerous nutraceuticals manufacturer and distributors to supply products to various countries in the region. This is one of the major factors driving growth of the nutraceuticals market in MENA region. Results of the end-user survey conducted by FMI among leading nutraceuticals distributors/retailers operating in the Middle East & North Africa, with a special focus on GCC, reveals that preference for natural products is a major trend in this region. Hypermarkets/supermarkets emerged the most preferred buying channel for these products, with highest score of 1.8 on the scale of 1 to 4; with 1 being highest and 4 being lowest. This was closely followed by pharmacy/food stores with a rating of 1.9. For more insights on Middle East and North Africa (MENA) Nutraceuticals Market, you can request a sample report with TOC at http://www.futuremarketinsights.com/reports/sample/rep-ma-681 GCC on the other hand emerged the most lucrative market for nutraceuticals in MENA, accounting for US$ 3.53 Bn in 2014, which FMI estimates will increase at a CAGR of 7.3% to account for US$ 5.32 Bn by 2020. The nutraceuticals market in Rest of Middle East meanwhile was valued at US$ 2.06 Bn in 2014. Market growth in North Africa, the other key region in the MENA nutraceuticals market, is anticipated to expand at a healthy single-digit CAGR over the forecast period. Key players across the value chain in the MENA nutraceuticals market include BASF SE, Danone, Nestlé SE, Amway, General Mills, Arla Foods and Kellogg's. Major players operating in the MENA are adopting various strategies such as merger and acquisition and partnership with other companies in order to expand share in the growing nutraceuticals market. Browse Press Release: http://www.futuremarketinsights.com/pressreleases/details/mena-nutraceuticals-market
    Baker Hughes Incorporated Logo
  • commented 7/27/15
  • tags: BHI
  • President

    should oil prices rise, what is the estimated lag between an increase in the price of crude and renewed capital investment by the oil companies? [ less... ]
    President should oil prices rise, what is the estimated lag between an increase in the price of crude and renewed capital investment by the oil companies?
    Netflix Logo
  • commented 7/27/15
  • tags: NFLX
  • Comment on Monthly Netflix U.S. DVD Subscription Fee

    I like Netflix But the company need to cut DVD and focus on Streaming [ less... ]
    Comment on Monthly Netflix U.S. DVD Subscription Fee I like Netflix But the company need to cut DVD and focus on Streaming
    GM Logo
    Earnings Review: SUV Sales Drive GM's Profits
  • By , 7/27/15
  • tags: GM F TM HMC
  • General Motors (NYSE:GM) announced its results for the second quarter of fiscal year 2015 on July 23. The company reported earnings of $0.67 per share, a big improvement over last year’s $0.11., and revenue and EBITDA of $38.2 billion and $36.9 billion, respectively. Rising sales of full-size pickups and SUVs drove margins in North America and China, overshadowing losses in Europe and South America. Below, we take a look at the company’s performance in each geography in more detail. We have a  $38 price estimate for General Motors, which is about 20% more than the current market price . SUV Sales Drive North America Profits GM has been working on improving the profitability of its North America operations. In the second quarter, those efforts showed results as the company made $2.8 billion in North America before taxes primarily due to the following two factors: 1) GM’s expenditures on the Ignition Compensation Fund, an account the company had to setup following the ignition switch recall crisis, have begun to decline. The company has now expensed over $600 million to cover the cost of the Ignition Compensation Fund. 2) Lower interest rates and an improving economy has made it easier for consumer to finance the purchase of vehicles using loans. Customers empowered by cheap credit are purchasing upscale pickups, SUVs, crossovers and luxury vehicles, resulting in higher transaction prices across the industry. The average selling price for GM’s vehicles in the second quarter was $400 higher than in last year’s second quarter. However, there were two sore points: one, the company’s market share in North America has declined by 10 basis points due to reduced sales as several models are nearing the end of their run. The company has announced the launch of the 2016 Chevrolet Cruze, Camaro and Camaro convertible, which should drive sales later in the year. Second, the company took a hit of around $300 million from returned rental cars that sold for lower than expected prices at used car auctions. SUV Sales Drive China Results, Europe Still Weak GM is trying to restructure its operations in Europe and hoping to return to profitability next year. In the quarter, the company’s losses in the region narrowed to $45 million compared to $305 million in the same quarter last year. Overall, GM’s market share in Europe has declined by 80 basis points since the beginning of the year due to wind down of operations in Russia as well as the withdrawal of the Chevrolet brand from several markets. GM’s China unit earned $1 billion for the quarter, increasing its pre-tax profit margin to 10.2% from 10% last year. In the previous quarter, GM had reported a decline in  equity income  due to an increase in costs related to product change over and product launches as the auto maker was due to launch the Buick Excelle, the Buick Envision and the Chevrolet Sail 3 in the region. There were worries whether that would happen in the second quarter especially due to the stock market crash, but sales of the Buick Envision and Baojun 560 helped the company overcome the negative impact of the stock market. These vehicles sell for higher prices than comparably sized passenger cars and hence allow GM to post a higher margin. Having increased its market share in the region over the last few years, the company’s focus has now shifted towards higher profits. To this end, the company is trying to grow the sales of crossovers, SUVs, and Cadillacs in the region. Last year, global Cadillac sales increased 5% on 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. GM is now looking at the luxury car segment in China since it already has a significant presence in the mainstream car segment. Last year, GM got the government’s approval to build a $1.3 billion plant with a capacity to produce 150,000 units of Cadillac cars locally. With more competitive pricing, GM is targeting a 10% share in the Chinese luxury market by the end of the decade. As the proportion of higher-priced vehicles increases, average income earned per vehicle could rise even further. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    CMCSA Logo
    Comcast Q2 Earnings: High Speed Internet Segment And NBCUniversal Lead Revenue Growth
  • By , 7/27/15
  • tags: CMCSA TWC DTV DISH NFLX
  • Comcast  (NASDAQ:CMCSA) reported its second quarter earnings recently. The company added 180,000 high speed internet subscribers but also lost 69,000 pay-TV subscribers during the quarter. This result underscores the changing complexion of Comcast’s business. Even though the company made its name in the past selling cable services, it is the high speed internet segment that is leading the growth charge in recent years. We expect the company’s high-speed internet business to continue to bring in more customers, while its pay-TV business will likely continue losing customers in the foreseeable future. The company’s media arm, NBCUniversal (NBCU) has also been an important growth driver for the company and grew 20% for the quarter. NBCU’s numbers were boosted by the unprecedented success of its film studio, Universal. Blockbusters such as Furious 7, Jurassic World, Fifty Shades of Grey and Pitch Perfect 2 have helped the studio rake in $3.8 billion at the global box office during the first six months of 2015. We believe that NBCU will continue to grow in the coming years, benefiting from the continued success of its film studio, cable and broadcasting networks, and theme parks. Our price estimate for Comcast stands at $64.8, implying a slight premium to the market.
    CLF Logo
    Cliffs Natural Resources Earnings Preview: Lower Iron Ore And Coal Prices To Negatively Impact Q2 Results
  • By , 7/27/15
  • tags: CLF RIO VALE MT X
  • Cliffs Natural Resources (NYSE:CLF) will announce its second quarter results and conduct a conference call with analysts on July 29. We expect lower iron ore and metallurgical coal prices to negatively impact Cliffs’ quarterly results year-over-year. Cliffs has been battling a subdued iron ore and coal pricing environment over the past year or so. In addition, rising U.S. steel imports have also dented the company’s prospects. Poor business conditions have negatively impacted the company’s stock price, which has fallen more than 80% over the last twelve months. In this article, we will take a closer look at what to expect from Cliffs’ Q2 results. Iron Ore and Coal Prices Iron ore and metallurgical coal are important raw materials for the steel industry. Thus, demand for these commodities 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 is expected to decline by 0.5% in 2015, following on from a 3.3% decline in 2014. Weak demand for steel has indirectly resulted in weak demand for both iron ore and metallurgical coal.   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. 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. Iron ore spot prices stood at $63 per dry metric ton (dmt) at the end of June, around 33% lower year-over-year. China is also the largest consumer of metallurgical coal in the world. Demand for the commodity by the Chinese steelmaking industry has been weak, adding to subdued demand from other major consumers such as Japan and the EU. Weak demand coupled with an oversupply situation, due to an expansion in production by major mining companies, has resulted in plummeting coal prices. This has negatively impacted Cliffs’ North American Coal business, which primarily sells metallurgical coal, the prices of which are linked to the prices of Australian metallurgical coal. Benchmark metallurgical coal prices currently stand at around $90 per ton, nearly 70% off the levels of $300 per ton seen in 2011. In view of the oversupply situation, metallurgical coal pricing is expected to remain subdued in the near term. Thus, weak iron ore and metallurgical coal prices as a result of oversupplied markets will negatively impact Cliffs’ Q2 results. In addition to a weak commodity pricing environment, rising steel imports to the U.S. have also negatively impacted Cliffs’ fortunes. Rising Steel Imports Steel imports into the U.S. have risen sharply over the course of the last year. This has negatively impacted the fortunes of the U.S. steel industry, with competition from steel imports negatively impacting both realized prices and shipment volumes. Steel sheet imports to the U.S. accounted for 22% of the domestic market in 2014, up sharply from 15% of the domestic market in 2013. The adverse business environment for the U.S. steel industry has also impacted the fortunes of iron ore producers such as Cliffs, since iron ore is the primary raw material for steelmaking. As a result of the adverse business conditions impacting the U.S. steel industry, Cliffs has had to lower production volumes in response to the changing market conditions. The company revised the shipment guidance for its U.S. Iron Ore division for 2015 to 20.5 million tons at the time of declaration of its Q1 results, down from its previous guidance of 22 million tons. Thus, rising U.S. steel imports have only added to Cliffs’ woes. Recent Developments In order to remain competitive in a subdued iron ore and coal pricing environment, Cliffs’ management favors focusing on the company’s profitable U.S. Iron Ore operations and the sale of its other high-cost assets. The company’s Canadian unit filed for bankruptcy protection earlier on in the year. The company also managed to sell off a part of its coal mining operations earlier in the year, specifically Logan County Coal, a fully-owned Cliffs subsidiary which represents the company’s coal assets in southern West Virginia. In addition, the company had also earlier announced the termination of its quarterly dividend payment policy with effect from Q1 2015. We would be keenly watching out for any additional announcements from Cliffs’ management in the Q2 earnings call as the company continues to grapple with low commodity prices. Though the steps taken by the management so far have helped make incremental improvements to Cliffs’ operations, the external pricing environment has had an overwhelmingly negative effect upon the company’s business. Thus, the fate of the company remains tied to the externally imposed pricing environment. This has primarily been responsible for the company’s woes, and is unlikely to improve substantially in the near term.   View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    ALK Logo
    Alaska Air Posts Another Strong Quarter Driven By Lower Fuel Prices
  • By , 7/27/15
  • tags: ALK DAL LUV UAL AAL
  • The stock price of Alaska Air Group (NYSE:ALK) touched a new high of $77.80 per share during the trading day on Thursday, July 23, when the airline announced another solid quarter along with larger carriers Southwest Airlines (NYSE:LUV) and United Continental Holdings (NYSE:UAL). The Seattle-based airline posted adjusted net income of $230 million or $1.76 per share for the second quarter, beating the consensus estimate of $1.73 per share, driven by fuel cost savings. Despite the pricing pressure caused by rising competition, Alaska Air managed to report quarterly revenue of $1.44 billion, matching the analyst expectations . Going forward, we expect the lower fuel costs to continue to boost the airline’s earnings. In this note, we take a quick look at Alaska Air’s second quarter results and its outlook for the next quarter. Source: Google Finance Capacity Growth And Rising Competition Drag Down Unit Revenue Despite growing concerns over an excess supply of seats in the domestic market, Alaska Air grew its system capacity by 10.7%during the quarter, the highest growth among the airlines that have reported their second quarter results so far. While this capacity increase resulted in a 9% rise in the airline’s passenger traffic, it pulled down the load factor (the number of passengers flown per flight) by 1.4%, to 84.9% during the second quarter. In addition, rising competition from Delta Air Lines at its home base, coupled with pricing pressure from other carriers who have been cutting prices to attract more customers, led to a decline of 5.3% in Alaska Air’s passenger revenue per available seat miles, a measure of unit revenue. Still, the airline posted consolidated revenue of $1.44 billion, 4.5% higher compared to last year. Fuel Cost Savings Drive Margin Growth Given the weakness in global crude oil prices, lower jet fuel prices continue to drive bottom line growth for most of the airlines. Benefiting from this global trend, Alaska Air witnessed a 33.8% drop in fuel prices, averaging $2.12 per gallon, slightly lower than its guidance of $2.14 per gallon . This resulted in fuel costs savings of more than $100 million during the quarter, which boosted the airline’s operating margins. Alaska Air’s operating margin for the latest quarter stood at 25.9% versus 19.1% in the same quarter last year. This huge jump in the operating profits trickled to the bottom line, resulting in a GAAP income of $234 million, or $1.79 per share, more than double its profits earned a year ago. This is the 25th consecutive profitable quarter for the airline and marks its highest quarterly profit ever. Strong Financials Alaska Air delivered an after-tax ROIC of 22% in the last 12 months which is almost 6% higher than last year and more than twice its cost of capital. Further, the airline repurchased 2.5 million shares for $160 million during the latest quarter. At the end of the quarter, the airline had only $122 million remaining under its current authorization program which it plans to complete by the end of this year. The airline hinted at announcing its next buyback program later this year. During the quarter, Alaska Air also declared a quarterly cash dividend of $0.20 per share, a 60% increase over the dividend paid in the second quarter of 2014. This translates into one of the highest dividend yields in the industry. Besides, in order to strengthen its capital structure, Alaska Air paid down its long term debt, reducing it to $745 million at the end of the June quarter. This also makes it the only airline to have a positive net interest figure on its income statement, providing an important cost advantage over its peers. Source: Bank of America Merrill Lynch 2015 Transportation Conference Outlook After aggressively growing its system capacity in the first half, Alaska Air targets to increase its capacity by 8% during the third quarter to maintain an overall increase of 10% for the full year 2015. Further, given the challenging outlook of the crude oil market, the Seattle-based airline anticipates its fuel prices to average at $1.90 per gallon during the September quarter. The airline also aims to keep a check on its unit cost (excluding fuel and special items) to meet its annual target of 0.5% reduction. Moreover, the airline plans to enhance its operations by re-launching flights in some markets, investing in fuel-efficient airplanes, and introducing new revenue streams in the form of preferred seating. Given the current guidance, we expect Alaska Air’s profits to continue to surge on the back of rapid capacity expansions and lower fuel expenses, further complemented by its cost control initiatives. See Our Complete Analysis For Alaska Air Group Here View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    CVS Logo
    Insurance Companies Start To Bring PBM In-house: CVS Health's PBM Business Could Be Under Threat
  • By , 7/27/15
  • tags: CVS
  • There is abundant M&A in the healthcare sector. Be it health insurance providers, pharmacy benefit managers or drug retailers, there has been consolidation, both horizontal and vertical, in this sector. Usually, such widespread interest in consolidation is seen in rather mature industries where growth rates are slowing down towards a (lower) long-term rate. But, the case is different with the healthcare sector, specifically in pharmacy benefit management. More than 30 million people are expected to come under insurance coverage, which will increase access to healthcare and lead to a higher number prescriptions filled. Also, because of an aging population, overall spending is likely to go up and will further boost healthcare spending. While these factors will only drive revenues upward for pharmacy benefit managers, steps taken by the government to control expenditure have been eating into their profits. This has driven healthcare companies to merge with each other, which, we believe, could pose new questions for  CVS Health (NYSE:CVS). Recently, Aetna, an insurance company, from which CVS gets about half of its PBM business, decided to buy itself a pharmacy benefit manager. Losing a contract from Aetna could have a significant negative impact on CVS, especially if other insurance companies follow suit. Below, we will look into how things have changed in the PBM market and what CVS has done to diversify. View our detailed analysis for CVS Health PBM Market Landscape After Consolidation Earlier this year, the third largest PBM,  UnitedHealth Group (NYSE:UNH), acquired Catamaran Corporation (NASDAQ:CTRX), the  fourth largest PBM, increasing the concentration in this market. Together, these companies will have a market share of 22% (share by prescriptions) and the number of prescriptions managed by their PBM will increase from about 600 million to a billion prescriptions. This brings it very close to CVS, while Express Scripts is still comfortably ahead in the race. As cost of acquiring drugs decreases with scale, larger PBMs will be able to pass on more benefits to consumers, resulting in more consumer friendly insurance plans. This is likely to translate into more business from groups that pay for drugs (usually insurance companies or corporations) and thus a higher share in incremental market revenues. CVS Health’s Contract With Aetna Might Not Be Extended Aetna, a leading insurance company, currently has a long-term contract with CVS for managing prescriptions from its plan members, which amounts to more than 600 million prescriptions. The company, however, decided to acquire Humana for about $37 billion (pending an antitrust review), which will add a PBM services arm to Aetna. It would no longer have to depend on CVS Health to manage those prescriptions, if it can do it in-house with the help of Humana. Not only will Aetna save on expenses by bringing prescription management under its own roof, but will also make Humana’s business much stronger, with more prescriptions to manage. It will be a big blow to CVS if Aetna does not renew its contract, which amounts to a half of all the prescriptions that CVS manages . A scenario where other insurance companies replicate Aetna’s model of bringing PBM in-house cannot be ruled out. Such a situation could be disastrous for CVS, especially during a period when competitors are growing in scale. CVS’ Recent Deals Diversify Its Business Away From PBM CVS seems to be have already taken a few steps to diversify itself away from PBM services. Recently, it acquired all of Target’s pharmacy stores to become the largest pharmacy network in the US, overtaking Walgreens. It also acquired Omnicare  to extend reach to the senior patient segment as well as to strengthen its specialty pharmacy capabilities. This will reduce the share of profits that the company earns from PBM and also the exposure to risks involved in the business. Nevertheless, PBM will remain to be a vital part of CVS and not much can be done, if clients (insurance companies) learn to don’t need it to fulfill their needs anymore. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research Other Sources: Pharmacy Benefit Management Institute
    APC Logo
    Anadarko 2Q Earnings: Lower Oil Prices To Offset Production Growth
  • By , 7/27/15
  • tags: APC COP EOG CHK
  • Anadarko Petroleum (NYSE:APC), is scheduled to announce its 2015 second-quarter earnings after markets close on July 28. We expect lower crude oil prices to weigh significantly on the company’s financial results. Benchmark crude oil prices have fallen sharply over the past 12 months on rising supplies amid slower demand growth. The average  Brent crude oil spot price declined by more than $48 per barrel, or almost 44% year-on-year, during the second quarter. This is expected to result in thinner operating margins on Anadarko’s spot crude oil sales. However, higher net oil and gas production, primarily driven by the development of the Wattenberg field and other onshore assets in the U.S., coupled with a better volume-mix, is expected to partially offset the impact of lower oil prices on the company’s overall performance. Anadarko primarily operates in three segments: oil & gas exploration and production, midstream, and marketing. Its asset portfolio includes positions in onshore resource plays in the Rocky Mountains region, the southern United States, and the Appalachian basin. The company is also an independent producer in the Deepwater Gulf of Mexico, and has production and exploration activities globally, including positions in high potential basins located in East and West Africa, Algeria, Alaska, and New Zealand. At the end of 2014, Anadarko had proven reserves of almost 2.86 billion barrels of oil equivalent. We currently have a  $85/share price estimate for Anadarko, which is around 20% above its current market price. See Our Complete Analysis For Anadarko Currently, most of Anadarko’s total hydrocarbon production – more than 78% – comes from its onshore assets in the U.S. The company’s net hydrocarbon production from its U.S. onshore assets, adjusted for divestitures, has grown at more than 14.5%  CAGR between 2009 and 2014. This compares to the company’s overall production growth rate of around 8% CAGR over the same period. Last year, Anadarko achieved almost 16.5% year-on-year growth in its U.S. onshore production. However, this year, in view of the changed crude oil price environment, the company plans to slow down the development of its hydrocarbon reserves in the region to generate better returns in a more favorable oil price environment. It is currently looking at a modest (1% y-o-y) decline in its full-year net production from the region. However, most of that decline will be coming from less-profitable, natural gas production, as the company plans to increase its liquids (crude oil and natural gas liquids) production from the U.S. onshore assets by around 4.5% year-on-year to 257 thousand barrels per day (MDB). The growth in liquids production will be primarily driven by the ongoing development of the Wattenberg field. The Wattenberg field, located in the Rocky Mountains Region, is the centerpiece of Anadarko’s growth story. The company operates approximately 5,800 vertical wells and 750 horizontal wells in the field, with the recent drilling program focused entirely on horizontal development. It drilled 369 horizontal wells in the field in 2014 alone, growing net oil and gas production from its acreage in the field by around 62 thousand barrels of oil equivalent per day (MBOED) or almost 57% year-on-year. Liquids production grew at an even faster rate (up 79%) to 109 MBD. Because of this explosive growth, the contribution of Anadarko’s Wattenberg operations to its total sales volume has grown from around 9.4% in 2010 to 20.1% last year. Going forward, we expect this trend to continue since the company plans to increase its focus on the development of its reserves in the Wattenberg field, which is the most lucrative part of its overall asset portfolio in the U.S. onshore region. This year, Anadarko has allocated 50% of the total capital expenditure planned for the U.S. onshore region to the development of its acreage in the Wattenberg field. The strategy makes sense because the growth in Anadarko’s Wattenberg production also boosts its  consolidated exploration and production (E&P) margin . This is because the company generates the highest rate of return on the development of its acreage in the Wattenberg field. This can be primarily attributed to its land grant advantage in the region. Anadarko holds fee ownership of mineral rights under approximately 8 million acres in the U.S. Rocky Mountains region. The acreage passes through southern Wyoming and portions of Northeast Colorado and Utah. It is commonly referred to as the land grant and covers a large part of Anadarko’s 350,000 net acres in the Wattenberg field. The land grant not only reduces Anadarko’s operating costs in the Wattenberg field – because of lower royalty rates – but it also boosts its returns through royalty income from third-party operations in the area. Therefore, as the weight of Wattenberg production in Anadarko’s total sales portfolio increases, it would exert downward pressure on its total unit operating costs and thereby help partially offset the impact of lower crude oil prices on its margins in the short to medium term. 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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    Why Did Bristol-Myers Squibb's Shares Fall Post Earnings?
  • By , 7/27/15
  • tags: BMY RHHBY PFE
  • Bristol-Myers Squibb ‘s (NYSE:BMY) stock has declined by almost 5% following its Q2 2015 earnings despite the company registering strong overall revenue growth of 7%. So why did this happen? It appears that strong topline growth did not translate proportionately to profits even though it did induce  a change in full year EPS guidance. BMY registered a net loss due to high R&D expenses (primarily related to acquisition) and the change in full year guidance suggests that the coming quarters may not see significantly better growth than Q2. Also, it seems that the revenue increase came primarily from mature products and key growth-stage franchises such such as Yervoy performed below expectations. The situation is not alarming and the results led to small re-adjustment in investor expectations. In the medium to long term, the focus will continue to be on Opdivo and similar drugs, as well as pending regulatory approvals for a number of combination therapies.  In addition, we will be tracking the ramp up of Eliquis and Hepatitis C franchise. So what could possibly be the near term trigger? Our current price estimate for Bristol-Myers Squibb stands at $66, roughly in line with the market. It will be the dual regimen of Yervoy and Opdivo hitting the market.
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    Daimler's Mercedes Ends The First Half With Solid Growth In Operating Profits
  • By , 7/27/15
  • tags: DAI DDAIF VLKAY BMW GM F TM TTM
  • Daimler AG  announced solid Q2 and mid-term results last week, with wins across its luxury vehicles and medium and heavy commercial vehicles portfolios. Revenues rose 19% year-over-year in Q2 on a 14% increase in unit sales. While negative currency translations have dragged down the financials of companies, especially those based out of the U.S., Daimler is set to benefit from the strengthening dollar, and other foreign currencies, against the euro. For the full year, favorable exchange rates could add approximately €1 billion to Daimler’s pretax profit, which is good news for shareholders. But apart from the inorganic growth due to currency translations, the group has ended the first half of 2015 with strong organic growth, especially for its premium brand Mercedes-Benz. We have a  $96 price estimate for Daimler AG, which is above the current market price. See Our Complete Analysis For Daimler AG   Mercedes forms approximately 63% of Daimler’s valuation, according to our estimates. The luxury brand lags both BMW and Volkswagen’s Audi in terms of global vehicle sales, but has slowly but surely narrowed its gap with both its compatriots in the last year or two. While sales for the global leader in premium vehicle sales, BMW, are up 5.1% year-over-year through the first half of the year, and that for Audi (the second highest-seller) are up only 3.8%, Mercedes’ volume sales are up a solid 14.7% to 898,425 vehicles. In fact, Mercedes is now only less than 4,000 units behind Audi in the race for the second highest-selling premium automaker in the world. However, improving volume sales is not the focal point of our discussion, the turnaround in profitability is. Mercedes was already catching up with BMW and Audi in terms of volumes, but this year the German number three has caught up in terms of profitability as well. With a 19% rise in revenues in Q2, over the previous year, and a whopping 58% rise in operating profits, the brand’s EBIT margins have reached 10.5%– higher than that at Audi presently. The company has recuperated well after one-time costs associated with the launch of new/refreshed models had lowered operating margins to around 3% in the first quarter of 2013. The strong revenue growth for Daimler didn’t reflect in its free cash flow due to the large investment expenses. However, a solid rise in vehicle sales, favorable product mix, and efficiency initiatives such as the ‘Fit for Leadership’ program have helped Mercedes sequentially improve its operating margins, from 8% in 2014, to 9.4% in Q1, and 10.5% now. Higher unit sales have been a major boost to Mercedes’ profit growth. The brand has been firing on all cylinders–unit sales in the domestic market are back to growth, U.S growth is strong — also helpful because of the positive currency translations —  and growth in China also remains solid despite slowing market conditions. Europe- Vehicle demand in Europe has continued to rise in Q2, with the largest year-over-year increase in passenger vehicle registrations achieved in June (14.6%). European Union passenger vehicle registration, which has risen for 22 consecutive months now, is up 8.2% year-over-year through June. Mercedes has outpaced the growth seen by its chief competitors in Western Europe, growing passenger car registrations by 10.5% through June, compared to the 4% and 7.3% growth for Audi and BMW, respectively. Source: European Automobile Manufacturers Association United States- Mercedes and BMW have for years now fought for the top spot in the U.S. in terms of volume sales, and while BMW edged out Mercedes for the most sales in June, Mercedes has sold more vehicles in the country year-to-date. The U.S. economy is holding well, and that has been good news for automakers in the last year or two. Although the demand for passenger cars has fallen (volume sales through June down 1.7%), the demand for SUVs/Crossovers has continued to rise in the country, with volume sales up 13% in the first half. Mercedes’ light truck lineup posted an 18.5% rise through June compared to 2014 levels, reflecting the growing demand for SUVs in the U.S. market. Premium SUVs still form only 1.3% of the U.S. vehicle market, and with a growing demand for luxury vehicles, especially crossovers, this segment could continue to expand. Mercedes renamed its M-Class model lineup the GLE-Class last year, and the GLE Coupe, combining the looks of an SUV and a luxury coupe, went into production at Mercedes’ Tuscaloosa plant. With the GLE lineup and several all-new or revamped models hitting the U.S. market this year, Mercedes is poised to gain from the large SUV demand, going forward. China While Audi, the highest-selling premium automaker in China, has sold only 1.9% more vehicles in the country through June, Mercedes has grown its volume sales by 18% through May, and by a whopping 38.5% in June. Why we single out the performance in June is because this rise came despite the overall auto sales in China falling 3.2% last month. As industry overcapacity, real estate, and infrastructure sector slowdowns, drag down economic activity in China, vehicle sales have also slowed down this year, from the previously seen high growth levels in the world’s largest automotive market. The relatively weaker economic conditions have also caught up with the ever-so-growing luxury vehicle market in the country, with the likes of Audi, BMW, and Jaguar Land Rover (JLR) feeling the heat. But not Mercedes, it seems, which continues to see growth in China. Mercedes’ strong growth in crucial markets, and solid operational return on sales, reflects how the automaker is now finally reaping the benefits of its large investments in research and development of products, and the expansion of its production footprint. See the links below for more information and analysis: Mercedes-Benz is catching up with competition in China Who will gain most from the large SUV/Crossover demand in the U.S.? Trefis analysis: Mercedes-Benz Cars and Vans Revenues Trefis analysis: Daimler North America Revenues Trefis analysis: Daimler International Revenues 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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    Lockheed Will Be The New Owner Of Sikorsky Helicopters
  • By , 7/27/15
  • tags: LMT UTX
  • Over the past few months, we have been exploring the possibilities that existed for Sikorsky Helicopters after  United Technologies (NYSE:UTX) announced its  intention to divest the helicopter manufacturing division . There was a lot of speculation about whether Sikorsky would be spun-off or sold, with more bets being placed on a  spin-off due to the huge tax burden that would accompany an outright sale . Sikorsky is an attractive business and hence  several contenders for a potential sale of the division  also emerged soon after the announcement was made. The final result of negotiations is now out. Lockheed Martin (NYSE:LMT) will be the new owner of UTC’s Sikorsky Helicopters that it has purchased at a price tag of $9 billion dollars. Lockheed stands to gain $1.9 billion in tax benefits with the conclusion of this sale. Lockheed Martin will also have access to a greater share of total contracts with the U.S. military as Sikorsky currently claims more than 65% of the Pentagon’s helicopter spending share. At the same time, Sikorsky will also provide Lockheed more exposure to the commercial sector. This acquisition will also help Lockheed surpass Boeing to become the world’s largest helicopter prime in the future. Lockheed also announced that it will be divesting its non-military IT and services division by the end of the year to focus more on its core operation of providing platforms. The removal of this business, which has been witnessing a decline in recent years, and the addition of a high growth business like Sikorsky will push the overall revenue growth rate at Lockheed up in the future. Additionally, we anticipate that the cost synergies that will accompany this acquisition will also help push overall margins at Lockheed in the future. Here are the top insights we derived from the deal between Lockheed Martin and Sikorsky.
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    Amazon's Stock Shoots Up On Solid Earnings Report
  • By , 7/27/15
  • tags: AMZN BABA EBAY
  • With net sales growth at 20%, Amazon (NASDAQ:AMZN) delivered a stellar performance in the second quarter of 2015. Its stock is up by more than 15% post the earnings release. These results were driven by strong performance across both the North American and international regions, which was further powered by rapid growth in the electronics and general merchandise category. In addition, the top-line growth of over 81% in the Amazon web services (AWS) segment came in above market expectations, together with a surprise increase in the segment’s margins. As a result, the overall operating margin (in GAAP terms) improved by 210 basis points annually to 2.0%. These results call for an upward revision in our model forecasts — the company’s growth outlook continues to look strong, owing to expansion opportunities in the global e-commerce and cloud services market. In addition, we believe the company’s recent improvement in margins, which have come on top of efficiency improvements, looks promising and reflects a new trend at the online retail giant. However, we will continue to track growing expenses on international expansion and on the Prime program, as these could somewhat hinder profitability down the road.
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    Here Are The Key Things To Watch Out For In Facebook's Q2 Earnings
  • By , 7/27/15
  • tags: FB TWTR LNKD
  • With  Facebook ‘s (NASDAQ:FB) stock rising by over 15% over the last three months, expectations will be high from the company on Wednesday, July 29th, when it reports its financial results for the second quarter of 2015. With the average consensus for top-line pegged at around $4 billion in Q2, we expect the company’s growth to have been driven by significant increase in average ad pricing during the past quarter. This will likely also push up mobile monetization on the platform, which likely posted  share gains in overall advertising that crossed above 75% in Q2. The ongoing roll-out of better and more targeted ads (including video-based ads), as well as rise in the number of marketers on the platform likely lifted demand for its advertising, in our view. In terms of profitability, we believe the company’s planned increase in expenses weighed on margins during the second quarter. However, we expect these investments to translate into significant streams of revenue from Facebook’s other platforms, including Instagram, WhatsApp, Messenger and Oculus in the coming years.
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    SunPower Q2 Preview: What To Expect As Solar Star Winds Down?
  • By , 7/27/15
  • tags: SPWRA spwr SPWR FSLR SCTY
  • SunPower  (NASDAQ:SPWR), the second largest U.S. solar equipment manufacturer, is expected to publish Q2 2015 results on July 28, reporting on a quarter that is likely to have seen the company wind down on the massive Solar Star project, that has been the biggest driver of its recent earnings. We expect earnings to improve sequentially, on account of seasonally better installations. However numbers could trend lower on a year-over-year basis, owing to weaker project sales and the retention of certain projects on the company’s balance sheet, as it geared up for the formation of its joint venture yieldco 8point3 Energy Partners (listed in June). For this quarter, we will be watching SunPower’s progress in bolstering its international power plant business as well as its residential and commercial business in the United States. Trefis has a $36 price estimate for SunPower, which is significantly ahead of the market price. We will be revisiting our price estimate post the earnings release. See Our Complete Analysis For SunPower Power Plant Business: Solar Star And Chinese projects In Focus The 579-megawatt Solar Star project, which is being built out for MidAmerican Energy in California, has been SunPower’s biggest revenue driver in recent quarters. However, its impact on earnings is likely to be more subdued compared to previous periods as the project is winding down, with the company having already grid connected 500 MW as of Q1, with plans to achieve substantial completion on the project in Q2. Going forward, other U.S. projects such as the Henrietta (128 MW) and Hooper (60 MW) – that have executed power purchase agreements, but are not yet sold – could provide some revenue stability for SunPower. International projects are also likely to account for a greater portion of SunPower’s revenue mix. SunPower is one of the few Western solar companies that has made some progress in China, banking on its low-concentration photovoltaic (LCPV) technology. SunPower has a joint venture agreement in place to manufacture and deploy its proprietary C7 solar concentrator technology in China, and it intends to build over 250 MW of projects in the country this year. In 2014, the firm signed a second joint venture that aims to develop and own at least 3 GW of PV power plants (time frame remains unclear), primarily located in the Sichuan province. Earlier this year, the company said that it would partner with  Apple  (NASDAQ:AAPL) to build two solar power projects in the Sichuan province, with total capacity of 40 MW. Construction on these projects has already started and the company expects to complete them by the end of the year. We will be interested to hear of the firm’s progress in executing on its Chinese projects this quarter. Distributed generation Although SunPower’s distributed business has been a smaller driver of historical earnings, owing to smaller volumes and lower margins (under 40% of adjusted-earnings in 2014), it’s likely to become a more important part of SunPower’s performance going forward, as it completes its mega utility projects in the United States. The U.S. residential solar market has been one of the brightest spots in the solar industry, growing by over 76% in Q1 to 437 MW, according to the Solar Energy Industries Association. SunPower is well poised to take advantage of this growth, given its high-efficiency panel technology, high quality, and flexible financing options such as its residential leasing program. SunPower currently has industry leading panel efficiencies (upwards of 20% on most panels), and the company has also been refining its  products through acquisitions and partnerships. Last year, it acquired SolarBridge, a manufacturer of microinverters for solar panels, in a move that will allow it to reduce the balance of system costs and improve the energy yield of its panels. (related: Why SunPower Is Buying A Microinverter Manufacturer ) Separately, the firm has also partnered with Stem to resell its behind-the-meter battery systems to commercial customers in the United States. SunPower’s residential leasing program has also been seeing steady growth, adding about 19 MW of new additions in Q1 2015, taking its cumulative bookings to 241 MW. SunPower has noted that returns on its leasing program have been compelling, while indicating that interest from potential financing partners has also been high. 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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    Tableau Q2 Earnings Preview: Solid All-Round Growth Expected
  • By , 7/27/15
  • tags: DATA-BY-COMPANY DATA QLIK SAP ORCL
  • Tableau Software  (NYSE:DATA) will report its second quarter earnings on July 29th. We expect the company to report that it grew both its subscriber base and its revenues during the quarter. The company’s customer base has grown immensely with the increase in demand for data discovery based Business Intelligence (BI) software, and we believe that the company is well on track to acquire 66,000 customers by 2021. Tableau’s “Land and Expand” strategy has been very successful thus far, and will continue to help the company grow its licensing revenues in the years to come. Maintenance revenue has grown in proportion to the software licensing revenue, helped by a strong maintenance renewal rate of around 90%. Consequently, we believe that maintenance revenue will reach the levels of software licensing revenue by the end of our forecast period. More than 20% of Tableau’s revenues come from international markets. Consequently, we believe that the strengthening of the dollar will have a minor negative impact on the company’s results in the short term. Currency headwinds have had a similar impact on the quarterly results of other technology companies such as  Qlik Technologies  (NASDAQ:QLIK).
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    Stock Touches All-Time High, As Chipotle Fills In The Gaps
  • By , 7/27/15
  • tags: CMG MCD DNKN QSR
  • Chipotle Mexican Grill (NYSE:CMG) continues to impress investors with yet another strong quarter, as the company reported a net revenue growth of 14.1% year-over-year (y-o-y) to $1.2 billion in the second quarter of fiscal 2015. In Q2 2015, the comparable store sales growth for the company was just 4.3%, massively down from 17.3% in second quarter last year. Moreover, the company’s net income for the quarter rose 27.1% y-o-y to $140.2 million, which is an impressive figure given the tough comparison with last year’s Q2. However, soon after the release of the report, the company’s stock price reached its all-time high, with an approximate 8% jump to $724, despite the slowness in the comparable store sales growth. After the Q2 report, we have a $708 price estimate for Chipotle,  which is less than 3% below the current market price. See Our Complete Analysis For Chipotle Mexican Grill Unique Food Culture & Additional Pork Supplier Improves Customer Sentiments One of the major factors for Chipotle’s success in the recent past is its unique food culture and the use of organic food ingredients, to cater to the current hygiene concerns of the customers. With its innovative and delicious food items, Chipotle’s ‘food with integrity’ campaign has been its primary driver for attracting more customers. The company has always made their decisions keeping the customers’ preference in mind, and has never compromised on the quality of the food products. During the second quarter, the company completed its transition to the use of only non-GMO (genetically modified organisms) ingredients for the production of all the food items. This transition has received positive response from a majority of the customers. Moreover, during the first quarter, the company suspended one of its pork suppliers in the U.S. after a recent audit, on claims of below standard animal welfare protocols. This affected the supply of Carnitas to about one-third of the company’s outlets. However, the decision of the company to not shift to pork from conventionally raised pigs went down well among the customers. The company managed to counter the shortage with the addition of a new pork supplier, Karro Food Group of the U.K., which has already started serving pork to the company’s restaurants in Florida. This has certainly brought some relief to the company, who was struggling with a shortage of pork to be used in its Carnitas. The effect of a new pork supplier will be visible in the next few quarters, and we can expect improvement in the customer traffic and comparable sales growth. Price Hikes On Concerns Over Increasing Beef Prices & Minimum Wage Hikes USDA estimates beef production to decline in 2015, with less than 23.7 billion pounds of expected beef production. Chipotle mentioned that the price increase taken in Q2 2014 got offset due to commodity inflation in the last 12 months. As a result, the company decided to increase the prices of steak and barbacoa, with beef prices increasing by 14.4% overall, whereas beef costs added roughly 100 basis points to the company’s food costs. The hike might seem reasonable to some customers, given the fact that beef prices are expected to increase further in 2015.   Furthermore, a minimum wage hike in the San Francisco region forced the company to raise prices by 10% in 10 of its San Francisco restaurants, and by 7% in 74 restaurants outside San Francisco region. Chipotle’s restaurants in other cities such as Chicago and Orlando also witnessed moderate (0.5% on average) price hikes. Consequently, in Q2 2015, restaurants level margins increased 70 basis points to 28%. Focus On New Store Development Chipotle Mexican Grill opened a total of 48 net new restaurants in the second quarter, which means a total of 97 net new restaurants so far for the year, bringing the total company store count to 1,878. Chipotle is in-line with its development guidance of 190-205 net new restaurants this year. However, after the end of Q2, the company opened a new restaurant in London, aimed at strengthening the customer base in the area. The London restaurant is already a success, as the company’s UK throughput improves to 229 transactions during the peak lunch hour. On the other hand, Chipotle’s restaurants in Canada have been performing at par with the company’s expectations for a long time now. As a result, the company has finally decided to accelerate the pace of development in Canada. With massive improvement in these two high growth markets, the company can now plan its expansion strategy in other potential high growth markets. Trefis currently estimates the number of restaurants to reach close to 2,160 by the end of 2016 . Chipotle kept most of the full year’s guidance unchanged, with new restaurants openings on the higher end of the 190-205 range, and low-to-mid single digit comparable sales growth. Moreover, with a new pork supplier, and possibilities of Carnitas back in all stores by the end of the year, we can expect robust growth in the second half of the year. 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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    AT&T Closes DirecTV Acquisition: Reviewing The Concessions And Benefits
  • By , 7/27/15
  • tags: T VZ CMCSA
  • AT&T  (NYSE:T) closed its $49 billion acquisition of satellite television provider DirecTV on Friday, after the Federal Communications Commission ratified the deal. While the company had to make some concessions in order to gain federal approval (relating to its broadband services and net neutrality), we think that they were worthwhile, considering the revenue and cost synergies that the combined company would provide in an increasingly competitive wireless and content distribution landscape. The deal will make AT&T the country’s largest pay TV provider, with more than 26 million total subscribers (20 million from DirecTV and about 6 million from AT&T’s native U-Verse service). To recap, DirecTV shareholders received 1.892 shares of AT&T common stock and $28.50 in cash per DirecTV share owned. Below is a brief run-down of what it took to get the deal done and how shareholders of the combined company are likely to benefit. Trefis has a  $37 price estimate for AT&T is about 8% ahead of the current market price. We will be updating our valuation model shortly to reflect the business combination and our updated outlook. See our complete analysis for AT&T here What Concessions Did AT&T Have To Make? To get the deal done, AT&T has agreed to a few FCC-mandated conditions.  The company will expand its high-speed gigabit fiber optic broadband access to 12.5 million customers. This translates to roughly 10 times the size of its present gigabit fiber deployment. The company will also have to offer discounted broadband to low-income households, while serving schools and libraries with better broadband access. More notably, the company has agreed to adhere to the FCC’s stricter net neutrality obligations that were passed this February. AT&T has agreed to prevent discrimination against its online video competition and it won’t provide favourable treatment for its own video offering under data caps. The firm has also agreed to share all its completed interconnection agreements with the FCC. This could be seen as a win for the FCC, since AT&T has been one of the strongest opponents to the agency’s controversial new rules. AT&T had earlier publicly opposed the move along with other service providers and the firm was the first major Internet service provider to file a lawsuit against the FCC in relation to the issue last April. How The Deal Adds Shareholder Value? 1) Bundled Services To Bring Cost and Revenue Synergies:  The merged company will be able to offer a “quadruple-play” bundle that includes four bundled services (mobile and fixed-line phone service, high-speed Internet and TV), compared to the three offered by Comcast (NASDAQ:CMCSA) (fixed-line, Internet and TV) and  Verizon  (NYSE:VZ) (wireless, fixed-line, broadband). Besides providing At&T with a competitive advantage in attracting new customers, the bundle could also induce DirecTV customers into switching on to AT&T for mobile services. Providing customers a greater number of services should effectively reduce overhead costs and bring down churn rates, limiting new customer acquisition costs for the carrier. The deal would also result in substantial savings, as the companies expect cost synergies of over $2.5 billion annually within three years of the deal closing, primarily on account of lower content costs (see below) and greater efficiencies in areas where operations of both companies overlap. 2) Upping AT&T’s Content Game And Diversifying Its Distribution Footprint:  The deal enables AT&T to become a leader of sorts in the content distribution space, across various platforms including mobile, broadband and TV. AT&T will also gain rights to content such as the NFL Sunday Ticket, which is one of the hallmarks of DirecTV’s offerings. The deal should also provide the company more leverage in negotiating with content providers, being the single largest pay TV provider in the United States. DirecTV’s core business has been increasingly facing headwinds as the U.S. pay TV Market saturates (top pay-TV providers lost about 125,000 customers in 2014), partly due to the rise of alternative platforms such as online streaming services and content consumption on mobile devices.  However, the more diversified distribution footprint of the AT&T-DirectTV  combo should help to alleviate some of these concerns, since it could adapt content for various platforms while potentially launching new over-the-top (OTT) video services that can be offered to AT&T’s broadband and mobile customers. The diversified distribution footprint could effectively hedge AT&T’s role as a content distributor. 3) Growth In Latin American Markets:  The deal is also expected to help AT&T enter into lucrative markets in Latin America, where DirecTV is the leading pay-TV provider with over 18 million subscribers (including Sky Mexico customers). There is still ample room for growth in the region, given its burgeoning middle class and low levels of pay-TV penetration (40%).  Latin America has been DirecTV’s fastest growing business division in the wake of saturating U.S. markets. 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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    DuPont: Soft Agricultural Products Market and Currency Headwinds To Weigh On 2Q Earnings
  • By , 7/27/15
  • tags: DD DOW MON
  • DuPont (NYSE:DD) is scheduled to announce its 2015 second quarter earnings on July 28. We expect the impact of lower seed prices, a reduction in corn planted area in the U.S. and Brazil, and currency headwinds due to a stronger U.S. Dollar, partly offset by productivity improvements, to weigh on the company’s earnings growth. The prices of corn and soybean seeds, which make up a large chunk (approximately 70%) of DuPont’s agricultural products sales, have plummeted over the past few months due to a record harvest in the U.S., primarily led by favorable weather conditions and yield improvements. In addition, farmers have increasingly shifted away from planting corn since last year for better margins on soybeans and other crops. These trends are expected to weigh significantly on DuPont’s second-quarter financial results. DuPont generates annual sales revenue of around $35 billion by supplying high-performance materials and chemicals, electronic materials, high-performance coatings, and agricultural products to industries and consumers worldwide. Most products manufactured by DuPont are used as raw materials by other industries, making it a predominantly B2B (business-to-business) based company with the exception of the agriculture and nutrition divisions. Its consolidated adjusted EBITDA margin stood at around 20% last year. We currently have a  $55/share price estimate for DuPont, which is around 5% below its current market price. See Our Complete Analysis For DuPont Lower Corn Seeds Sales According to our estimates, DuPont’s Agricultural Products division contributes the most, more than 38%, to its total value. In 2013, the division posted the highest revenue growth (13% y-o-y) within the company’s diversified portfolio, on robust demand for its  AQUAmax and  AcreMax seed products and Rynaxypyr  insecticide. However, the division’s growth prospects have been significantly challenged since last year’s decline in seed prices and a shift away from corn planting. In 2014, DuPont’s agricultural products sales revenue declined by 3.7%, and margins shrunk by almost 50 basis points y-o-y, by our estimates. This had a significant impact on the company’s overall earnings growth during the period because agricultural products contribute almost 33% to the company’s total consolidated sales revenue. The operating environment for Dupont’s agricultural products division continues to remain challenged this year as well, because seed prices are expected to remain low – mostly because of a continued oversupply situation driven by yield improvements and favorable weather conditions in the U.S.  In addition, farmers are expected to continue to move away from planting corn this year as well, because of better returns on other crops. According to the latest World Agricultural Supply and Demand Estimates published by the United States Department of Agriculture (USDA), corn planted area in the U.S. is expected to decline from around 95.4 million acres last year to 90.6 million acres in 2015, while corn production is still expected to surpass last year’s record level due to a significant improvement in projected yield per harvested acre. This essentially means lower demand for DuPont’s corn seeds, which account for approximately 50% of its agricultural products division’s total sales revenue. During the first quarter, the company’s sales and operating earnings from the division declined by around 10% and 21% y-o-y, respectively. DuPont expects the division’s operating environment to remain challenged in the short term and has guided for a mid-single-digit percentage decline in sales and a low-to-mid-single digit percentage fall in operating earnings for the second quarter. Currency Headwinds DuPont has operations in more than 90 countries worldwide and about 60% of its consolidated net sales revenue comes from international markets. Since the company operates primarily in local currency in these markets, a strengthening U.S. Dollar negatively impacts its financial results. The U.S. Dollar has strengthened significantly against many international currencies, especially the emerging market currencies, since the second half of 2013, when the U.S. Federal Reserve started scaling back its bond-buying program. According to historical currency charts provided by xe.com, the U.S. Dollar has strengthened by around 21%, 51%, and 66% over the last twelve months against the  Euro (EUR),  Brazilian Real (BRL), and the  Russian Ruble (RUB), respectively. Based on the average basket of exchange rates for its business, DuPont currently expects the strengthening U.S. dollar to drag down its 2015 full-year earnings by $0.80 per share. Although, we believe that the actual impact on earnings could be higher since the depreciation of a local currency against the U.S. dollar might lead to higher relative prices of DuPont’s products in the local market, thereby weakening its competitive positioning as well. 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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    Pfizer Second Quarter Earnings Might Show Some Revival
  • By , 7/27/15
  • tags: PFE JNJ MRK
  • We believe  Pfizer ‘s (NYSE:PFE) Q2 2015 financial results may just show the tipping point for the company’s growth, excluding the impact of currency movements. Pfizer’s profits have been plagued by patent exclusivity losses, currency headwinds and relatively mellow ramp up sales of some of the new drugs. As a result, the company has been investing heavily in collaborations and making acquisitions to secure future growth. As the impact of termination of co-promotion agreements is getting diluted and Eliquis is showing strong uptake, we believe Pfizer’s business may be at the cusp of rebounding. To add to that, the pipeline is improving and the Hospira acquisition could help it establish foothold in biosimilar market, which is on the verge of strong growth. Our price estimate for Pfizer stands at $35, implying a slight premium to the market price.
    DTV Logo
    Weekly Pay-TV Notes: AT&T & DirecTV Merge With FCC’s Blessing; Comcast Announces Strong Q2 Results And Declares Dividend
  • By , 7/27/15
  • tags: CMCSA DTV T
  • The pay-TV industry saw significant activity this week, with AT&T completing its merger with satellite-TV provider DirecTV after receiving the green signal from the FCC. The combined entity will likely offer a “quadruple-play” bundle of mobile, fixed-line, high-speed internet and pay-TV, which will bring diversity to DirecTV’s business. The offering of four bundled services, compared to the three (fixed-line, internet and pay-TV) offered by most cable operators, could also provide the merged entity a significant competitive advantage. On a separate note, Comcast reported a strong set of numbers in its recent quarterly earnings report with high-speed internet segment and NBCUniversal leading the charge for the company. On that note, we discuss below these developments related to the pay-TV companies over the past few days.
    MRK Logo
    Keytruda, Januvia And Vytorin Will Govern Merck's Second Quarter Earnings
  • By , 7/27/15
  • tags: MRK JNJ BMY
  • Merck (NYSE:MRK) will report its Q2 2015 earnings on July 28th. We expect some positive signals as new drug sales ramp up and existing big franchises remain resilient to competition (except Remicade). Adverse currency movement is likely to be a dampener, but that’s a transient phenomenon and is widely expected and priced into the stock. The key will be to see how Keytruda sales are shaping up, and progress in FDA filings for additional indications. This is likely to influence the stock market more than any other single factor. Our price estimate for Merck stands at $63.30, implying a premium of about 10% to the market price.
    SIRI Logo
    Sirius XM Earnings Preview: Subscriber Additions Could Slow Down
  • By , 7/27/15
  • tags: SIRI P
  • Satellite radio provider  Sirius XM (NASDAQ:SIRI) is scheduled to release its Q2 2015 earnings on July 28th. Since the company reported compelling subscriber growth in the second quarter of 2014, it might have a tough time in surpassing its year ago performance. Sirius XM’s subscriber additions had picked up in the second quarter of last year after a lackluster Q1, driven by a 7% increase in new vehicle sales. It had reported 5% year over year growth in total paid subscribers and 7% growth in self-pay subscribers. A tough comparable period and a relatively weaker rise in new car sales in the second quarter of 2015 weaker Sirius XM’s subscriber growth for the period to be reported. While we believe Sirius XM’s growth continued in the second quarter, we do not expect there was any significant improvement in its new vehicle penetration rate, since it is already on the high side (at 71%). Also, we expect the monthly churn rate to remain roughly stable, as it has not changed much over the past several quarters. On the profitability side, we believe that  Sirius XM’s margins continued to improve in the quarter due to the operating leverage that results from top-line growth. For the first quarter of 2015, the company’s EBITDA (earnings before interest tax depreciation and amortization) margins improved strongly, reaching a record high of 37%. Our current price estimate for the company stands at $3.82, which is just below the current market price.
    F Logo
    Ford Earnings Preview: Declining F-150 Market Share Could Dampen Results
  • By , 7/27/15
  • tags: F GM TM HMC
  • Ford Motors (NYSE:F) is scheduled to release its earnings for the second quarter of  2015 on July 28th..  It has been an atypical year for the company: in a normal year, Ford makes most of its profits in the first half of the year and introduces newer models in the second half of the year, which raises costs and affects profitability. However, in 2015, the opposite is expected — the company is still incurring heavy costs in rolling out a new model of its most profitable vehicle, the F-150 series pick-up truck. Below, we take a look at the sales data from the three main regions in which the company operates, to get a better sense of what to expect from the company in the second quarter. North America North America is not only the most profitable region for the company but also its most critical region, as when profits there suffer, the company’s overall profitability tends to suffer, too.  In the first quarter, profitability in the region was weighed down by the low supply of the company’s best selling F-150 pick-up trucks.  Ford is undertaking a refresh of the F-150, which before this year was made from a steel frame and body.  With the new model, the company has closed down production at the two plants where it is manufactured — Dearborn in Michigan, and Kansas City — to allow for their retooling, so that the trucks could be manufactured with aluminum bodies. The plants are now running at full capacity but supply has been tight for months. The company has tried to make up for the low inventory by trying to sell most of its available inventory to retail buyers, who tend to prefer higher-trim trucks, which command higher margins, as opposed to commercial (fleet) buyers, who tend to buy 100’s of units all at once, often at a slight discount. As a result, the company has lost out on market share in the commercial sales segment to GM, whose Chevrolet Silverado has done really well over the quarter. In the first half of the year, sales of the Chevrolet Silverado are up by close to 15%, while F-150 sales have declined by 2.4%. China China is not only already the world’s biggest auto market, but it is also one of the fastest growings. It is expected that new-car sales in China will reach 30 million by 2020, compared to 20 million in 2014. The region will contribute to close to a third of all new-vehicle sales in the world by that time period. As a result, Ford is increasing its presence in the region, both in terms of its car models and production capacity. The company recently opened its sixth assembly plant in the region, increasing its capacity by a quarter of a million vehicles. Additionally, the company also launched the Lincoln brand in the country late last year and that should soon start contributing to the company’s profits. Lincoln has received good customer response, according to Ford’s management, and it is quite likely that the company will soon start producing the vehicle in the region to further drive up sales and profitability. However, the recent slowdown in China might be a cause for concern. Rival company GM managed to drive up profitability in China through a combination of cost cuts and new higher-margin product launches, but Ford didn’t follow a similar strategy and could have suffered in the second quarter as a result. Europe Since 2012, Ford has lost over $4 billion in Europe. The region has been slow to recover from the financial crisis and annual new-car sales have still not reached their pre-recession levels. However, Ford is slowly starting to turn around its operations in the region. In the first quarter, the U.S. auto maker sold more than 335,000 vehicles, representing a 12.5% increase compared to the same period last year. More importantly, nearly three-fourths of those sales were made in the retail and fleet channels, which are more profitable than selling to car rental companies. For the month of June, Ford’s sales in Europe rose by 16%, faster than the industry wide growth rate. When starting its restructuring in Europe in 2012, Ford announced plans of launching 15 new models by 2017 and these new models have been boosting sales for the company in the region. Sales of the new Ford Mondeo were up 55% for the month of June, while commercial vehicle sales(comprised mostly of the Transit vans and Ranger pickups) were up 33% for the first half of 2015. As a result, Ford’s market share has grown by 20 basis points compared to its market share last year. See full analysis for Ford Motors View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    JBLU Logo
    JetBlue 2Q Preview: Strong Unit Revenue Coupled With Fuel Cost Savings To Drive Earnings
  • By , 7/27/15
  • tags: JBLU ALK LUV DAL
  • JetBlue Airways Corporation (NASDAQ: JBLU), which did not plummet over rumors of a demand supply mismatch in the domestic market, is scheduled to announce its second quarter operating results on Tuesday, 28th July 2015. Based on the airline’s latest traffic numbers, we expect the low-cost carrier to report a significant increase in its passenger traffic driven by its rapid capacity expansions during the June quarter. Given the strong domestic air travel demand, the airline forecasts its passenger unit revenue to improve, unlike its competitors who have witnessed a sharp decline in the key metric. Consequently, we expect JetBlue to deliver a notable increase in its earnings driven by the improvement in its unit revenue coupled with the lower fuel costs. Here’s a quick look at what we expect from the airline’s second quarter results. Source: Google Finance Strong Unit Revenue Will Likely Boost Revenue Similar to the last quarter, JetBlue grew its capacity at a high rate to expand its market share. We expect the airline to match the higher end of its capacity guidance of 5.5%-7.5%for the June quarter. This is likely to result in a rise of greater than 8.5% in the airline’s passenger revenue. Consequently, JetBlue’s load factor (number of passengers flown per flight) is also expected to increase, unlike its competitors who have experienced a decline in their occupancy rate. Further, with a high exposure to the domestic market, we expect the airline to surpass the foreign currency headwinds, improving its unit revenue by 0.5%-1.5%, in line with the airline’s previous guidance . Keeping all these factors in mind, the market expects the low cost carrier to post quarterly revenue of $1.61 billion, marking an increase of 8% compared to last year’s revenue. Source: Bank of America Merrill Lynch 2015 Transportation Conference Lower Fuel Costs To Improve Earnings According to the last investor update, JetBlue had hedged approximately 20% of its second quarter fuel requirements, expecting to realize an average fuel price of $2.11 per gallonin this quarter. But, given the slower-than-expected oil price recovery, we expect the airline’s fuel costs to average at an even lower price, translating into higher fuel cost savings. However, these cost savings are likely to be marginally offset by an expected increase of 1%-3% in the airline’s unit costs (excluding fuel and special items) during the quarter. Yet, we estimate the airline to deliver strong growth in its bottom-line driven by the low fuel expenses. The market estimates JetBlue to earn a profit of $0.44 per share for the quarter. Conclusion While the rest of the US airlines continue to struggle due to pricing pressures, we expect JetBlue’s domestic presence to augment its unit revenues, resulting in a notable top line growth. Additionally, the lower-than-expected fuel costs will boost the low cost carrier’s earnings for the quarter. Our price estimate for JetBlue stands at $22 per share, approximately 2% behind its current market price. See Our Complete Analysis For JetBlue Airways Here 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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