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Trefis Analysis


Wells Fargo is set to report its Q3 earnings on Wednesday. With net interest margins remaining compressed, the bank's earnings will depend heavily on cost cutting. Our pre-earnings note details our expectations for the quarter.

See Complete Analysis for Wells Fargo & Co.
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Microsoft's dominant share in the productivity software market has declined slightly in recent years due to competition from hosted suites such as Google Docs. We expect further declines, but the company's market share is still likely to remain above 90% in the coming years.

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Weekly Media Notes: Disney's Movie & TV Deal With Sky, Star Wars Video Game, Viacom's Deal With Hulu And CBS' Late Shows Ratings
  • By , 10/12/15
  • tags: CBS VIA
  • Media stocks largely remained active this past week, with Disney inking a multi-year movie and TV deal with U.K. pay-tv operator Sky. In another note, Viacom signed a distribution pact with AT&T and another content deal with Hulu. CBS’ late shows saw massive ratings uptick in the first two weeks of 2015-16 television season. We discuss below the developments related to these media companies over the last week or so.
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    Is Facebook A Threat To YouTube In The Booming Online Video Ads Market?
  • By , 10/12/15
  • Online video market has moved to the fore front of advertising over the past five years. Recently, mobile video viewing has further added impetus to this segment, primarily due to advent of mobile technology and the widespread adoption of Smart Phones and Tablets. Due to these factors, the incumbent online video companies, i.e.,  Google ‘s YouTube (Nasdaq:GOOG) and Facebook (Nasdaq:FB) continue to aggressively pursue this vertical to grab more pageviews, and in the process attract more ad dollars. While YouTube is the undisputed leader in the market, Facebook is fast becoming more popular due to better user engagement. In this note, we explore the online video ads market, and how Facebook is challenging YouTube’s dominance in this market.
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    The Week That Was For Online Travel Agencies
  • By , 10/12/15
  • tags: EXPE PCLN TRIP
  • The Australian travel market has been busy with some important OTA related activities. The Accommodation Association of Australia (AAA) has recently objected to  Priceline  (NASDAQ: PCLN) and  Expedia ‘s (NASDAQ:EXPE) market dominance and putting hotel owners at a financial and competitive disadvantage. Expedia is aiming to gain greater presence in corporate travel with Egencia and it also views Australia as a great market for growth in relation to increasing Chinese inbound travel. Priceline, on the other hand, is targeting greater presence in the U.S. and China. The travel market growth surpassing the GDP growth, and the rise of online travel bookings, seem to encourage the OTA behemoth to grow its gross bookings by 20% in Q3 2015. TripAdvisor  (NASDAQ:TRIP) announced Ernst Teunissen as its new CFO to replace its outgoing CFO, Julie Bradley. Priceline Priceline’s is eyeing China along with the U.S. for an expansion of its presence. is aiming for a 20% growth in bookings in Q3 2015. According to Priceline’s Chief, Darren Huston, the company has three tailwinds to propel its future growth: the rate of growth of travel is twice that of the rate of growth in GDP, the do-it-yourself travel is on the rise in comparison to packaged travel, and online travel is growing at a faster rate than offline travel. had accounted for 85% of the company’s revenues in Q2 2015. On the other hand, Hotel operators in Australia are pleading to the regulators against Expedia and Priceline’s practices such as “price parity,” last room availability, and “brandjacking.” The Accommodation Association of Australia (AAA) had recently pointed these out in a submission to a consultation which was started by Australian Competition and Consumer Commission. The AAA stated that the level playing field between hotel operators and OTAs are slowly getting eroded after Expedia’s acquisition of Wotif. Both Expedia and Priceline had raised commissions from 12% to 15%. Additionally, the OTA leaders insist upon a “price parity” clause that forbids the hotel partners from offering lower prices for direct booking. It is noteworthy to mention here that several parties had objected to the recent Expedia-Orbitz merger on similar grounds . However, the Department of Justice had given a go-ahead on the basis of the emerging OTA competitors in the U.S. Priceline’s stock gained around 4% over the week through Friday. We have a   price estimate of $1,282 for Priceline’s stock which is slightly below the current market price. For the year 2015, we estimate revenues of around $10 billion and EPS of $57.80, both in line with the consensus estimate. Expedia Expedia’s corporate travel division, Egencia, is looking for options to increase its presence in the Australian market. Egencia’s entry into the domestic Australian market dates back to 2011, through its acquisition of Travelforce, a local corporate travel management company. After overcoming the initial hiccups of migrating Travelforce into the superior Expedia platform, the company had been recently delivering double-digit growth. Expedia wishes to take advantage of this fact, and also the profitable Australian market, to expand its reach. Egencia is currently one of the top 5 corporate travel agencies in the world with a gross booking of over $5 billion in 2014. Egencia’s growth rate in Australia currently exceeds those of its closest rivals –Flight Center Travel Management and Corporate Travel Management, albeit from a smaller transactional base. In 2014, Egencia’s gross bookings in Australia was around $67 million, reflecting 36% year-on-year growth. In the same period, Flight Center and Corporate Travel reported gross bookings worth $2.3 billion and $814 million, respectively, with growth rates in high single digits. Meanwhile, Expedia is also seeking the help of its Australian acquisition Wotif, to grow its presence in China. According to Expedia Chief, Dara Khosrowshahi, though Wotif was originally acquired to tap into Australia’s outbound market to the U.S., currently the rise of the Asian middle class, and especially the Chinese traveler, implied that Australia’s potential as an inbound market has grown more profitable. You can read more about the China travel market here . In this context, it is relevant to mention that Expedia has recently sold its 62% stake in Chinese OTA, eLong, because of the latter’s prolonged weak performance. Chinese OTA leader, Ctrip was one of the major buyers of eLong’s stake (~40%). Post the sell-off, Expedia and Ctrip entered into a partnership to share inventory in specific geographies, mainly in the air and packaged tours segment. You can read more about it here . Hence, Expedia might have analyzed its options in the world’s soon to be largest travel market, before giving up on eLong. Currently, it is expanding its presence in China through its brand,, and by leveraging on its Ctrip partnership. Expedia is also contemplating the launch of the Expedia brand in China in the future. Expedia’s stock gained around 2% over the week through Friday. We have a   price estimate of $117 for Expedia’s stock which is around 5% below the current market price. For the year 2015, we estimate revenues of around $7 billion and EPS of $4.29, both in line with the consensus estimate. TripAdvisor On October 8th, TripAdvisor announced the appointment of a new chief financial officer, Ernst Teunissen, who will assume the position effective November 9 th . Teunissen will be responsible for the company’s global finance operations that include investor relations, tax, corporate development, and real estate. He will succeed TripAdvisor’s current CFO Julie Bradley, who had decided to step down in April due to personal reasons. Teunissen is currently the CFO and executive director of the public tech company, Cimpress, a company that produces marketing material through mass customization and web-to-print systems. According to Stephen Kaufer, TripAdvisor’s president and CEO, Teunissen’s experience in business, technology, strategic investments, and mergers and acquisition-related activity will prove beneficial for TripAdvisor’s growth. Under Bradley’s financial governance, TripAdvisor had almost doubled its revenues in the last four years to $1.2 billion, acquired 17 companies, and strengthened and expanded its user and advertiser platform. TripAdvisor’s stock gained around 2.5% over the week through Friday. We have a   price estimate of $80 for TripAdvisor’s stock which is close to 20% over the current market price. For the year 2015, we estimate revenues of around $1.5 billion and EPS of $2.59, both almost in line with the consensus estimate.   View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap
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    What's In Store For Costco In Fiscal 2016?
  • By , 10/12/15
  • tags: COST
  • In the wake of  its recent earnings release,  Costco ‘s (NASDAQ:COST) stock has been inching upwards and has almost reached its 52 week high. The warehouse club ended fiscal 2015 on a strong note as the company grew its comparable sales and revenues by 1% during the year, taking the top line to a little under $114 billion. While these growth numbers, as reported, are not that impressive, muffled as they are by both currency effects and subdued gas prices. Adjusting for these factors, comparable sales growth for the year stands at a more respectable  7%. Costco’s net income also increased by 15% compared to the last fiscal, to $2.4 billion. In the year ahead, we expect both oil prices and currency headwinds to ease out. Therefore, top line growth is likely see a recovery sooner rather than later, while margins might stay on the lower side driven by Costco’s investments in technology, eventually recovering towards the end of fiscal 2016. Our price estimate for Costco stands at $141, about 5% below the current market price. See our complete analysis for Costco Membership Expected To Grow Driven By Expansion Costco’s membership fees  came in at $2.5 billion in fiscal 2014, an increase of $105 million or 4.3% compared to the previous fiscal year. While renewal rates remain strong at 91% in the U.S. and Canada and 88% internationally, the company is also expected to benefit from new sign-ups, going forward. At the end of the fiscal year, the total number of memberships stood at about 81 million, 20% of which are executive memberships who pay an additional $55 for a 2% reward on most purchases. Given Costco’s expansion going forward, the number of new sign-ups will further boost earnings. For example, in Asia, new warehouses typically see an average of 30,000-40,000 signups in the first two to three months . In the recently ended fiscal, the company added 22 warehouses, half in the U.S. and half in rest of the world, taking the total warehouse count to 686. Before the end of this calendar year (i.e., in the next three months), Costco will open an additional 12 warehouses (and a total of 32 in fiscal 2016). Considering the average membership fee per warehouse of $3.7 million, store openings due in 2015 offer a revenue potential of $44 million in incremental membership fees (6% of the current annual fees earned). More importantly, the impact these new sign-ups will have on the net income will be more meaningful as most of the fee revenues trickle down to the bottom line. IT Investments Will Keep Margins Down Costco online currently operates in four countries; U.S., Canada, UK and Mexico. For the fiscal year, total sales through the digital channel amounted to $3.5 billion, a growth of 20% for the year. Growth in online sales seen this fiscal was driven by the company’s investments in technology. The company, for long, had been running on legacy systems, many of which were developed in-house. As they grew strained with time, the company decided to make significant upgrades to the systems while also establishing an online presence. This fiscal year, incremental costs on IT led to an increase in SG&A expenditure by $75 million or 17 basis points, as a percentage of total revenues. While these investments will continue into the next fiscal year, they are expected to taper off towards the second half of the year. Therefore, in addition to an uptick in sales, we might also see a slight  improvement on the margins front in the latter 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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    F5 Networks Will Manage To Retain Its Leadership In ADCs
  • By , 10/12/15
  • A recent report published by research firm Gartner  places  F5 Networks (NASDAQ:FFIV) at the top of the Leaders Quadrant for Application Delivery Controllers (ADC) for the ninth consecutive year, positioning F5 as the highest in execution and furthest in vision within the quadrant. F5 derives a significant portion of its revenue from the ADC market, and has been the leader in ADCs for many years. However, the company was recently downgraded by Guggenheim, with the firm stating that F5’s core ADC business is slowing and it has become a net ADC share donor. F5 accounts for over 50% of the ADC market, and its closest competitors are way behind it in terms of market share. The company did a comprehensive refresh of its product portfolio in 2013 which significantly expanded its addressable market. As the gains of the refresh dry up, F5 might not be able to increase its market share at the historical rate, but we still believe that the company has the expertise, resources and capital to defend its leadership in the ADC market for years to come. Our price estimate of $129 for F5 Networks is approximately 10% above the current market price. See our complete analysis for F5 Networks here Sizing Up The ADC Market   The ADC is a key system within enterprise and cloud data centers that  improves the  availability, security and performance of applications across networks. Essentially, an ADC distributes workloads throughout a computer network, simplifying both the management of data centers and the delivery of resources across diverse networks. They also enable applications to perform faster. While the ADC market witnessed double-digit growth in 2012, the growth rate slowed down to low single digits in 2013 and 2014. Nevertheless, the ADC market continues to have immense long-term growth potential.  Market Research International  believes that the global ADC market will grow at a CAGR of 8.13% between 2013 and 2018. One of the key factors contributing to this market growth is the increasing workload distribution using ADCs. The market has also been witnessing the emergence of cloud-optimized ADC equipment. Additionally, the expansion of security features in the ADC platform has and will continue to drive demand in the future. Research form  IDC foresees steady growth of the worldwide ADC market for the next few years, estimating the market to reach more than $2.2 billion in 2018. Expanding Security Business,  ‘Good, Better, Best’ Pricing Model’ & Cisco ACE Replacement Opportunity To Drive F5’s Growth F5 managed to increase its revenue market share in ADCs to approximately 52% in 2014, as the company benefited from a full year of its new software bundling offerings and its clients increasingly deployed the company’s security functionality within ADC implementations. Over the past year, F5 introduced its Silverline cloud-based offerings and is leveraging its LineRate acquisition to help combat erosion from lower-cost or open-source offerings. However, Gartner’s most recent market share data shows that F5 lost 130 basis points of revenue share from Q1’15 to Q215, and 60 basis points from Q214 to Q215. We believe that an expanding security solutions portfolio, increasing acceptance of its “Best” product offering (approximately  70% of the customers opt for this bundled offering), and the Cisco ACE replacement opportunity will help F5 retain its leadership in ADCs. Since its entry in the Internet firewall market in February 2012, F5 has significantly expanded its security solutions portfolio with the addition of new products. In Q3 2015, F5 signed its largest service provider security deal to date, a multi-million dollar agreement with a domestic tier 1 carrier. The company expects to see strong demand for its expanding portfolio of security solutions as customers look to adopt hybrid architectures, deploying applications both on-premise and in the cloud. F5 has scored big product wins by replacing some of Cisco ACE products in large customer accounts since the latter announced its decision to exit the ADC market in 2012. F5 expects the opportunity to continue throughout 2015 and beyond. The ACE installed base is over $1 billion of potential business, but F5′s target market is much larger. In addition to replacing Cisco’s existing solutions, F5 has the added opportunity of providing customers additional functionality including security, access control and application acceleration. What Are The Challenges; Who are F5’s Key Competitors? According to  Gartner ‘s clients and survey results, F5 is the highest-priced provider in the ADC market. According to the research firm, the F5 platform is not well-aligned with mid-market organizations’ ADC requirements from a feature and price perspective. On the other hand, Citrix (one of F5’s key competitor) provides a comprehensive set of hardware and software options for ADC deployments that span midsize to large enterprises, service providers and cloud providers. Additionally, Citrix’s partnership with Cisco in various areas of data center and virtual desktop infrastructure poses as a threat to F5. Citrix is also a leading player in virtualization offerings, which is a fast growing sub-segment of ADC. Radware has a strong portfolio of ADC solutions, and the company accounts for approximately 9% to 10% of overall ADC revenue. Radware grew more than double the market rate in 2014. The company offers cost-effective solutions and also has a deep set of security capabilities that can be integrated with its ADCs. In addition to Citrix and Radware, F5 also competes against start-up firm A10 Networks and other smaller players such as Riverbed Technology, and Brocade. The intense competition in the market might restrict F5’s capability to gain additional share in the application delivery network market. But the company retains its predominant market share and highly robust and broad offering. View Interactive Institutional Research (Powered by Trefis):
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    What If Alibaba's Consumer Coverage Falls To 60% In China?
  • By , 10/12/15
  • tags: BABA AMZN EBAY
  • Almost 75% of  Alibaba ‘s (NYSE:BABA) valuation can be attributed to its operations in China. Needless to say, its share within the country’s e-commerce market matters. In 2014, buyers on Alibaba’s China marketplaces accounted for nearly 85% of total estimated online shoppers in region. This clearly establishes Alibaba’s dominance in the country and we expect the figure to increase further in 2015. However, over the next several years, we expect Alibaba’s average active buyers as a percentage of total online shoppers in China to decline slightly due to growing competition. So what happens if the competition intensifies and this figure drops sharply to 60%? The valuation drops by 15%! To help our readers assess the impact, we have created a mini interactive model where they can modify Alibaba’s buyer coverage (average active buyers as % of total online shoppers) to see the change in Average Active Buyer forecast . Readers can then leverage this generated change and apply it our valuation model for Alibaba to see the how it affects the price estimate. Our  $82 price estimate for Alibaba’s stock, represents a more than 20% premium to the current market price. See our mini interactive model for Average Active Buyers forecast here
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    Apparel Week In Review: Gap Inc Reports Monthly Results And Urban Outfitters Discloses An M-Commerce Contract
  • By , 10/12/15
  • tags: GPS URBN
  • The past week was relatively uneventful for the U.S. apparel industry, except that Gap Inc (NYSE:GPS) reported its September sales results, which once again turned out to be disappointing. The lack of fashion variety comparable to fast-fashion brands, relatively slow moving inventory and expensive price points have been a drag on the retailer’s premium brands for a while now. And the appreciating dollar has not helped the company’s international operations. On the other hand,  Urban Outfitters  (NASDAQ:URBN) continued to build on its e-commerce and omni-channel goals as Slyce Inc. announced its contract with the retailer to provide visual mobile search technology. Here is a quick roundup of the past week’s news that mattered for these companies. See our complete analysis for Gap Inc See our complete analysis for Urban Outfitters Gap Inc Reports September Sales Results Gap Inc recently reported sales results for the month of September, which ended on October 3 on its retail calendar. The retailer’s net sales declined 1% to $1.46 billion, driven by exchange rate fluctuations and 1% decline in comparable sales. Since Gap Inc earns close to 25% of its revenues from outside the U.S., the strengthening dollar has been a drag on its growth. However, its premium brand weakness has been more responsible for its lackluster results. Even during September, Banana Republic’s comparable sales were down 10% year-over-year and Gap’s growth was flat. Although Gap Inc was finally able to curb the decline in its mainline brand’s comparable sales, there is still scope for significant improvement. We have pointed out in our previous articles that the company’s premium brands are just not moving fast enough in an environment where speed is the difference between winning and losing. However, with several revival strategies aimed at improving design and speed-to-market underway, Gap Inc expects to see a visible difference next year. Our price estimate for Gap Inc at $43, implies a significant premium to the current market price. We expect revenues of $16.48 billion for the company in fiscal 2015, with earnings per share at $2.59, which is slightly below the consensus range of $2.84-$2.64. Urban Outfitters’ Contract With Slyce Inc. A few days back, Toronto-based Slyce Inc., a provider of a visual product search platform, announced that it has signed a contract with Urban Outfitters for improving the latter’s mobile-commerce. As per the contract, Slyce will support visual search for the retailer’s mobile platform. Slyce’s visual search technology allows consumers to search products in a particular retailer’s inventory by just taking photographs of merchandise they like. This technology provides an instant product recognition capability, which makes it an important tool for any retailer’s m-commerce platform. The Slyce contract is inline with Urban Outfitters’ plans to become a strong omni-channel player in the U.S. market. The company has been deploying several initiatives centered on website optimization, check out, search, personalization and mobile app enhancements. It is also expanding its store base gradually in order to have an optimum presence in the country necessary for omni-channel retailing. We believe that the effective implementation of such strategies will gradually take Urban Outfitters towards its goals, making it one of the stronger players in the omni-channel domain in the future. Our price estimate for Urban Outfitters at $38, implies a 30% premium to the current market price. We expect revenues of $3.59 billion for the company in fiscal 2016 (calendar 2015), with earnings per share at $1.82, which is within the consensus range of $2.09-$1.82. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)
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    Insurance Weekly Notes: Prudential's Retirement Business Looks Strong
  • By , 10/12/15
  • tags: KMB
  • Last week saw more business flowing to  Prudential Financial ‘s (NYSE:PRU) retirement segment. Early in the week, Prudential entered in an agreement with J.C. Penney, one of the largest retailers in the U.S., to transfer the pension obligations of 12,000 retirees and beneficiaries.  Not only will it reduce J.C. Penney’s expenses with respect to the pension obligations by nearly 35% it will add to Prudential’s business. There lies a lucrative potential for Prudential in this space; according to a research report by Mercer, as of September there was an aggregate deficit of $457 billion in the funding levels of pension funds sponsored by S&P 1500 companies. With an increasing number of companies transferring pension obligations to insurance companies, Prudential is well-positioned to benefit. The value of the deal won’t be until it closes by the end of the year. This comes after Prudential signed similar deals earlier in the year, most prominently with  Kimberly-Clark  (NYSE:KMB) for about $1.25 billion. Prudential’s stock gained nearly 2% through the week, ending Friday’s trading at $78. We have a price estimate of $94 for Prudential’s stock, valuing the company at about $42 billion. Prudential’s valuation has seen a dramatic decline in the last three moths, starting from the crash in the financial markets that arose from the devaluation of the Chinese yuan as well continued pressure from the low interest rate environment. See our Complete Analysis of Prudential here
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    What's Driving Samsung's Projected Earnings Rebound?
  • By , 10/12/15
  • Samsung Electronics (PINK:SSNLF) published preliminary Q3 2015 earnings last week, indicating that quarterly revenues likely rose 7.5% year-over-year to to 51 trillion won ($44.6 billion), while operating profits likely jumped 80% to about 7.3 trillion won ($6.3 billion), ending the company’s two-year streak of declining profits. Although the company didn’t break out segment results or provide additional color on the numbers, it’s possible that a meaningful part of the improvement was driven by stronger components sales and currency tailwinds. Samsung’s components contracts are mostly done in U.S. dollars and the dollar has appreciated by about 12% against the won over the past year, helping Samsung’s won-denominated earnings. Additionally, Samsung could have seen better costs relating to the restructuring of its beleaguered smartphone unit.
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    Smartphone Weekly Notes: Apple Makes AI Acquisitions; Samsung Projects Earnings Rebound
  • By , 10/12/15
  • The smartphone industry had an interesting week, headlined by Samsung (PINK:SSNLF) publishing a strong set of preliminary earnings, indicating that operating profits likely rose by 80% year-over-year and  BlackBerry  (NASDAQ:BBRY) indicating that it could exit the handset business, unless it sells about 5 million phones a year. In other news, Apple (NASDAQ:AAPL) reportedly acquired two artificial intelligence-related start-ups.  Here’s a quick analysis of the news that mattered in the smartphone industry last  week. Samsung’s Projects Stronger Q3 Earnings Samsung Electronics published preliminary Q3 earnings, indicating that revenues likely rose 7.5% to to 51 trillion won ($44.6 billion), while operating profits likely jumped to 80% to about 7.3 trillion won ($6.3 billion). This marks the company’s first year-over-year profit increase since Q3 2013. While Samsung did not outline specific reasons for the improved results, it’s likely that the components business had a big role to play, driven by demand from Apple and Chinese smartphone vendors. Apple is apparently using Samsung’s 14-nm logic chips on a bulk of its new iPhone 6S devices that launched last month. Additionally, the company is likely to have benefited from currency tailwinds, since most of its components contracts are denominated in the U.S. dollar, which has appreciated by about 12% against the won in the past year.  Samsung’s smartphone business could have also seen a slight improvement in the last quarter. The company has  been streamlining its device portfolio to cut costs, while also launching well reviewed high-end devices such as the Note 5 and Galaxy S6 Edge+. Trefis has a $1255 price estimate for Samsung stock,  which represents a 25% upside to the current market price. We are modelling revenues of about $195 billion for CY’15. BlackBerry Targets 5 million Smartphone Shipments Blackberry CEO John Chen recently said that he has set a goal of selling about five million smartphones this year, a minimum number he believes will be required to make the business profitable. He hinted that the company could exit the the handset business altogether if these targets are not met.  The comments aren’t surprising, as BlackBerry has been struggling to turn around the smartphone unit as its high-end BB10-based devices such as the Passport and Classic failed to find favor with customers. Handset  sales fell to just 800,000 units in fiscal Q2, down by about 60% year-over-year, and its share of the smartphone market fell to about to about 0.2%. BlackBerry is betting the future of its smartphone business on a new Android device dubbed the Priv. The company is counting on the handset, which combines BlackBerry’s robust security features and Android’s massive software ecosystem, to appeal to a broader audience. Trefis has a $8 price estimate for BlackBerry’s stock,  roughly in line with the current market price. We are modelling revenues of about $2.35 billion for CY’15. We estimate the company’s FY’16 loss at $0.39/share. Apple’s Artificial Intelligence Acquisitions Apple made two AI-related acquisitions in recent weeks, buying VocalIQ – a company that is working on enhancing a computer’s ability to understand human speech, and Perceptio, a company known for its image-recognition software that can run within a smartphone without having to offload data onto the cloud for processing. Artificial intelligence has become a hot area in the smartphone industry, as companies look to make devices smarter and more proactive, carrying out tasks from recognizing objects in photos or videos to providing to conversational search capabilities. Apple’s acquisition strategy has generally focused on small companies with niche technologies that can be incorporated into its products and these deals seem to be no different. It’s likely that some of these technologies will be incorporated into the Siri intelligent assistant and imaging applications on Apple’s popular iDevices. Trefis has a $142 price estimate for Apple, which implies a 25% premium over the current market price. We are modelling revenues of about $237 billion for CY’15. We estimate the company’s FY’15 EPS at $9.45. 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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    VeriSign: The New Domain Name Game
  • By , 10/12/15
  • tags: VRSN
  • A vast majority of the websites we visit on a daily basis end with the most common domain extensions in the world – .com and .net. As of June 30 this year, these two domain names accounted for almost 134 million of the 296 million domain names registered, all of which are sold and maintained by VeriSign  (NASDAQ:VRSN). However, with the recent introduction of new gTLDs (Generic Top-Level Domains), this number could possibly see some shrinkage. Could this pose a threat to VeriSign’s top earning commodity (subscriptions of which account for a large part of revenues)? Probably not. What Are New gTLDs? In January 2012, the regulator for domain names registered on the internet, Internet Corporation for Assigned Names and Numbers (ICANN), began accepting applications for new gTLDs. These new domain extensions were meant to provide a more diverse range of options for potential website owners other than the 22 gTLDs like .com, .net, .org, and 295 country specific extensions like .de, .in, .us already in existence. It was believed that these new gTLDs like .guru, .photography, .(your brand name) will be more specific and can provide a more unique identity. For example, we can immediately understand that a .blog extension means that the website is a blog or that .bmw relates to the brand name BMW. Apart from this, the new extensions could also make the potential website more search relevant and self descriptive. Also introduced by ICANN were the Non-Latin Script and Foreign Language Domains. These domains help businesses that want to showcase their business on a global platform, by allowing users to use the domain names in their native script, thereby allowing greater flexibility. This is done by permitting domain names to have characters outside the latin script (a to z), digits (0-9), and hyphen (-), as encoded by the Unicode Standard (a character coding system that is designed to support the interchange and processing of diverse languages). Therefore, it seems that the benefits of this explosion in the standard internet naming system seem abundant and essential. What Does This Mean For VeriSign? VeriSign is the leader in domain names and internet security. It is also the sole authority on the sale of .com and .net domain names. Therefore, it seems logical that VeriSign should be worried about the new gTLDs which are ready to change the way domain names are perceived. In actuality though, this may only be partially true, and here’s why: See our complete coverage of VeriSign 1. In a recent survey that was conducted by ICANN, .com was still the most popular and most recognized gTLD. The TLD also dominated when it came to which TLD the participants were most likely to choose to set up a website in the next 6 months. Legacy TLDs like .com, .net, and .org were also chosen by about 90% of the participants as being the domain extensions they trust. The average trust in the new gTLDs was about 49%, which is much lower in comparison. 2. Existing brands are not readily accepting these new TLDs. The .com extension has been around for almost 30 years and is firmly set in people’s mind. Most of the big companies have a .com website, large educational institutions have .edu websites, and .org clearly stands for not-for-profit organizations. Establishments have come to trust these domain extensions and are hesitant to move away from familiar territory. Not even one big brand has moved to a new extension so far. 3. In comparison to 3.3 million names being registered in 400 of the new domain extensions in 2014, .com had about 8 million registrations in only one quarter. These numbers clearly show how the .com extension isn’t losing market share anytime soon. 4. Lastly, it would be worthwhile to mention that VeriSign is also participating in the new gTLD program, albeit only partially. The company has applied for IDN versions (Internationalized Domain Names) of .com and .net domains. In the latest quarter earnings, the company has announced a planned rollout of about 11 IDNs by the end of the year. Therefore, if new gTLDs do catch up in the future, VeriSign is ready to capitalize on the changing trend. All in all, it appears that VeriSign doesn’t have much to worry about, at the moment, when it comes to the introduction of new domain name extensions. Even though the company’s market share has been reduced (52.5% in 2007 to 46.6% in 2014) and will probably continue to decline in the future due to higher competition and more alternatives, new gTLDs may not turn out to be the threat that was once feared. 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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    Wells Fargo's Q3 Earnings Will Depend On Progress In Cutting Costs
  • By , 10/12/15
  • tags: WFC
  • Wells Fargo (NYSE:WFC) reports its third quarter results on Wednesday, October 14, and the banking giant’s results will provide some valuable insight into the key trends that affected traditional banking services over the period. With the hike in benchmark interest rates not coming yet, the bank’s interest income is likely to remain depressed yet again – shifting the responsibility of driving profits to its fee-based revenue streams. While Wells Fargo stands to gain from improved activity in the mortgage industry over recent months and also from higher card payment volumes, the overall equity market volatility would have dragged down revenues at its investment banking and asset management divisions. That said, the aspect of Wells Fargo’s Q3 results that we are most interested in is the progress made in improving its operating efficiency. Wells Fargo arguably has the most efficient business model among the country’s largest banks, but an increase in staff to handle stricter regulatory and supervisory requirements has had a negative impact on the bottom line over recent quarters. The impact of this was evident in Q2, and how well Wells Fargo manages its costs in the current environment will have a tangible impact on its long-term value. We maintain a  $60 price estimate for Wells Fargo’s stock, which is about 15% ahead of its current market price.
    REV Logo
    Revlon Becomes More Fragrant: Expands Fragrance Portfolio While Targeting Travel Retail Growth
  • By , 10/12/15
  • tags: REV LRLCY EL AVP
  • Revlon  (NYSE:REV) is set to launch its new perfume, Love Is On, in the upcoming TFWA show in Cannes (also known as, The Duty Free & Travel Retail Global Summit). This will be the first fragrance launch in over a decade by the mid-market beauty and cosmetics company. Post its acquisitions in the fragrance segment, this might be another step by Revlon towards building a stronger fragrance portfolio. Also, Revlon is targeting a demand gap in the travel retail segment for achieving significant growth. Since, travel retail is mostly dominated by premium cosmetics, Revlon’s affordable cosmetics might find a new category of enthusiastic buyers, which, in turn, can help the company reap benefits and grow through this channel. Our  current price estimate of $34 for Revlon’s stock  is at around a  10% premium to the current market price. See Our Complete Analysis For Revlon Here Revlon’s Recent Interest In The Fragrance Business A few months ago, Revlon acquired U.K. based fragrance company CBBeauty (CBB) and its U.K. distributor, SAS & Company. CBB has a presence in over 80 countries and it also offers sales and strategic services to select celebrity and fashion fragrance brands. SAS & Company looks after the distribution and marketing aspects of perfumes and beauty products from leading brands such as Burberry, Carven, One Direction, and Rihanna. The acquisitions helped Revlon to strengthen and expand its fragrance portfolio and is expected to aid Revlon with its entry into the fragrance licensing business in the U.K. After receiving the licensing capability, Revlon plans to pursue further acquisitions in this segment and hence expand its fragrance selection. The launch of a new perfume after more than a decade, suggests that Revlon is using the strengths of its recent acquisitions to further expand its fragrance portfolio.  Revlon’s management had implied in its   Q2 2015 earnings call, that there is scope for growth in the fragrance business by stating that the fragrance industry is largely fragmented and hence lacks fierce competition. This provides Revlon with the golden opportunity for licensing smaller brands and developing those into bigger brands. Currently, color cosmetics and hair color comprise around 80% of Revlon’s valuation. Deodorants and fragrances make up for less than 10% of the company’s valuation. The global fragrance market size is currently estimated to be around $40 billion  out of which L’Oreal and Estee Lauder enjoys around 20% and 7% market share, respectively. Hence,  given the fragmented nature of the industry and lack of too many big competitors, Revlon has a huge scope for growth through acquisition, licensing, and further product developments.  Currently, Revlon has a market share of around 0.5% in the ~$70 billion  antiperspirant, deodorant, and fragrance market, and it is forecast to grow to only to 0.6% by the end of our forecast period. If Revlon is able to gain even 1% of the market share by the end of our forecast period, the company’s valuation will rise by over 10%. Hence, given such growth potentials in this segment, it is only prudent for the company to attempt to further grow its fragrance business. Revlon Targets The Travel Retail Segment With Its Relatively Affordable Products The Love Is On Fragrance resonates well with the company’s recent brand campaign launch with the same message,  Love Is On,  implying that Revlon cosmetics exude the feelings of love and attraction. The   new perfume comes in a heart-shaped 50 ml bottle and has hints of Italian lemon and Sweet Berry. The perfume is being launched into the travel retail channel, where Revlon will also introduce its Love Series travel sets, that had been exclusively developed for the duty free and travel retail medium. The set contains a Love Series Lips which offers two different lipsticks: red and nude, two lip-gloss and two lip liners, and a Love Series Face which includes a compact primer, a highlighting palette, a blush, and multi-use eye-brightener. The sets come in free cosmetics bags. The company will also present the Revlon Ultra HD Lipstick exclusive travel retail set which offers five shades of the wax-free lipsticks. Revlon is undertaking a very clever strategy with its host of launches into the travel retail channel. Usually, travel retail signifies luxury or premium cosmetics. Most of these cosmetics are not affordable by a lot of passengers who might be looking for masstige products, that is, high quality and yet pocket-friendly. With the presence of brands like Estee Lauder and L’Oreal in the travel retail segment, and the resultant proliferation of luxury cosmetics, Revlon’s products might be a perfect answer to a lot of customers who aspire to buy good quality cosmetics from the airports, but might not be able to afford premium brands. Revlon was erstwhile present in the travel retail channels through color cosmetics. This is the company’s first launch of fragrance into this channel. (Image Source: The Moodie Report )   Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Delta 3Q Earnings Preview: Set For Another Record Quarter, Thanks To Weak Fuel Prices
  • By , 10/12/15
  • tags: DAL UAL AAL
  • The sustained weakness in crude oil prices in the last three months will continue to drive the profits of the US airline in the third quarter. Delta Air Lines (NYSE:DAL), which is slated to release its third quarter results on 14 th  October 2015, is expected to report another strong quarter on the back of significant fuel cost savings. While the Atlanta-based airline anticipates a sharp decline in its unit revenue during the quarter, we expect the lower fuel costs to more than offset the impact of this decline, resulting in a meaningful increase in the airline’s operating margins.  Let’s briefly discuss our expectations for Delta’s third quarter performance to be released later this month. We currently have a  price estimate of $50 per share for Delta, approximately 6% ahead of its current market price. Source: Google Finance Capacity Discipline And Fuel Costs Savings To More Than Offset Delta’s Lower Unit Revenue Similar to the first half of the year, Delta has kept its system capacity growth in low single digits in the September quarter to contain the fears of an oversupply of seats in the market. This will enable the airline to grow its passenger traffic in tandem with its capacity growth, and maintain its load factor at close to 85% for the quarter. However, pressure from foreign currency fluctuations, lower surcharges in international markets, and weakness in domestic yields, are expected to pull down Delta’s third quarter unit revenue by around 5%. However, based on the latest investor update, the airline’s fuel cost is estimated to average between $1.80 and $1.85 per gallon, almost 10 cents per gallon lower than its previous guidance. Further, Delta has significantly reduced its fuel-hedging exposure for the second half of 2015 and expects to realize the full impact of lower fuel prices in this quarter, unlike the previous quarter. As a result, we expect these fuel cost savings to more than offset the impact of weak unit revenue, and boost the airline’s bottom line growth. Our stance is validated by the upward revision of Delta’s operating margin (adjusted) guidance from 19-21% to 20-21% for the current quarter. This compares to the airline’s operating margin of 15.8% generated in the same quarter last year. Accordingly, we forecast the airline to meet the consensus EPS estimate of $1.65 per share for this quarter. Source: Delta Investor Update, 2nd October 2015 In a nutshell, we expect Delta to open the earning season with record third quarter earnings driven by low fuel prices, and set the tune for the other airlines that are expected to release their results in the second half of the month. See Our Complete Analysis For Delta Air Lines 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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    CSX Earnings Preview: Lower Fuel Expenses And Efficiency Improvements To Partially Offset Negative Impact Of Lower Shipments
  • By , 10/12/15
  • tags: CSX UNP NSC
  • CSX Corporation  (NYSE:CSX) will release its third quarter results on October 13 and conduct a conference call with analysts the next day. We expect weak shipment volumes across several commodities, particularly coal, and lower fuel surcharge revenues to negatively impact the company’s revenues on a year-over-year basis. As per CSX’s carload report for the third quarter ending September 26, the company’s shipment volumes, including intermodal shipments, declined 2.3% year-over-year.  The decline in coal shipments was particularly severe, with CSX reporting an 18.2% year-over-year decline in coal carloads. However, lower fuel expenses and improvements in operating efficiency are expected to, at least partially, offset the negative impact of weak shipment volumes and lower fuel surcharge revenues on the company’s results. In this article, we will take a look at what to expect from CSX’s Q3 results. Weak Coal Shipments Weak demand for both thermal and metallurgical coal has negatively impacted CSX’s coal shipments. Thermal coal, which is used in electricity generation, constitutes the bulk of the company’s coal shipments. Weak natural gas prices and an adverse regulatory environment have lowered the demand for thermal coal. The federal government is cracking down on carbon dioxide emissions and new regulations envisage a 32% reduction in power plant carbon dioxide emissions from 2005 levels by 2030. Coal based power plants have much higher emissions intensity as compared to natural gas based ones, accounting for the lion’s share of power plant carbon dioxide emissions in the U.S., despite coal and natural gas accounting for a comparable proportion of the country’s electricity generation. Given the relatively low emissions intensity of natural gas, the regulatory environment certainly supports a greater proportion of natural gas based power generation going forward. Besides an adverse regulatory environment, weak natural gas prices have accelerated the pace of adoption of natural gas as the preferred fuel for electricity generation. As per Energy Information Administration (EIA) estimates, gas prices will average less than $3 per million British Thermal Units (MMBtu) in 2015, a level which favors increasing adoption of natural gas as the preferred fuel for electricity generation. Thus, bleak market conditions for thermal coal have negatively impacted CSX’s thermal coal shipments. Over and above the bleak prospects for thermal coal, oversupplied global markets, weak steel prices, and a strong U.S. Dollar have negatively impacted CSX’s metallurgical coal shipments. Metallurgical coal is used as a raw material in steel production and most of CSX’s met coal shipments are exported. A combination of weak demand for both thermal and met coal has resulted in an 18.2% year-over-year decline in CSX’s coal shipments in Q3. Impact of Lower Fuel Prices The sharp decline in fuel prices over the course of the last twelve months has had a positive net impact on CSX. Whereas the decline in fuel prices has negatively impacted CSX’s fuel surcharge revenues, which are based on two month lagged values of highway diesel prices, the company has benefited from a decline in fuel expenses, which are based on spot highway diesel prices. In addition to declining fuel expenses, CSX has made improvements to the efficiency of its operations, the results of which are reflected in the improvement in the company’s operating ratio (operating expenses as a percentage of operating revenues) in the preceding quarters. CSX reported an operating ratio of 66.8% in Q2 2015, which represents a year-over-year improvement of 250 basis points. Lower fuel prices and improvements in efficiency are expected to support CSX’s bottom line in Q3 as well, and at least partially offset the impact of weak shipments and fuel surcharge revenues on results. It would be interesting to note the extent of the improvement in CSX’s operating ratio in Q3, since this would be a measure of the company’s success in combating adverse business conditions, characterized by weak coal shipments and lower fuel surcharge revenues. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    5 Important 401k Rules You Should Never Forget
  • By , 10/12/15
  • tags: SPY TLT
  • Submitted by Sizemore Insights as part of our contributors program  5 Important 401k Rules You Should Never Forget by Charles Lewis Sizemore, CFA   After the beating most investors took last quarter, I have a feeling that when 401k statements get mailed out in the coming days, most will be left unopened and dropped in the trash. It was just that kind of quarter. But with one quarter left in 2015, this is a good time to review some ironclad 401k rules that you’d be well advised to remember. For most working Americans, the 401k plan is the linchpin of their savings and the single biggest piece of their overall financial plan — yet because they are “boring” and automatic, they tend to get ignored. That’s a major mistake, and one that can cost you a comfortable retirement. So this week, take time to review your plan, and keep these 401k rules in mind. 1. Investing In a 401k Does Not Necessarily Mean Investing in Stocks Whenever I push clients to really take their 401k plan seriously, I often get the following reply: “But Charles, I don’t want to be invested in stocks right now.” And my reply is simple: “Who said anything about stocks?” “401k plan” does not mean “stock mutual funds.” A 401k plan, just like a brokerage account or an IRA, is merely a type of account. It can hold stock funds, bond funds, cash and — if your 401k’s limits allows for a self-directed option — you might even be able to hold nontraditional investments. If you don’t want to own stocks right now, then don’t. But keep stuffing cash into your 401k plan so that it’s ready to deploy when you need it. 2. Returns Are Only Part of the Equation This brings me to the second point. Let’s say that you hate the stock market right now due to high valuations, high volatility or because that last stock broker just looked at you funny. Pouring as much money into your 401k plan as you can, even if it sits in low-yielding money market funds, still makes all the sense in the world. Investment returns are only one part of your effective returns. There are also tax savings and the employer match to consider. If you’re in the highest tax bracket, you’re shelling out nearly 40 cents of every dollar you earn to the IRS. Therefore, earnings that you’re able to shield from the IRS in your 401k effectively “earn” 40% right off the bat in tax savings. And if your employer matches, that’s potentially another 3% to 6% for your retirement. And again, you haven’t put a single dime at risk in the market yet. 3. 401k Funds Are Usually Protected from Creditors You’re never really 100% lawsuit-proof. Even if you have your wealth squirreled away in elaborate business entities or even in an offshore bank, an aggressive enough creditor with a sympathetic judge can still put your assets at risk. Well, 401k money is about as judgment-proof as legally possible. It would be extremely difficult for a creditor to get a piece of your 401k plan. So, before you hire a swanky asset-protection attorney to hide your cash, keep as much as possible in your 401k plan. It’s a cheaper alternative and probably more reliable. 4. Always Remember That Money Is Fungible This might sound obvious, but a dollar in your left pocket is just as good as a dollar in your right pocket. A dollar is a dollar. They all spend the same. Well, you can apply the same logic to your 401k savings. Let’s say that you want to save the maximum $18,000 to your 401k plan (or $24,000 if you’re 50 or older), but that’s just not a reasonable target at your current income level. But let’s say you have plenty of after-tax savings built up over the years sitting at the bank. Well, you can max out your 401k contribution and dip into your regular, after-tax savings to plug any gaps in your budget. Remember, a dollar is a dollar. It doesn’t matter if it comes out of your paycheck or out of your savings account. 5. 401k Money Doesn’t Need to S tay 401k Money Finally, let’s say that you really want to invest in something nontraditional that will never be available in your company 401k plan, like a hedge fund or a real estate investment. Well, guess what — you might be able to deploy your 401k money. Depending on your plan’s 401k plan rules, you might be able to do what is called an “in-service” rollover to an IRA. In this case, you would move a piece of your 401k into a separate IRA account and then use the IRA funds to make the investment. This would be a nontaxable event, so long as you fill out the paperwork correctly. Not all 401k plans allow for in-service rollovers. Traditionally, you had to quit or retire to move your cash without tax consequences. But a growing number of plans now allow them, so if this is something that could benefit you, ask your company’s HR department or the 401k administrator. Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the  Sizemore Insights  blog.  Photo credit:  401(K) 2012   This article first appeared on Sizemore Insights as 5 Important 401k Rules You Should Never Forget
    Vietnam Steps Into Emerging Markets Spotlight
  • By , 10/12/15
  • tags: VNM VCVOF
  • Submitted by Wall St. Daily as part of our contributors program Vietnam Steps Into Emerging Markets Spotlight By Tim Maverick, Senior Correspondent These days, when investors hear the words “emerging market,” they immediately run in the opposite direction. The Institute of International Finance reports that investors pulled $40 billion out of emerging markets in the third quarter alone . That’s the fastest pace since the height of the financial crisis and the largest outflow of funds since the fourth quarter of 2008. But as a contrarian investor, I’m intrigued. These outflows made me wonder if, in the panic for the exits, someone may have overlooked a gem. And sure enough, shining like a beacon in the dark, was Vietnam. According to researchers at Capital Economics, Vietnam is one of just five emerging nations, as well as the only nation in Asia, whose economy is growing above its average growth rate since 2010. Economists forecast that Vietnam’s $186-billion economy will grow at 6.1% this year and 6.2% in 2016. This follows growth of 5.2% in 2012, 5.3% in 2013, and 6% in 2014. Capital Flowing to Vietnam Vietnam has been able to attract productive capital inflows recently. In fact, it ranks seventh among all countries, including the United States and China, in foreign direct investment (FDI). Most of that money is going into manufacturing. Vietnam is highly competitive in low-tech industries like textiles and footwear. But importantly, it’s also competitive in high-tech manufacturing. Vietnam has become a major exporter of smartphones, for example, and Samsung has one of its largest global smartphone facilities there. Thanks to the Vietnamese government, the economy’s momentum should continue. The government lifted the 49% ownership cap at a number of listed companies, which will allow foreign companies to invest heavily – or even take over – some Vietnamese firms. In addition, the government has tamed inflation. In 1988, inflation was at an incredible 774%! Four years ago, it was still at 22%. Two years ago, it was down to only 6%. And today, inflation is negligible. Vietnam’s Emerging Consumer Class The growth of manufacturing jobs in Vietnam is changing the face of the country. Here are just a few examples: The country has one of Asia’s fastest urbanization rates, which is creating a consumer middle class. According to the CIA World Fact Book, about a third of the population is now urban. The annual urbanization rate from 2010-15 is just under 3%. Vietnam is now the fastest-growing auto market in Southeast Asia. Through August, year-on-year car sales were up a whopping 62%. Vietnam’s internet penetration rate is rising faster than anywhere else in the world. With more than 40 million people connected to the internet, Vietnam has more users than any other country in Southeast Asia. Not surprisingly, Vietnam has been Asia’s top performer in 2015. Its gain is only about 3.5%, but that looks fantastic compared to other stock markets: It’s still relatively cheap, too, at just 12.5 times estimated earnings. And what really caught my eye is that the market is still trading about 50% below the peak level hit in 2007. The only easy way for U.S. investors to play Vietnam is through an exchange-traded fund – the Market Vectors Vietnam Fund ( VNM ). This ETF’s portfolio consists of 30 stocks, and it has about 75% of its assets invested directly into locally listed Vietnamese stocks. VNM has a very reasonable expense ratio of 0.7%. The big drawback is that VNM has underperformed Vietnam’s index, showing a year-to-date loss of about 19%. This is likely due to the fund’s over-weighting in the most liquid, financial stocks, as well as energy stocks. You can get much better performance with closed-end funds focused on Vietnam, which are traded in the over-the-counter market. The most liquid of these is the Vietnam Opportunity Fund ( VCVOF ). But even this one is very thinly traded. The advantage is that it’s trading 18% below its net asset value, so you’re buying assets at a discount in an already cheap market. Finally, when – not if – emerging market sentiment turns, the upside could be substantial. Good investing, Tim Maverick The post Vietnam Steps Into Emerging Markets Spotlight appeared first on Wall Street Daily . By Tim Maverick
    LB Logo
    L Brands Is On A Roll: September Sales Growth Topped Analysts' Estimates By More Than Double
  • By , 10/9/15
  • L Brands  (NYSE:LB), the parent company of Victoria’s Secret and Bath & Body Works, reported its September 2015 sales on October 8th. The company’s performance can be described by quoting The Bard, ‘ All’s Well, That Ends Well. ‘ Though the company is nowhere close to ‘ending’ and we believe has a long, long way to go, its September performance report which has topped Wall Street analysts’ estimates by more than double, does suggest that the sacrifice of the apparel category has indeed worked well for the company. L Brands net sales in September increased by 8% to $920 million. The growth was fueled by a 9% growth in comparable store sales, which surpassed analyst estimates of 4.1%. Both Victoria’s Secret and Bath & Body Works comparable sales growth were way above the analyst estimates. The company was aided in this growth by the shifting of Labor Day to September 7th this year, and the growth in the merchandise margin rates. The inventories per square foot witnessed a 7% year-on-year growth. The surging performance of the company can be attributed to its two brands which are the top performers in their respective categories. Currently, Victoria’s Secret enjoys over 40% share of America’s $13.2 billion lingerie market with the competition currently holding only a low single digit market share. Bath & Body Works is the largest specialty retail beauty brand in the world with over 120 million transactions in 2014. Currently, it is the number one brand in America in the category of body lotion, shower gel, fine fragrance mist, liquid hand soap, hand sanitizer, spa, and aromatherapy. Our price estimate for L Brands is at $80, around 15% lower than the current market price. See our complete analysis for L Brands Victoria’s Secret Sales Surged And The Core Category Focus Is Reaping Benefits Victoria’s Secret’s comparable store sales in September grew by 9% (over the 4% growth last year) beating analysts’ expectation of a 5.3% rise. The primary growth drivers were the increase in sales of its PINK line of clothing for teens and its core lingerie sales increase. The sales in turn were bolstered by the Labor Day related sales activity and the re-issuance of its loyalty cards called  Angel Cards . The merchandise margin rate was in line with expectation and slightly lower than that of last year. The reason for the same was the promotional activities towards increasing Labor Day sales and for new launches. The merchandise margin dollars experienced growth compared to that of last year. Victoria’s Secret’s wide collection of merchandise makes it easier for the brand to make fresh theme launches every month. This continuous freshness in appearance and product positioning is one of the secrets behind the brand’s enormous success. For the month of October, the company will relaunch its Beauty Fantasies collection. Victoria’s Secret direct is reflecting higher growth every consecutive month. In the recent past, Victoria’s Secret had exited its apparel category. The underperformance of its apparel division contributed to the lackluster performance of Victoria’s Secret’s direct-to-consumer business in 2013 and 2014. Hence, the company decided to sacrifice its $350 million apparel business in order to redeem its previous growth levels after shedding off a segment that was lagging behind. It categorized its products into “go forward” and “non go forward” categories and started clearance sales for the latter category. The core category was restructured to sacrifice the peripheral businesses such as makeup and apparel. Consequently, the company experienced a significant dampening of its gross margins but believed that chances for its long-term growth had increased due to this decision. The growth of its core division in the last few months does imply that the company took the right path. The division  displayed significant growth in the second quarter of 2015 . Its August sales had witnessed a 2% year-on-year increase and its September sales grew further by 3% on a year-on-year basis. The September growth in core categories reached mid-twenties, and thereby offset the dampening effect of the brand’s exit from the apparel division. The September merchandise rate also witnessed a significant growth over last year bolstered by the focus of the product mix into the core merchandise category. Bath & Body Works’ Sales Were Boosted By Labor Day Sales The Bath & Body Works brand also reaped the benefit of the Labor Day shift. The comparative store sales for Bath & Body Works increased by 8% on a year-over-year basis (over the 10% growth of last year) and easily beat analysts’ expectation of a 1.6% growth. The merchandise margin rate was flat compared to last year and was a bit dampened due to the Labor Day related promotional activities. The brand will continue featuring its ongoing Jump into Fall theme in October along with introducing some new and seasonal collections. For the moment, both brands are delivering, and with the holiday season approaching, more good news may be on the horizon, too. 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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