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COMPANY OF THE DAY : CHINA TELECOM

China Telecom reported a steady improvement in August, as it gained about 1.8 million new 3G subscribers. This marked the sixth consecutive month of improvement in 3G user adds for the carrier, and the first time this year that China Telecom recorded more monthly high speed user adds than China Unicom. In a recent note we discuss these results as well as our outlook for the company going forward.

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FORECAST OF THE DAY : VERIZON'S U.S. WIRELESS MARKET SHARE

According to a recent report by RootMetrics, Verizon's wireless network remains the best in the U.S. in terms of network speed, network reliability, call performance and data performance. The company's upgraded XLTE network allowed it to build a significant lead in terms of speed. We expect the carrier's network advantage to allow it to defend its market share amid increasing price competition from smaller rivals.

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Wal-Mart/Green Dot Partnership Triggers 7-Hour Buying Spree
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  • tags: GDOT WMT
  • Submitted by Wall St. Daily as part of our contributors program Wal-Mart/Green Dot Partnership Triggers 7-Hour Buying Spree By Richard Robinson, Ph.D., Financial Analyst   This week, Wal-Mart ( WMT) announced that it has selected Green Dot Corporation ( GDOT ) as its banking partner. Green Dot’s shares shot up nearly 25% on the news, closing at $23.41 on Wednesday. More than 3.6 million shares traded hands, compared to the company’s 30-day average trading volume of about 295,000 shares. The California-based bank holding company provides personal banking for the masses. It currently offers prepaid debit card products and prepaid card-reloading services throughout the United States. Now, the venture will significantly increase Green Dot’s exposure to traditional retail banking services. And as you’ll see, that should be enough to drive shares higher going forward. Here’s why . . . The New Type of Bank Account The Wal-Mart/Green Dot partnership is largely aimed at under-banked customers who don’t currently participate with traditional banks due to low credit ratings and other financial problems. So this partnership will greatly increase both companies’ ability to capture the millions of underserved retail banking customers. The new checking accounts, called GoBank, will offer customers an FDIC-insured bank account with a debit MasterCard (MA) – without the myriad fees associated with traditional commercial banks. For convenience, the accounts will give GoBank customers access to a network of 42,000 ATMs throughout the United States. To open an account, Wal-Mart customers must first purchase a $2.95 starter kit, which includes a temporary debit card that customers can use until their personalized card is issued. Once an account is opened, GoBank will impose an $8.95 monthly fee unless the customers consent to a monthly direct deposit of $500 or more. And in a bid to win over this subset of underserved banking customers, GoBank will waive fees typically associated with traditional retail banking services – such as overdraft fees, ATM fees, and fees associated with failing to maintain a minimum balance. The accounts are expected to be available in U.S. Wal-Mart stores by the end of October 2014. Will Green Dot Reach Its Full Potential? In Green Dot’s Q2 results, the company managed to grow its total operating revenues to $147 million, a 4.5% increase over its Q2 2013 results. While that might not seem extraordinary, these numbers outpace the industry average of 0.1% growth, proving that Green Dot understands how to grow revenue in a relatively stodgy industry. During the second quarter, Green Dot improved its earnings per share by 24% compared to its second quarter results from 2013.  And while it’s true that the company has experienced volatility in its earnings, the deal with Wal-Mart will significantly smooth its earnings per share over the long haul. Current guidance is for Green Dot to report improved earnings of $1.41 for 2014, versus last year’s $0.77. But a successful rollout of the Wal-Mart plan could prove immediately accretive to 2014 earnings, pushing expectations even higher. GDOT has virtually no debt, and the company maintains a quick ratio of 1.39, which illustrates its ability to avoid short-term cash problems. When taken together, Green Dot’s solid financial footing – combined with the prospects of a meaningful distribution channel that serves 140 million customers in the United States on a weekly basis – means Green Dot should soon be raking in revenue. This will solidify the company’s cash generation rate, and will translate into a much higher stock price – with a price target of $28 in the next 12 to 18 months. Good investing, Richard Robinson The post Wal-Mart/Green Dot Partnership Triggers 7-Hour Buying Spree appeared first on Wall Street Daily . By Richard Robinson
    StockTwits Banter: Reactions to the Bill Gross Departure
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  • Submitted by Sizemore Insights as part of our contributors program StockTwits Banter: Reactions to the Bill Gross Departure “Bond King” Bill Gross shocked the bond market Friday by announcing that he was leaving PIMCO–the company he founded in 1971 and grew into an international bond powerhouse–to manage a total return bond fund for mutual fund manager Janus Capital.  This comes after months of internal squabbling that saw Gross’s former right-hand man, Mohamed El-Erian, leave PIMCO allegedly due to personality conflicts with Gross. It’s too early to say what this means for PIMCO . . . or for Gross himself.  But I gave my initial thoughts to Business Insider’s Linette Lopez this morning: “When you bought the PIMCO funds that Gross managed you were buying the manager,” said Charles Sizemore, of Dallas-based Sizemore Capital Management. “That was your sleep at night assurance right there — that you had Bill Gross managing your money.” Gross’s performance has slipped in recent years; we will never know the extent to which his personality issues with his staff affected his performance.  But it does raise an interesting thought.  Shorn of executive management responsibilities and allowed to trade bonds in peace, might Gross’ performance make a comback? As Lopez continued, “He’s getting up there in age and he doesn’t need the money, and he doesn’t need the prestige,” Sizemore pointed out. “He just wants to be left alone to trade bonds.” Gross’ departure set the Twittersphere ablaze:     Question: If you had funds at PIMCO, will you keep them there or follow Bill Gross to Janus? #BillGross $BOND $BONDS — Charles Sizemore (@CharlesSizemore) Sep. 26 at 08:52 AM @CharlesSizemore increasingly erratic behavior ….might start the search over — Greg Harmon (@harmongreg) Sep. 26 at 08:55 AM @harmongreg You have to wonder how he’ll do as a pure manager again without all of the executive responsibilities. Should be interesting. — Charles Sizemore (@CharlesSizemore) Sep. 26 at 09:00 AM @harmongreg Because you’re right, his erratic behavior made it look like he was completely falling apart. — Charles Sizemore (@CharlesSizemore) Sep. 26 at 09:01 AM $JNS up 17% #premarket on the Bill Gross news. I guess they haven’t looked at $BOND and all those outflows lately? — Paul La Monica (@lamonicabuzz) Sep. 26 at 07:36 AM Huge volume on the Bill Gross-managed $BOND fund, but hasn’t really collapsed with his departure: http://stks.co/i16rB — John Kicklighter (@johnkicklighter) Sep. 26 at 11:31 AM NEW POST: SPY Technical Update and Gross Assessment http://stks.co/g16yO $SPY $BOND $MINT $JNS — David Fabian (@fabiancapital) Sep. 26 at 11:11 AM I’ll be very curious to see what happens with PIMCO inflows/outflows over the next month. $BOND $BONDS — Charles Sizemore (@CharlesSizemore) Sep. 26 at 09:11 AM @PaladinRegistry @CharlesSizemore Neither. Will be avoiding both. If held total return would leave but if have other funds keep. — Michael Sicuranza (@MSicuranza) September 26, 2014 @CharlesSizemore Move them to @DLineCap — Aaron Levitt (@AaronLevitt) September 26, 2014   Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays. This article first appeared on Sizemore Insights as StockTwits Banter: Reactions to the Bill Gross Departure
    September Was Elon Musk’s Best Month Ever
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  • tags: TSLA SCTY GM
  • Submitted by Wall St. Daily as part of our contributors program September Was Elon Musk’s Best Month Ever By Robert Williams, Founder   Earlier this summer, I recommended buying Tesla ( TSLA ). At the time, shares were trading for a bargain price of $227. “Tesla is 10 times more likely to hit $300 than it is to fall beneath $193, the level at which shares peaked in October 2013.” – Robert Williams, June 18, 2014 Well, the stock recently traded as high as $289, and… CEO Elon Musk just enjoyed the best month ever. But let’s not give Musk a champagne toast quite yet. According to some insiders, his escapades over the last 30 days are a warning to sell shares. Before we address whether my “Buy” rating on Tesla still holds true, allow me to share the six reasons why I believe Elon Musk just enjoyed the best month in modern technology history. Reason #1: Nevada’s Ridiculous ROI. On September 3, Musk picked Nevada as the state in which to build Tesla’s mammoth $5-billion lithium-ion battery gigafactory. Located in Reno, it will be the biggest battery factory in the world and create 6,000 new jobs. But it took a tax break package worth $1.3 billion to seal the deal and fight off competition from California, Texas, Arizona, and New Mexico. Musk says Tesla will generate its own energy from solar, wind, and geothermal sources to power the factory. It’s expected to produce $100 billion for Nevada over 20 years. Reason #2: Blasting Into Orbit. On September 7, Musk’s SpaceX company blasted the Falcon 9 rocket into space, where it made contact with the AsiaSat 6 satellite. It was the 12th successful Falcon 9 flight and the second successful mission for AsiaSat 6 this summer. Reason #3: One Small Step for Man… On September 16, SpaceX won $2.6 billion of a $6.8-billion NASA contract to take astronauts to the International Space Station (ISS). It was a major coup, given that Boeing ( BA ) was expected to claim the entire contract. It also marks the United States’ return to manned spaceflight, and sets the stage for commercial flights to space. The first manned expedition to the ISS is planned for 2017. Reason #4: Forget Airports… On September 22, SpaceX broke ground on its new coastal spaceport in Brownsville, Texas. From there, the company will initially launch commercial satellites into space, with private and commercial astronauts following at a later date. The Texas government will contribute $15 million towards construction, with SpaceX spending a further $100 million. The first launch is tentatively planned for late 2016. Reason #5: Access to Alien Technology. On September 23, SpaceX’s Dragon capsule docked at the ISS, delivering 5,000 pounds’ worth of supplies and equipment. That included a 3-D printer and 20 mice for biological research into the loss of bone density and muscle mass in space. It was SpaceX’s fourth mission to the ISS – part of a $1.6-billion contract of 12 flights. SpaceX has also created Dragon 2. Musk calls it “a significant upgrade in technology.” That’s because it’s “capable of a precise, propulsive landing. So it will be able to land anywhere in the world on its thrusters with the accuracy of a helicopter… If you imagine an alien spaceship landing, that’s how it would land.” Reason #6: The Biggest Solar Factory in the West. On September 23, it was announced that SolarCity ( SCTY ) – where Musk serves as Chairman – would build the Western Hemisphere’s largest solar factory in Buffalo. The one-million-square-foot building will manufacture solar panels and create 5,000 jobs. SolarCity will spend $5 billion on the project over the next decade, and when the factory is running at full speed in 2016, it will crank out one gigawatt of solar power per year. I’d say that’s a pretty incredible month, right? But does it also speak to a CEO who’s growing beyond his means? Well, in regards to Tesla’s stock, the bears will point out that Tesla’s total year-to-date output remains less than one day’s worth of output at GM ( GM ) or Ford ( F ). According to a JP Morgan ( JPM ) analyst, Tesla might be able to deliver only 18,250 vehicles in Q4, which implies that the company can effectively produce 73,000 vehicles over the course of a year. Tesla’s target for 2015 is to manufacture 100,000 cars. Yikes. As I see it, the even bigger negative is Tesla’s disappointing buying among hedge funds in the latest quarter. Companies enjoying incredibly bullish sentiment typically attract upwards of a billion dollars in newly opened positions. But from April through July, hedge funds and institutions only bought $548-million worth of Tesla’s stock. Remember, the stock market functions just like an auction… when buyers are more active than sellers, the bid price increases. On those merits, without strong levels of institutional buying, Tesla’s shares are under no pressure to appreciate. So for now, let’s move the stock to a “Hold.” Onward and Upward, Robert Williams Founder, Wall Street Daily The post September Was Elon Musk’s Best Month Ever appeared first on Wall Street Daily . By Robert Williams
    Will the Gold Plunge Continue?
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  • tags: GLD NUGT
  • Submitted by Wall St. Daily as part of our contributors program Will the Gold Plunge Continue? By Karim Rahemtulla, Chief Resource Analyst   Turmoil in the Middle East, rebellion in Ukraine, an Ebola outbreak in West Africa, and massive quantitative easing . . . In the past, even a whiff of conflict or financial crisis would have sent gold prices skyrocketing. Yet today, despite high consumer demand, the entire complex of precious metals is acting as if there were vast supplies. Gold prices are once again headed for $1,150 – the support level I warned that gold would return to. And investor sentiment could continue to get more negative from here. However, I just had a private meeting in Toronto with two of the most plugged-in men in the business, and their outlook could not be more bullish. The Metal Kings Say . . . Earlier this week, I met with Eric Sprott and Rick Rule, arguably two of the most successful investors in the precious metals space. The question in their minds is not if gold will go higher, but when . I agree with their conclusion, but I don’t see it happening in the near future. Even these metal heavyweights’ optimism can’t hide the fact that gold has been in a bear market for two years. Gold is down more than a third from its highs, putting many producers in danger of operating below cost. Even so, I wrote earlier this year about my retail and wholesale contacts who were looking for lower gold prices, despite gold values rallying up to the high $1,300s. Clearly, the demand is there. Especially from the Chinese and the Indians. But supply is also there as short-term holders are tiring of stockpiling something that’s underperforming. This underperformance won’t last forever, though. Trust in Gold Buying and owning gold for what might happen next week or next year isn’t what the metal is all about. Gold is what you buy when the U.S. dollar and other currencies are doomed to lose value due to inflation, increasing debt, and currency printing. Gold is also what you buy when there’s less supply than demand. And when you look forward, the supply situation doesn’t look very good. Unlike the shale revolution, which added billions of barrels of supply to the oil market, there’s no “shale gold” play. In fact, it’s getting harder to find viable new mines. The cost of starting a mine is in the hundreds of millions, leaving any prolific development strictly to a handful of companies that can foot such a bill. Unfortunately, these companies aren’t looking to develop any major projects after divesting several high-cost ventures over the past few years. This isn’t an overnight bet, but it’ll likely pay off big, as owning bullion, gold ETFs, or high-quality gold stocks is a solid play. Gold traded at $300 for years until one day it started to move higher. The price multiplied six times over within the decade, resulting in the best performance of any asset class this century. And it could easily happen again. In the next issue, I’ll talk more about my visit to Toronto and what I learned about a new type of gold ETF. And “the chase” continues, Karim Rahemtulla The post Will the Gold Plunge Continue? appeared first on Wall Street Daily . By Karim Rahemtulla
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    China Mobile Cuts Handset Subsidies, Shifts Focus To Low-Cost Smartphones To Boost Profitability
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  • tags: CHL CHA CHU AAPL
  • China Mobile (NYSE:CHL) has taken its first steps towards reducing handset subsidies to improve profitability. In line with earlier announcements indicative of such a move, the company has revised its pricing strategy for high-end smartphones such as the iPhone and also stated that it intends to focus on low-cost handsets to cater to the country’s mass markets. Earlier, the iPhone 5S 16 GB model on China Mobile’s network was available for a down payment of RMB 5,288 ($860) and the carrier subsidized this cost by providing monthly rebates of up to RMB 194 ($31.50) to users for two years. Under this plan, the resultant cost of the handset for the user at the end of two years came out to be RMB 632 ($102.70). With the recent revision in prices, the same phone is expected to cost around RMB 1,224 ($199) to the user at the end of two years. This is an increase of over 93% from the earlier price. However, it is pertinent to note that the initial down payment under the revised plan will be RMB 4,488 ($730), which is about 15% lower than the earlier upfront ask. The revised pricing policy reflects the carrier’s intention to maintain a fine balance between attractiveness of high-end smartphones on its network and improving its profitability.
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    A Look At Visa’s Mobile Payment Strategy And The Associated Challenges
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  • tags: V AXP MA AAPL
  • Visa (NYSE:V) is the largest credit card and payments company in the world in terms of total number of transactions processed. The company is looking to capitalize on the growing mobile payment space, as it has been gaining traction among businesses and consumers alike. In a previous article,  Mobile Payments – A Look At Trends And Future Outlook, we explored mobile payment trends across the industry. In this article we take a look at how Visa is shaping its business strategy in order to grow its mobile payment solutions, as well as the associated challenges. We have a price estimate of $217 for Visa’s stock, which about in line with the current market price.
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    Will Abercrombie & Fitch's Recent Moves Help It Recover?
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  • tags: ANF AEO URBN ARO
  • Once the most sought after apparel brand in the U.S.,  Abercrombie & Fitch (NYSE:ANF) has faced a wide array of problems over the last couple of years. The retailer’s inventory management has been below par, which has often resulted in inventory surplus or shortage situations, that have ultimately translated to weak sales. The company’s CEO Mike Jefferies’ controversial comments regarding his target audience have severely hurt consumer sentiment  and Abercrombie’s brand image. Lately, while U.S. buyers have shunned basic merchandise at several casual apparel retailers for more trendy and affordable merchandise at Zara and Forever 21, Abercrombie has sustained its heavy reliance on basic logo products. Although the company has taken some measures to enhance its fashion content, it hasn’t seen any measurable results so far. In an attempt to bring in some fresh changes to its brands’ design and selling strategies, Abercrombie hired a new president (Christos Angelides) in June. While it was expected that Mr Angelides will formulate some relevant strategies to revamp ANF and abercrombie kids, very few would have anticipated the the changes that have since occurred. During its Q2 2014 results, Abercrombie said that it will phase out its logo products by spring 2015 in an attempt to overhaul its brand image. The company stated that it has made significant progress in evolving the fashion component of its merchandise range, which is why it is trying to push them aggressively. However, we believe that by discontinuing logo products altogether, Abercrombie can lose a lot of customers to American Eagle Outfitters (NYSE:AEO), Urban Outfitters (NASDAQ:URBN)and Aeropostale (NYSE:ARO). Our price estimate for Abercrombie & Fitch stands at $39, which is about 5% above the current market price. See our complete analysis for Abercrombie & Fitch New Brand President has Tremendous Experience in Apparel Retailing Christos Angelides has more than 28 years of experience in retailing. He spent his entire career at Next Plc, a six billion dollar U.K. based fashion retail chain, where he held a number of senior management positions. Some of his key roles include general manager of Next’s sourcing office in Hong Kong, menswear product director and womenswear product director. Angelides’s most recent position at Next was group product director, where he had been since 2000, overseeing buying, designing and quality of merchandise. Next Plc operates close to 700 stores in 40 countries and an Internet & catalog business in 60 countries. The company has posted solid sales and profit growth, as well as strong shareholder returns, during Angelides’s tenure as the group product director. Angelides also held the positions of chairman of Next Sourcing Limited and non-executive director of Lipsy, a young women’s fashion brand owned by Next. Abercrombie’s CEO Mike Jefferies stated that Angelides’s strong expertise in apparel retail made him the prime contender for the president’s position. He believes that Angelides will play a crucial role in rejuvenating Abercrombie’s brand image. Reducing Logo Products can be a Risky Bet With its fashion doing well and logo business under performing, Abercrombie’s move to discontinue a bulk of its basic products makes sense. While customers weren’t showing significant interest in the retailer’s logo t-shirts, shirts and hoodies, they exhibited tremendous affinity towards its trendy jeans, dresses and skirts. The company’s COO, Jonathan E Ramsden, stated that they have seen tremendous improvement in their non-logo business over the past several quarters. Abercrombie has been working on improving its designs, shortening lead times and increasing style differentiation to offer a better variety of fashion assortments and remain responsive to changing trends. Abercrombie’s partnership with First Insight Inc has helped it test products before their launch and incorporate customer feedback in design. During the Q2 earnings call, Mike Jeffries commented that the company was selling fashion at a rapid pace, which has encouraged them to substantially reduce the proportion of logo products. Abercrombie is finally taking an aggressive step towards enhancing its fashion content, which has become the key to survival in the current retail environment. Mr. Jeffries stated that the company is looking to reduce its logo portfolio to “practically nothing” by spring next year. However, Abercrombie will continue to sell its logo products in international markets. While increasing reliance on fashion makes sense, Abercrombie runs the risk of losing customers if it decides to shrink its logo business to an immaterial size within a year. Although this transition is important, it needs to be at a pace that buyers are comfortable with. Such product overhauls haven’t been too successful in the past, which is evident from Aeropostale’s misfired fashion launches last year. Moreover, as logo products go out and fashion keeps increasing, Abercrombie’s average unit retail will go up, that might prompt buyers to switch to other casual apparel brands. We believe that the retailer’s product portfolio needs to have an optimum proportion of basic as well as fashion products.  Letting customers shift to competitors in search of unavailable affordable basic products would be mistaken.   The company would do best to manage the transition, even as it fosters strong sales in relatively newer and more expensive fashion categories. 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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    Will Groupon's Stock Go Further Up In Near Term?
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  • tags: GRPN EBAY AMZN
  • Groupon’s (NASDAQ:GRPN) shares have inched up in recent months following a steep decline prior to June 2014. The company has made some strides in terms of product development and expansion on mobile, but there are still many issues that need ironing out. While investors may have shown some faith in the stock in recent months, the run up may not continue unless Groupon can showcase meaningful improvement in its business model and user experience. Let’s take a look what has influenced the market sentiment lately and what the future holds. Our price estimate for Groupon stands at $6.28 implying a slight discount of about 5% to the market price.
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    Zynga Not Out Of Troubled Waters
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  • tags: ZNGA EA FB
  • Zynga’s (NASDAQ:ZNGA) results from last quarter did little to lift the market sentiment. The outlook was relatively weak and now it seems like the company’s recent decision to partner with big brands and use their IP (intellectual property) to launch games might not turn out to be a game changer. NFL Showdown game app saw lower than expected downloads and the upcoming game Loony Tunes Dash again suggests a lack of creativity and originality. Zynga’s web bookings are declining and the company expects its full year bookings to total between $695 million and $725 million. In this context, the company’s licensing agreements with big brands continue to cast a doubt over its ability to create original gaming content. Our price estimate for Zynga stands at $3.20, implying a premium of little under 15% to the market price.
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    Harley-Davidson's Lower Near-Term Outlook Might Not Mean That It Is Past Its Glory Days
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  • tags: HOG TM HMC TSLA
  • Harley-Davidson ‘s (NYSE:HOG) stock has declined by over 12% in the last three months, falling by roughly 3% in the last week. The American maker of cult heavyweight motorcycles had a rough sales patch since hitting its peak in 2006, as a recession in developed markets slowed consumer spending, especially on luxury items. Motorcycle volumes returned to growth in 2011, and have been rising since, but what could worry Harley’s investors and enthusiasts is slowing volume-growth, which has declined sequentially in the last couple of years, and is expected to again fall this year. Harley expects to ship around 270,000-275,000 units this year, still 20% lower than 2006 levels. With volume-growth slowing in recent times, would the quintessential American motorcycle maker not fully regain past glory in the coming years? See our full analysis for Harley-Davidson U.S. forms almost two-thirds of Harley’s annual shipments, and Europe another 15-20%, highlighting the company’s dependence on these markets. Signs point towards an ageing baby boomer generation in the U.S., and increasing customer preference for fuel-efficient and economically viable modes of transport, which could deter growth for Harley-Davidson. Demand has remained weak in the domestic market this year, and Harley’s stock, which surged almost 50% last year, took a toll after the company lowered its full-year shipment outlook mid-year. To add to the company’s woes, around 126,000 2014 Touring motorcycles have to be recalled due to a clutch problem that could potentially cause crashes. Around 1,400 new Street motorcycles are also being recalled over a possible fuel tank leak. Harley-Davidson Still Has Fuel Left In The Tank Concerns over slowing volume-growth could be only temporary for Harley-Davidson. In addition to low overall sales of heavyweight motorcycles in the U.S. in the first half of the year, impacted by weak macroeconomic conditions, the company’s market share suffered. But this slowdown was more because of low availability of the much awaited Street motorcycles and absence of the popular Road Glide from the 2014 model year, than lower consumer demand for Harley-Davidson. The latter half of the year should see rejuvenated retail volumes for the company in the U.S., with improved availability of the Street bikes and launch of the Road Glide in the 2015 model year. Harley launched the Street 750 in India early this year, and also introduced the motorcycle in Italy, Spain and Portugal recently. The company has reported higher than expected retail sales of the Street 750 in India and Southern Europe so far, and continues to expect overall Street shipments to range between 7,000-10,000 this year. Around 2,200 Street 500 units were sold to U.S. dealers through June for use in the company’s Riding Academy, and higher availability and consumer demand could increase this figure to around 5,000-6,000 units in the country this year. The reason for the company to lower overall shipment guidance for the full year could merely be a case of slow pickup in sales due to unforeseen, but somewhat trivial, bottlenecks, lowering sales in 2014 due to weak first half results. Even if sales do not pick up at the tail-end of the year, there is more than one reason to believe they will pick up starting 2015. Street motorcycles will begin selling on a broader scale by next year, and could constitute as much as 7-8% of the net shipments, up from the expected 4% this year. Volume sales of the Street 750 and 500 and the Road Glide, which formed roughly 10% of U.S. retail sales in Q2 2013, will be incremental for Harley, thus boosting volume growth. Rebounding Europe Could Sustain Overall Growth One of the main reasons why Harley’s volume growth has slowed in the last couple of years is lower sales in Europe, which was hit by the double-dip recession. Europe formed just over 16% of Harley’s net retail sales last year, and dragged down the overall shipments figure for the company, despite positive growths in the U.S. and rest of the world. With shipments expected to be weak in the U.S. this year, rebounding European sales could possibly offset this decline and sustain volume growth for the manufacturer. After declining by 14% in the last couple of years, the European heavyweight motorcycle market (601+ cc) grew by 14% in the first six months of this year, signalling strengthening economic conditions and consumer demand. What also works for Harley-Davidson is that its market share in Europe increased in each of the last couple of years, reflecting how the motorcycle giant fared better than its competitors in the region during tough economic times. The company’s market share rose by 1.7 percentage points between 2011-2013 to 15.1%. With the Street 500 and 750 going on sale in parts of Europe, Harley will also be able to expand its customer base to include those who prefer cheaper and lighter motorcycles. After falling by 3% between 2011-2013, we expect Harley’s European shipments to rise by over 7% this year and almost 25% by 2020. Concept Electric Bike Could Be The Future Harley-Davidson could be lining up another volume model in the coming years by launching a plug-in electric motorcycle. The new electric motorcycle dubbed LiveWire is strictly a concept as of now, but could go into mass production in 2016. What’s significant about this model, other than a completely different working mechanism, is that it could be the key for Harley to unlock vast potential in the electric high-power motorcycle market. Although global electric motorcycle sales are expected to reach 1.2 million units this year, this number mainly comprises electrical scooters and small low-powered bikes. Zero Motorcycles, the highest seller of high-power full-sized electric bikes, is expected to sell only 2,400 units in 2014. Lower electric range and a deviation from Harley’s iconic heavyweight motorcycle brand image might be obstacles to sales of the company’s new electric bike. Estimating sales of Project LiveWire right now might be a shot in the dark, but if produced commercially on a large scale, these motorcycles could definitely be a shot in the arm for Harley’s domestic sales. The company that has long been considered the victim of an ageing baby boomer population, is evolving with shifting market trends and could attract millennial customers. Electric motorcycles could attract higher sales by leveraging Harley’s strong brand name and increasing popularity of environmentally viable modes of transport. In addition, the company has in recent times increased focus on sales to young adults (ages 18-34), women, African-Americans, and Hispanics, also known as its outreach customers, in order to add incremental volumes. In 2013, the volume growth rate for outreach customers in the U.S. was more than twice the growth rate for core customers. While recent data might suggest slowing growth rates for Harley, the company’s future plans that include new potential customers could ensure sustained high volume growth. Our current price estimate for  Harley-Davidson stands at $64.79, which is around 7% higher than the current market price. 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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    New Coverage Launch By Trefis: $107 Price Estimate For Honeywell International Inc. – Part 2
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  • tags: HON UTX GE DOW MMM
  • In continuation with our previous article ( Click here to read ), we now move on to giving an overview of Honeywell’s HVAC, Safety & Security division and then discuss some important factors that impact its market share and margins. Overview of Honeywell’s HVAC, Safety & Security division Honeywell’s HVAC Safety & Security division refers to Honeywell’s reported segment, Automation & Control Solutions. This segment’s product portfolio includes heating, ventilation and air conditioning controls and displays, gas and fire detection systems, temperature and pressure measurement equipment, protective wear, surveillance equipment and scanning products such as bar code scanners and RFID tag readers. Earlier, Honeywell’s Automation & Control Solutions segment included its Honeywell Process Solutions business which dealt with process automation for industries such as petrochemicals. However, as a part of its realignment activity, Honeywell Process Solutions will now be a part of Honeywell’s Performance Materials and Technologies segment and should be completely integrated by 2018. The segment accounted for 34.5% of Honeywell’s revenues in 2013 and forms 37.7% of our $106 price estimate for Honeywell. As per our calculations, the segment has an EBITDA (Earnings Before Interest, Depreciation And Amortization) of 16.5%, which is the lowest of Honeywell’s three divisions. We have a price estimate of $107 for Honeywell, which is approximately 15% above its current market price. Market share could increase driven by developing countries and multi-brand strategy According to our calculations, Honeywell has a market share of 7.25% in the global HVAC, safety and security market. Honeywell’s market share had declined in the past two years primarily due to slower growth in revenue from Europe and U.S. than the industry. However, going forward, we believe that Honeywell’s market share could increase due to its focus on expansion in developing countries such as China and India. Additionally, a multi-brand strategy could also bolster its market share. Sales of HVAC, safety and security products are highest in developed countries due to the high disposable incomes and standards of living. However, demand for these products is rising in developing countries as well, primarily due to the increase in urbanization and rising disposable incomes. Development of commercial spaces, such as offices, malls and airports are driving the demand for HVAC, safety and security products. Additionally, with rising per capita income in the developing countries, consumers are looking to spend on products that help make their lives comfortable and safe. This will also help drive demand for HVAC, safety and security products. In order to capture this demand growth, Honeywell has been offering products such as air cleaners, portable masks, water purifiers and packaging material in China that will help protect health and the environment. Honeywell follows a multi-brand strategy for its HVAC, safety and security products. Multi-brand strategy tries to achieve market penetration by offering similar products under different brand names. For example, for its gas detection products, Honeywell has the brands – Honeywell Analytics, RAE systems, BW Technologies, Lumidor, City Technologies and Manning. Though it may lead to cannibalization, it offers the benefit of 1)greater shelf space, leaving less room for competitors, 2)targets all price ranges and quality gaps, and 3)caters to consumers that regularly change brands. With a large number of brands, Honeywell will be able to increase its presence in the industry, which will help drive its market share. Acquisition driven growth and cost synergies Honeywell has been actively involved in enhancing its HVAC, Safety & Security portfolio through acquisitions. These acquisitions also offer cost synergies that will help drive the division’s comparatively low margins. This is one of the reasons why we believe that the division’s EBITDA will climb to 17.4% in the coming years. In September 2013, Honeywell acquired Intermec, a manufacturer of wired and wireless automated identification and data collection solutions. The acquisition was made with the primary motive of adding scale that will help generate cost synergies driven by an increase in its scanning and mobile printing products. The acquisition is expected to generate a return on investment of 12% by 2018. In April 2013, Honeywell acquired RAE Systems, a manufacturer of fixed and portable gas and radiation detections systems. The acquisition has enabled Honeywell to expand its global presence and increase its sales channels for its gas detection systems. The acquisition is expected to generate a return on investment of 18% by 2018. In October 2012, Honeywell acquired Saia-Burgess Controls, a manufacturer of programmable controllers, touch-screen panels, electrical submeters, counters and timers for use in HVAC applications, energy management systems and machine and infrastructure controls. The acquisition of Saia-Burgess Controls will greatly help Honeywell in expanding its presence in high growth regions such as China. (Read about Honeywell’s Process Solutions & Performance Materials in the third part of our article which will be published shortly. Please click here to read our article about Honeywell’s Aircraft & Automotive Components division .) 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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    Week In Review: Procter & Gamble, Unilever, Colgate-Palmolive And Kimberly-Clark
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  • tags: PG UL CL KMB
  • Consumer Goods stocks had a mixed performance last week, with domestic U.S. players such as  Procter & Gamble (NYSE:PG),  Colgate-Palmolive (NYSE:CL) and  Kimberly-Clark Corp. (NYSE:KMB) posting some gains from Monday, September 22 through Friday, September 26. U.S. consumer goods companies such as P&G, Colgate and Kimberly-Clark gained on Wednesday, September 24, after new home sales for August jumped 18%, the fastest since May 2008, signalling an improvement in consumer spending potential. However, the Anglo-Dutch Consumer Goods major  Unilever (NYSE:UL) declined 1.3% during this period, on the back of a broader market contraction on oil concerns in the European Union. The FTSE 100, of which Unilever is a constituent, declined 2.7% during the same period. Comparatively, the S&P 500, which includes P&G, Colgate and Kimberly-Clark as constituents, declined 1.4% this week. Below, we cover key events from the past week for the above listed Consumer Goods companies. Procter & Gamble Shares of P&G started the week on a flat note and rose higher on the back of a rising market Wednesday, September 24. However, shares fell along with the market Thursday, September 25, shedding their gains through the week. Year-to-date, shares of P&G have posted marginal gains, with quarterly results weighed down by sluggish sales growth, particularly in the U.S. market. However, prudent cost savings programs have lent buoyancy to shares despite weak top line numbers. We have a price estimate of $70 for Procter & Gamble, about 17% lower than its current market price of $84. Our full CY14 revenue estimate stands at approximately $84.7 billion, compared to a consensus FY15 estimate of $84.7 billion. Unilever Shares of Unilever declined the most among the four consumer goods companies. The weakness in Unilever’s shares continued after the company warned of slowing sales for the second half of 2014 on September 17. Additionally, macroeconomic factors from the European Union weighed on American listed ADRs this week, following oil concerns from the Russia-Ukraine fiasco. Year-to-date, Unilever’s shares fared similar to P&G shares, with sluggish top line performance offset by prudent cost savings to maintain earnings quality. We have a price estimate of $47 for Unilever, about 12% higher than its current market price of $42. Our full FY14 revenue estimate stands at approximately $68.1 billion, compared to a consensus estimate of $66.68 billion. We expect non-GAAP earnings per share of $2.14 this fiscal year, compared to consensus estimates of $2.20. Colgate-Palmolive Colgate’s shares started flat this week and gained about 1.3% on Wednesday. However, shares pared down these gains on Thursday as part of a broader market contraction. The company recent quarterly earnings were a miss on revenues, and shares have remained subdued post these quarterly results on July 31,2014. Year-to-date, Colgate’s shares have remained flat. We have a price estimate of $65 for Colgate-Palmolive, in line with its current market price. Our full FY14 revenue estimate stands at approximately $18.2 billion, compared to a consensus estimate of $17.6 billion. We expect non-GAAP earnings per share of $3.13 this fiscal year, compared to consensus estimates of $2.97. Kimberly-Clark Shares of Kimberly-Clark trended similar to the other consumer goods stocks, starting the week flat before gaining Wednesday, September 24 and declining Thursday, September 25. Year-to-date performance from Kimberly-Clark was relatively lack-luster, weighed down by sluggish domestic sales despite strong sales growth from International markets. We have a price estimate of $112 for Kimberly-Clark, 4% ahead of its current market price of $107. Our full FY14 revenue estimate stands at approximately $21.7 billion, compared to a consensus estimate of $21.4 billion. We expect non-GAAP earnings per share of $5.93 this fiscal year, compared to consensus estimates of $6.09. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Bleak Prospects For Cliffs Natural Resources In Low Iron Ore Pricing Environment
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  • tags: CLF RIO VALE MT
  • Cliffs Natural Resources (NYSE:CLF) has recently seen a change in management after activist hedge fund Casablanca Capital won control of the board of directors in a proxy contest. The change of guard at the top included the appointment of Casablanca Capital’s nominee, Lourenco Goncalves, to the positions of chairman, president and chief executive officer. In order to boost the company’s prospects, the new management had indicated its preference for a business strategy focused on the company’s U.S. Iron Ore segment and the potential sale of its other mining operations, which comprise of the Eastern Canadian Iron Ore, Asia Pacific Iron Ore and North American Coal business segments . However, around two months post the change in management control, Cliffs’ stock price has declined nearly 35%. This has largely been due to poor market conditions for both iron ore and metallurgical coal, Cliffs’ primary offerings. In this article, we look at the factors influencing Cliffs’ prospects in the near term and the road ahead for the company. See our complete analysis for Cliffs Natural Resources Iron Ore and Coal Prices The major cause of the company’s woes pertains to the weak prevailing environment for both iron ore and metallurgical coal. Both iron ore and metallurgical coal are major inputs in steel making and demand for these commodities is to a large extent correlated with demand for steel. 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. However, Chinese steel demand growth is expected to slow to 3% and 2.7% in 2014 and 2015 respectively, from 6.1% in 2013. A slowdown in economic growth has tempered the demand for steel. China’s GDP growth is expected to slow to 7.3% and 7.1% in 2014 and 2015 respectively, from 7.7% in 2013. Further, a Chinese government crackdown on polluting steel plants has forced many of them to shut down. In addition, tightening of credit by Chinese banks to steel mills that are not performing well, will negatively impact these mills’ prospects. Furthermore, the Chinese leadership has proposed structural reforms of the economy, shifting the emphasis from investment and export driven growth to services and consumption led growth. Such a transformation of the Chinese economy may negatively impact Chinese demand for steel in the long term. Weak demand for steel has translated into weak demand for iron ore as well. On the supply side for iron ore, expansion in production by majors such as Rio Tinto and BHP Billiton despite weak Chinese demand, has created an oversupply situation. A combination of weak demand and oversupply is likely to result in lower iron ore prices in the near term. Lower iron ore prices will impact Cliffs much more than the major iron ore mining companies due to the company’s higher cost of production of around $70 per ton, as compared to less than $50 per ton for Rio Tinto and BHP.  Iron ore prices stood at $92.61 per dry metric ton (dmt) at the end of last month, around 32% lower than at the corresponding point of time last 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 expansion in production by major mining companies, has resulted in plummeting coal prices. This will have a negative impact on Cliffs’ North American Coal business, which primarily sells metallurgical coal, whose prices are linked to prices of Australian metallurgical coal. The benchmark price for Australian metallurgical coal stands at $119 per ton, around a third of its 2011 peak level of $330 per ton. Impact on Cliffs In the context of the prevailing environment of low iron ore and coal prices, the company’s new management has an extremely tough job on its hands. The company will struggle to find buyers for its iron ore or coal assets, given oversupplied markets for both commodities and weak demand conditions. Further, the company may not realize the best value for its mining assets, even if some sales were to materialize. Moreover, as the company is looking to sell some of its high cost mining assets, it has to keep operating these mines, instead of idling them in response to poor market conditions. The new management has reversed the decision of the former management to idle the Pinnacle coal mine, if market conditions do not improve. The reason given for this decision is to ‘facilitate unlocking the value of assets’. Thus, in its search for buyers for its mines, the company is forced to operate loss making assets. The North American Coal segment, which includes the Pinnacle coal mine, reported an operating loss in Q2 2014. Sales margin for the segment fell to a loss of $25.89 per ton in Q2 2014, as against a profit of $3.16 per ton in the corresponding period last year. Thus, the company is operating unprofitable mining operations for which finding buyers will prove extremely difficult under current market conditions. The new management has recently amended the terms of its debt agreements in order to allow for a $200 million share buyback program. This is indicative of a lack of investment alternatives for the company. The company has already curtailed its full-year capital expenditure for 2014 to $275-$325 million, approximately 65% lower year-over-year, in order to conserve cash. Also, with the company’s stock price mirroring the decline in iron ore prices, Cliffs may also be looking to capitalize on an opportunity to buy back its stock on the cheap. However, there is little else the company management can do, apart from maintaining the company’s disciplined approach to capital allocation and looking for buyers for some of its high cost assets. Unless the iron ore pricing environment improves, Cliffs may be in for a rough time. With an oversupply situation and a low iron ore pricing environment expected to continue in 2015, the situation is looking grim at the moment for Cliffs. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research    
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    Weekly Notes: L’Oréal, Estée Lauder, Revlon And Avon
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  • tags: EL LRLCY REV AVP
  • Shares of cosmetics companies replicated the trend of the broader S&P 500 index, with shares gaining Wednesday, September 24, before losing all gains Thursday, September 25, to end in the red. Wednesday’s gains were driven by an 18% increase in new home sales in August, the highest pace of expansion since May 2008, signalling an improvement in consumer spending potential. However, markets declined on Thursday, partly due to investors booking profits ahead of next month’s quarterly results. Specialty cosmetics stocks fell harder than broader fast moving consumer goods (FMCG) companies during the week, pulled down by their greater discretionary nature. In this report, we present some of the key events from the past week for four Cosmetics companies,  L’Oréal (OTC:LRLCY), Estée Lauder (NYSE:EL),  Revlon (NYSE:REV) and  Avon Products (NYSE:AVP). L’Oréal Shares of L’Oréal started the week on a soft note before declining Tuesday, September 23, with the move largely driven by data firm Markit’s monthly composite purchasing managers index which declined to 52.3, the lowest in the year so far. The purchasing managers index is a measure of activity in the manufacturing and services sectors in the Eurozone. L’Oréal’s shares declined further Thursday, September 25, on the back of growing oil concerns between Russia and European Union. We have a price estimate of $37 for L’Oréal, about 17% higher than its current market price of $31. Our full FY14 revenue estimate stands at approximately €23.2 billion, compared to a consensus estimate of €22.5 billion. We expect non-GAAP earnings per share of €5.80 this fiscal year, compared to consensus estimates of €5.45. Estée Lauder Estée Lauder shares had a volatile week, declining Monday and Tuesday, gaining on Wednesday and falling yet again Thursday. Wednesday’s gains are a result of an 18% year-on-year expansion in the U.S. new home sales for August. However, shares pared down Thursday partly due to profit booking before the start of quarterly earnings season next month. Year-to-date, Estée Lauder shares lost marginally in value compared to some of its peers. The company has provided a strong top line sales growth in a volatile currency environment, buoyed by emerging market demand for prestige cosmetics products. We have a price estimate of $86 for Estée Lauder, about 15% higher than its current market price of $74. Our full CY14 (ending December 2014) revenue estimate stands at approximately $10.8 billion, compared to a consensus FY15 (ending June 2015) estimate of $11.2 billion. We expect non-GAAP earnings per share of $2.85 this fiscal year, compared to consensus estimates of $3.02. Revlon Shares of Revlon were very volatile during the week, gaining Monday and falling on Tuesday, and continuing this pattern on Wednesday and Thursday. Over the course of the week, shares of Revlon were down about 2%, primarily weighed down by the exit of its Chief Financial Officer, Lawrence Alletto, on September 23. Mr. Alletto was instrumental in Revlon acquiring The Colomer Group in December 2013, which reignited sales growth for the mass market cosmetics retailer. Year to date, Revlon is the best performer among the four cosmetics companies listed above, gaining 29% compared to nearly 7% in the S&P 500, driven by better-than-expected sales numbers consistently in 2014. However, operating profit margins have deteriorated significantly this year, and the exit of the CFO could add more pressure to containing costs and improving margins. We have a price estimate of $30 for Revlon, about 7% lower than its current market price of $32. Our full FY14 revenue estimate stands at approximately $1.93 billion, compared to a consensus FY14 estimate of $1.95 billion. We expect non-GAAP earnings per share of $2.30 this fiscal year, compared to consensus estimates of $2.05. Avon Products Avon Products’ shares displayed more volatile movements this week than its peers. Shares gained steadily from Monday through Wednesday, before declining about 3.5% on Thursday due to a broader market contraction. On a weekly basis, Avon’s shares have declined nearly 4%, resulting from the resignation of its CFO, Kimberly Ross, that could delay its long and arduous turnaround and strain quarterly results going forward. Year-to-date, shares of Avon Products fell nearly 25% after the company reported consistent revenue declines from lapsed strategy executions and disrupted operations for multiple quarters. We have a price estimate of $14 for Avon Products, about 9% higher than its current market price of $13. Our full FY14 revenue estimate stands at approximately $9.5 billion, compared to a consensus FY14 estimate of $9.1 billion. We expect non-GAAP earnings per share of $0.67 this fiscal year, compared to consensus estimates of $0.81. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Dunkin' Brands To Accelerate Expansion In Western & Emerging Markets
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  • tags: DNKN SBUX MCD BKW
  • Dunkin’ Brands (NASDAQ: DNKN), the parent company of the two most recognized brands in the world: Dunkin’ Donuts and Baskin- Robbins, recently hosted its 2014 Investor and Analyst day on September 17. The company’s chief executives discussed about its financial growth plans, expansion plans, new restaurant growth plans and developments in its business strategies. This is an annual event, where the company’s investors and stakeholders get an in-depth idea about the current financial performance and future financial plans of the company. Dunkin’ Brands delivered below average results in the last two quarters. In the latest Q2 earnings report, Dunkin’ Donuts U.S. segment reported a mere 1.8% increase in the comparable store sales, which was expected to be in the range 3% to 4%. Moreover, the net revenues rose just 4.6% to $191 million, driven by increased royalty income due to system wide sales growth. We have a $48 estimate for Dunkin’ Brands, which is approximately 9% above the current market price. See full analysis for Dunkin’ Brands Financial and Operational Growth Plans Dunkin’ Brands has a nearly 100% franchised model, with approximately 18,000 points of distribution in nearly 60 countries. The company believes that its model offers strategic and financial benefits, as the company does not own and operate many of its stores, and therefore, can focus on menu innovation, marketing and other initiatives to drive future growth. The company also mentioned that the current model enables leveraged capital structure, thereby providing financial flexibility. The company’s quarterly cash dividends rose from $0.15 in 2012 to $0.23 in Q2 2014. In its latest ‘Investor and Analyst’ day event, the company reaffirmed its guidance for the year 2014. The company expects a 5-7% system-wide growth in net revenues and 7-9% growth in the net operating income in the fiscal 2014. This might translate to operating margin expansion of about 50 to 100 bps. Moreover, EPS is expected to be in the range $1.73 to $1.77. In terms of segment updates, Dunkin’ Donuts U.S. is expected to open 380-410 net new units and to remodel 500 units; same store sale is expected to grow 2-3% in 2014. Baskin-Robbins U.S. has given a guidance of 1-3% same store sales growth and a total of 5-10 net new stores by the end of 2014. The international segments of both Dunkin’ Donuts and Baskin-Robbins are expected to open net 300-400 units. The company also gave a brief overview of its 2015 guidance, in which Dunkin’ Donuts U.S. net restaurant growth is expected to be more than 5%, and same store sales growth is expected to be in the range 2-4%. Dunkin’ Brands has long term targets of 6-8% revenue growth and above 15% growth in adjusted EPS. For strong development outlook, the company has to strengthen its free cash flow to facilitate earnings growth through either deleveraging or shareholder payout. Expansion Plans: Western Markets In Focus Most of the Dunkin’ Donuts U.S stores are concentrated in the eastern part of the U.S and don’t have a big presence in western U.S. The company has explained its presence in the U.S. through four different categories: core market, established market, emerging market and western market. The chart below explains the geographical presence of the company’s stores in the country with the number of restaurants in each market. The company’s plans to expand in the western markets are on the charts. Adding new assets to the company will help them generate more revenues for the upcoming quarters. In the long term plan, the company plans to add around 5, 000 Dunkin’ Donuts units in the western market, around 3,000 in the emerging markets and only 400 in its core eastern market, to take the total Dunkin’ Donuts U.S. units to 17,000. However, due to strong franchisee demand in the core and established markets, the company has changed its net new openings guidance. The net openings growth in the core market is expected to be in the range 15-20%, revised from the previous guidance of 10-15%. The guidance remains unchanged for net new store development in western market; a growth of 15-20% in fiscal 2014. Accelerating Growth In Western Market The company has doubled its footprint from 32 restaurants in 2010 to 64 in 2013 in Texas, a lucrative western market. In the state, the average weekly sales of the restaurants grew by 57% in the last 3 years. On the other hand, the comparable same store sales rose from 1% in 2010 to 9% in 2013. Looking at the potential growth opportunity, Dunkin’ Donuts plans to open 800 to 1,000 net new restaurants in the region in the long term. This is just one of the regions where the company is focusing its expansion. Other major focus area for the company is California. According to Nigel Travis, company’s Chairman and CEO, Dunkin’ Donuts is slated to open 4-5 restaurants in California by the end of fourth fiscal quarter, much earlier than its original expected date. The company announced the locations of its stores in California on June 10 and also mentioned its plans to open 54 more stores in Southern California in the coming years. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Weekly Media Notes: Starz And 21st Century Fox Discuss Possible Acquisition
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  • tags: CMCSA FOX-BY-COMPANY VIA DIS TWX
  • The media industry saw significant activity last week, with Starz approaching 21st Century Fox (NASDAQ:FOX) for a possible acquisition and U.S. District Judge in Los Angles denying the request of   Comcast’s (NASDAQ:CMCSA) media house (NBCUniversal) to dismiss the Metro-Goldwyn-Mayer (MGM) lawsuit of James Bond knockoff. Viacom (NASDAQ:VIA) in India has recently secured rights for the brand The Jungle Book and plans to sell related merchandise in the region. Below are some significant events pertaining to the media operators that were witnessed last week.
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    Logistics Industry Week In Review: FedEx and United Parcel Service
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  • tags: FDX UPS
  • This week we saw the logistics giants, United Parcel Service (NYSE:UPS) and FedEx (NYSE:FDX) focus on enhancing their services ahead of the holiday season. Encouraged by the success of its pilot program, UPS announced that it will be expanding its 3D printing service. FedEx introduced a new return service that will make international returns more convenient. UPS expands 3D printing services The demand for 3D printing services has been on the rise because of which the number of service providers has gone up by 21% over the last year. Small businesses have increasingly been using 3D printing services to prepare prototypes, engineering parts and fixtures. In order to capitalize on this increase in demand, UPS has decided to expand its 3D printing services to several more locations. Encouraged by the success of its 3D printing services, which at present are limited to just six locations, UPS will now be offering these services at 100 locations across the U.S. However, UPS does need to watch out for the increasing competition. From small local players to giants like Amazon, 3D printing services are growing by the day. In July 2014, Amazon launched a 3D printing service for creating products like toys, jewelry, home decor items and mobile covers. UPS’ stock declined 2.92% over the week through Thursday, to reach $96.53. On average, the stock traded on a volume 2.69 million shares. The stock has traded at a 52-week high of $105.37 and low of $88.45. We currently have a price estimate of $108 for UPS, approximately 12% higher than its current market price. We estimate revenues of $58 billion and EPS of $4.98 for this fiscal year, in line with consensus estimates. Click here to see our complete analysis of UPS FedEx launches new service for returns FedEx launched FedEx® Global Returns, a shipping solution that helps make worldwide returns process easier. The new service is aimed at retailers who, by using this service, will be able to provide their international customers the ease of returning products by offering return labels, customs documentations and a number of convenient return locations to choose from via FedEx’s Express or Ground services. Unlike its other return services, the Global Returns service offers more control to the shippers through their FedEx Tracking service reports. These reports will help retailers manage inventory, control costs and improve recovery rates. The Global Returns service also allows the retailer to create the return labels and customs documentation at the time of sending out the package. They also have the option of hard copies or electronic format documentations and labels. FedEx’s stock declined 0.71% over the week through Thursday, to reach $157.16. On average, the stock traded on a volume 1.48 million shares. The stock has traded at a 52-week high of $161.65 and low of $111.25. We currently have a price estimate of $157 for FedEx, in line with its current market price. We estimate revenues of $48.9 billion and EPS of $9.09 for this fiscal year, in line with consensus estimates. Click here to see our complete analysis of FedEx 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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    Three Charts That Explain Why Chesapeake Is Drilling In Utica
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  • tags: CHK
  • Though Texas’ Eagle Ford shale will be the main driver of Chesapeake Energy’s (NYSE:CHK) oil production growth for the next few years, the company’s acreage in Ohio’s Utica shale should also be a important contributor to its natural gas liquids (NGLs) production growth. Chesapeake was one of the first companies to recognize the potential of the Utica Shale, having discovered it in 2010. Now, Chesapeake is the most active driller and largest leasehold owner in the Utica, with about 1 million net acres under its belt. In the Q2 2014, Chesapeake’s Utica shale production was 67 million barrels of oil equivalents per day(mboe/d), up 373% from a year ago and up 34% from the first quarter of 2014. Of the total production, Oil accounted for 10%, natural gas 60% and natural gas liquids like ethane, butane and propane about 30%. While that’s an impressive rate of growth, it could have been even higher. At the end of last year, the company had 208 wells in various stages of completion, with many awaiting pipeline connections. As the gas processing and pipeline takeaway capacity at Utica is expected to expand significantly this year, this should change. With the addition of a second train in December, the processing capacity from the Kensington plant — a joint venture between Access Midstream Partners, EV Energy Partners and M3 — had doubled by the beginning of February. Access Midstream and EV Energy are also in the process of laying gathering pipelines to deliver Chesapeake’s production to the plant. The presence of a few other such projects means that Chesapeake can double its gross processing capacity in Utica from 400 million cubic feet per day as of the end of 2013, to 800 million cubic feet per day by the end of this year. This should allow the company to get cracking on many of the backlogged wells and generate sales, as well as boost its production. Despite these factors, there have been some doubts among investors as to the financial potential of the Utica Shale. Halcon Resources, a competitor to Chesapeake, has virtually abandoned its efforts to develop its acreage in the Utica Shale, while Chesapeake keeps on investing more and more resources into the same. To understand this difference, we need to appreciate the fact that Chesapeake was the first company to turn a well into production at the Utica Shale, about three years ago. Its competitors did not start drilling for at least another year. The extra time spent by the company in the region meant that it was able to drill more than all of its competitors combined in the region. Additionally, the company was able to invest in building knowledge of the rocks beneath the acreage. In that time, CHK has amassed nearly a mile of core samples that it can use to understand the reservoir flow and to optimize completions. Furthermore, it has over 600 miles of 3D seismic data from the region, which it can use to understand the structure and to optimize lateral placement. The result should be that when the company drills in the region, it is more likely than its competitors to be successful.Not only does the company have the most knowledge of the region, it is also generating the best results from its wells in the region. Chesapeake can drill its well faster and for cheaper rates, resulting in a higher rate of return on its investments in the region. When the company invests capital in a non-operated well drilled by a company like Hess, its rate of return on those well averages around 4%. However, when the company invests in a well that it operates itself, it earns close to 20%. Those returns are only expected to improve as the company keeps drilling in the region. These results are why Chesapeake Energy continues to drill in the Utica Shale while competitors have either stopped drilling or sold their assets.The high-return wells indicated above are being drilled in what is known as the wet gas window, which is rich in natural gas liquids such as propane and ethane. Energy producers are also starting to see strong results in the dry natural gas portion of the play. Most of these wells were drilled along Ohio’s border with West Virginia and Pennsylvania. However, the industry appears to be just scratching the surface of the Utica shale’s potential, as recent wells by Royal Dutch Shell have shown strong natural gas production too. The difference is that these wells were drilled more than 300 miles to the east in Pennsylvania. These wells, which are near the Pennsylvania-New York border, could extend the play hundreds of miles further to the east than was previously thought by energy companies. Shell is highly optimistic because the initial production rates of its first two wells were as good, if not better, than the wells Chesapeake Energy and others in the industry have drilled in Ohio. These results indicate that the Utica shale is much bigger than producers originally thought.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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    New Coverage Launch By Trefis: $107 Price Estimate For Honeywell International Inc. – Part 1
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  • tags: HON UTX GE DOW MMM
  • Honeywell International (NYSE:HON) is a diversified manufacturing and technology company, headquartered in Morristown, New Jersey, which was born out of a merger between Honeywell Inc. and Allied Signal in 1999. The company manufactures a wide variety a products that cater to retail consumers, businesses and governments. In the fiscal year ended December 31, 2013, the company generated $39.06 billion in revenues and $3.92 billion in net profits. In the second quarter ended June 30, 2014, Honeywell’s revenue stood at $10.25 billion and net profits at $1.12 billion. We have broken down the company into the following divisions: Aircraft & Automotive Components HVAC, Safety & Security Products Process Solutions & Performance Materials In this article, we give you a brief overview of Honeywell’s Aircraft and Automotive components division and look at the key trends driving volumes and margins. We will be offering our insight on Honeywell’s other two divisions in the subsequent parts of our launch article. We have a price estimate of $107 for Honeywell, which is approximately 15% above its current market price. A Brief Overview of Honeywell’s Aircraft & Automotive Components division Honeywell’s Aircraft & Automotive Components division refers to Honeywell’s reported segments – Aerospace and Transportations Systems. Honeywell’s Aerospace segment manufactures aircraft engines and equipment, and offers services such as maintenance, repair and overhaul for commercial and defense sectors. Honeywell’s Transportation systems segment manufactures turbochargers for automobiles. Earlier, the segment also offered brake shoes and pads for automobiles under its Friction Materials business. However, following a decision to focus on differentiated technologies and on businesses that are in line with its long-term plans, Honeywell sold its Friction Materials business in July 2014. The turbochargers business was then combined with Honeywell’s Aerospace division. The Aircraft & Automotive components division accounted for 40% of Honeywell’s revenues in 2013 and forms 42.5% of our $106 price estimate for Honeywell. The segment generates around 46% of its revenues from sales to commercial Original Equipment (OE) and aftermarket aircraft markets. Some of its customers in the commercial aircraft sector are Boeing, Airbus, Lockheed Martin and COMAC. The Defense and Space sector forms 30% of its revenues and its primary customers are the U.S. Department of Defense and NASA. Honeywell’s turbochargers can be found on automobiles manufactured by major manufacturers such as BMW, Audi, Volkswagen, Chevrolet, Ford and Mercedes. Sales of turbochargers account for 24% of the division’s revenue. Volume growth and merger of turbocharger business should drive margins As per our calculations, the division’s EBITDA (Earnings Before Interest, Depreciation And Amortization) margin was around 19.6% in 2013. We expect the division’s margin to improve due to the merger of turbochargers business with its Aerospace segment. According to Honeywell, its turbochargers are based on technology similar to its aircraft engines. Therefore, the merger should yield cost synergies that will help improve margins. An increase in production volumes should help reduce operating costs due to economies of scale. According to Boeing’s forecast, around 36,770 commercial aircrafts, amounting to $5.2 trillion, will be delivered over the next twenty years. Given Honeywell’s exposure to the commercial aircraft market through its presence as a supplier to major aircrafts such as Airbus A320, Boeing 737 Max and COMAC C919, we believe that it should be able to gain a sizeable exposure to the expected growth in commercial aircrafts which could help drive its volumes, the impact of which will be reflected on its revenues and margins. Honeywell’s margins will also benefit from the increase in volume due to the growing demand for turbochargers. Turbochargers can efficiently deliver an increase in vehicle performance while reducing fuel consumption and emissions, and therefore are an effective solution to the growing demand for fuel efficient vehicles that are compliant with the stringent emissions norms being implemented across the globe.  Honeywell forecasts global turbocharger penetration to increase from 30% in 2012 to 70% in 2020 driven by this trend. The global turbocharger market is expected to grow at an average rate of 10.12% each year through 2019 driven by the increased use of turbochargers by manufacturers as they try to fulfill the demand for fuel efficient vehicles. Since Honeywell is the leading turbocharger manufacturer in the world, its large market share positions it well to capture a major portion of the growth in the turbocharger industry. On the flipside, Honeywell’s volumes and revenue could suffer due to sequestration in the U.S defense spending. The U.S. defense sector accounts for 75% of Honeywell’s Aerospace sales to the defense and space sector and therefore is heavily reliant on it. In 2013, Honeywell’s Aerospace revenue declined 0.5% due to a 4.7% declined in its revenues from the defense and space sector as a result of a 7.2% decline in the U.S. defense outlay.  U.S. defense spending is expected to decline 5% in 2014, which could have a negative impact on Honeywell’s revenues and volume in 2014. (Read about Honeywell’s HVAC, Safety & Security and Process Solutions & Performance Materials divisions in the second part and third part of our article respectively, which will be published soon) 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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    Walgreen's Q4'14 Earnings Preview: Top Line To Grow But Gross Margin Remains Under Pressure
  • by , yesterday
  • tags: WAG RAD CVS
  • The largest drugstore chain in the U.S., Walgreen (NYSE:WAG) is set to report its Q4 2014 earnings on September 30. Higher daily living sales, strong performance in prescriptions filled, and increasing pharmacy market share have all helped Walgreen post continuous improvement in its top line growth. The company reported a 6.2% annual increase in its Q4 2014 total sales ($19.06 billion) last month. Its comparable store sales and front-end comparable store sales grew 5.6% and 1.3%, respectively. While Walgreen’s top line continues to grow, it faces ongoing pressure on gross margins. The company’s gross margin declined by 50 basis point (to 28.0%) in Q3 2014. It expets its Q4 2014 gross margins to decline by a similar percentage year to year as that witnessed in Q3 2014. Though recent trends have put pressure on margins, we believe that Walgreen’s constant focus on lowering its internal costs will help improve its bottom line in the long run. Our price estimate of $64 for Walgreens is almost in line with the current market price. We will update our valuation after the Q4 2014 earnings release. View our analysis for Walgreens Industry Trends Put Pressure On Gross Margins In its latest earnings call (reported on September 18), Rite Aid (NYSE: RAD) lowered its fiscal 2015 guidance due to an anticipated decline in reimbursement rates and lower profitability from generic drugs in the second half of the fiscal year. Based on the current estimates for reimbursement rates, anticipated lower profitability due to a delay in the introduction of a generic equivalent to Nexium and higher costs for generic drugs that recently lost their exclusivity, Rite Aid expects the pharmacy gross margin in the second half of fiscal 2015 to decline compared to the same period last year. Since the above factors are industry specific, we expect the same to put pressure on Walgreen’s gross profit margin as well. (Read: Rite Aid Falls Despite A Strong Q2’15 As It Lowers Its 2015 Guidance ) In its Q3 2014 earning call, Walgreen admitted that it is seeing ongoing gross profit margin pressures, which are resulting from higher generic drug sales, reimbursement rate pressure and a shift in pharmacy mix toward 90-day prescription refills. In the last one year, Walgreen claims that the market has shifted from historical patterns of deflation in generic drug costs into inflation, a trend that is negatively impacting margins. The company has witnessed higher costs for a subset of generic drugs and in some cases the increase has been significant. In addition to the above factors, the absence of net gains from a certain litigation matter in Q4 2014 will also impact gross margin growth (annual) in the quarter. Positive Synergies From New Partnerships Will Improve Bottom Line Early last year, AmerisourceBergen (ABC) entered into a 10-year agreement with Walgreen and Alliance Boots, which allows Walgreen to jointly source generic drugs and generate logistical efficiencies. The distribution contract initially included branded pharmaceutical products that Walgreens historically sourced from distributors and suppliers. However, starting 2014, ABC was supposed to increasingly assume the distribution of the generic products that Walgreens has historically self-distributed. Post the ABC deal, the Walgreens-ABC combined generic purchasing power is estimated to be the highest in the industry, at around $12 billion . By combining its distribution in the United States and Europe with ABC, Walgreens will be able to negotiate better prices for generic as well as branded drugs. In August 2012, Walgreen completed an initial 45% investment in Alliance Boots, the largest European pharmacy-led drug retailer, with an aim to create a global pharmacy by expanding its operation in new markets including Europe, China, Latin America, etc. Walgreen’s partnership with Alliance Boots contributed $0.15 per share to its Q3’14 earnings, above its forecast of $0.13 to $0.14 per share. Both pharmacy and front-end margins benefited from purchasing synergies from Walgreen’s joint venture with Alliance Boots. Combined net synergies for the quarter totaled $131 million and for the first three quarters of the year totaled $367 million. Walgreen has raised its estimate of combined synergies for the year to $400 million to $450 million, compared to its initial estimate of $375 million to $425 million. Walgreen claims that it is beginning to move beyond the cost only synergy phase from both the partnerships, to one where it has started to share and exploit organizational capabilities to strengthen its core business. 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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    Payroll And Human Resource Management Week In Review: Paychex And ADP
  • by , yesterday
  • tags: ADP PAYX
  • This week in the Payroll and Human Capital Management industry, we saw Paychex (NASDAQ:PAYX) release its first quarter fiscal year 2015 earnings, reporting strong growth in revenue.  Automatic Data Processing (NASDAQ:ADP) released a study that revealed a disconnect between the Human Resource (HR) departments and employees. Paychex posts strong growth in revenue Paychex’s service revenue in the first quarter fiscal year 2015 grew 9% on account of increase in pricing and new service offerings. Its earnings per share grew 7% driven by a 5% increase in net earnings. During its earnings meet, Paychex indicated that they maybe be making acquisitions during the year. ( Click here to read our analysis of Paychex’s earnings ) Paychex’s stock rose 1.7% over the week through Thursday, to reach $43.68. On average, the stock traded on a volume 1.77 million shares. The stock has traded at a 52-week high of $45.95 and low of $39.21. We currently have a price estimate of $41 for Paychex, approximately 6% lower than its current market price. We estimate revenues of $2.7 billion and EPS of $1.87 for this fiscal year, in line with consensus estimates. Click here to see our complete analysis of Paychex ADP’s study reveals disconnect between HR and employees ADP Research Institute study on the HR department and its relationship with employees revealed that the HR and senior management are out of touch with their employees’ attitudes and perceptions. Despite efforts from the HR to improve the relationship, employees seem to be disconnected and appear dissatisfied with HR policies, processes and functions. Employees rated various functions, especially those relating to workforce management, much lower than what was perceived by the HR. This presents an opportunity for HR outsourcing companies such as ADP to pitch their services to potential clients since they can state that employees are not satisfied with the in-house HR department. ADP’s stock had been fluctuating between the range $82.3-$84 over the week through Thursday. On average, the stock traded on a volume 1.19 million shares. The stock has traded at a 52-week high of $84.68 and low of $69.91. We currently have a price estimate of $74.3 for ADP, approximately 10% lower than its current market price. We estimate revenues of $13.17 billion and EPS of $3.49 for this fiscal year, in line with consensus estimates. Click here to see our complete analysis of ADP 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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    Starbucks' Full Ownership Of Japan Unit To Boost International Revenue Growth
  • by , yesterday
  • tags: SBUX MCD GMCR
  • The Seattle-based coffee company, Starbucks Corporation (NASDAQ: SBUX), moved a step forward in its plan for international growth, as the company decided to take full ownership of Starbucks Coffee Japan Ltd. (Starbucks Japan). On September 23, Starbucks announced to acquire the remaining 60.5% of Starbucks Japan through a two-step tender offer process for about $914 million. Before this announcement, Starbucks had a 39.5% ownership interest in Starbucks Japan. In 1995, Starbucks and Sazaby League, a major Japanese retailer and restaurateur, entered into a 50-50 joint venture to open Starbucks stores in Japan. In 1996, Starbucks opened its first international store outside North America in Tokyo. Currently, Japan is Starbucks’ second largest market with over 1,000 restaurants. The first stage of the tender offer started on September 26, with a purchase price of 965 yen per share (a total of $505 million) for Sazaby’s 39.5% stake. After the completion of this transaction, probably in the first quarter of fiscal 2015, Starbucks will have 79% stake in Starbucks Japan unit. The public shareholders and option holders of Starbucks Japan’s common stock hold the remaining 21% ownership, which will be bought by Starbucks after the settlement of the first tender offer stage for a price of 1,465 yen per share, or a total of about $409 million. All transactions are expected to be completed by June 2015. We have a  $76 price estimate for Starbucks, which is in line with the current market price. See our full analysis for Starbucks Corportion Japan: Growing Market For Coffee Japan is a lucrative market for coffee companies, as it is the third highest coffee consuming nation in the world after the Unites States and Germany, as of 2013. According to All Japan Coffee Association, the domestic consumption last year hit a record high figure, reaching 446,000 tons approximately. It is also the fourth largest importer of coffee in the world, with an import amount of 400,000 tons annually. Coffee trends have changed in the country, as coffee is no more just a social drink to be consumed in coffee shops, but a regular thirst-quenching beverage. Japan’s retail coffee market is led by the Swiss food giant, Nestlé (SIX: NESN), with an off-trade value share of 33%. Nestlé’s success in Japan is due to the introduction of canned coffee and regular ‘soluble coffee’ under instant coffee category. Japan’s coffee consumption has soared during the last five years, owing to many factors: Introduction of ‘westernized’ consumption habits. Increased marketing of coffee, with initial emphasis on soluble coffee and canned coffee that later on extended to roasted and ground coffee. Increased number of coffee chains and brands, with attractive coffee shops and wide variety of flavors. Innovative promotion of canned ready-to-drink (RTD) coffee. The consumption of Canned coffee in Japan has been constant with a significant increase in the consumption of roasted and ground coffee. Below is a table that explains the quantitative increase in consumption of roasted and ground coffee. Source: All Japan Beverage Industry Association Starbucks’ Revenue Stream & Expansion Plans In Japan Starbucks mentioned in its 2013 annual report that the company is increasing its dependence on China and Asia-Pacific (CAP) operating segment for revenue growth. The company is aware of the fact that the coffee tastes vary region to region, and that consumers in some Asian countries may not embrace some products which are popular in the western markets such as the U.S. In fiscal 2013, Starbucks’ CAP segment delivered strong performance in terms of store growth and revenue generation, primarily driven by excellent performance in China and Japan. CAP segment’s revenue increased by 27%, due to 9% increase in comparable store sales and new store growths. The CAP segment has higher relative share of licensed stores than company-operated stores, compared to Americas segment. Although, Starbucks’ store size in Japan, about 1,200 to 1,500 square feet, is similar to its store size in U.S.A., average spend per customer visit is higher in the U.S.A. Increase In Number Of Stores To Boost Revenue Growth In fiscal 2013, the Americas segment contributed 75% to the net revenues. Out of the remaining 25%, the CAP segment accounted for 6% ($917 million). Moreover, by the end of fiscal 2013, there were 3,882 stores in the CAP region, out of which 1,000 were in Japan. Taking an assumption that average revenues per restaurant is same across all the stores in the segment, Japan accounted for 1.6% ($236 million) of the company’s net revenues. The company has not mentioned about its store growth in Japan. However, with the full ownership of Starbucks Japan, the company has a huge advantage to accelerate new store growth in the country, and increasing its customer base. In 2013, the company added net 35 stores in Japan. Moreover, by the end of the third fiscal quarter of 2014, the company added nearly 400 licensed stores in the CAP region. Taking a proportionate estimate, nearly 40-50 stores would have been added in Japan. With this pace, the total store count in Japan by the end of fiscal 2014 might reach 1,050 approximately. After the company takes full ownership of Starbucks Japan, it might accelerate its expansion and might double its pace of new store growth. With these assumptions, it is probable that the store count in Japan might reach 1,120-1,130 by the end of fiscal 2015. Increased number of outlets might translate to increased number of customers, and might boost the company’s revenue stream. Opportunity To Expand Its Retail Channel Starbucks mentioned that the acquisition is aimed at accelerated growth across multiple channels in Japan. The company looks at this deal as an opportunity to expand its product sales through food service channels, to accelerate its retail sales and to provide a boost to its small share of RTD products that are popular in Japan. As mentioned earlier, Canned RTD coffee and regular soluble coffee are extremely popular in Japan. Coca-Cola’s Georgia leads the Japan’s RTD market with a total 22% volume share in 2013. Other major brands include Nestle, Boss coffee, Fire and other regional & house brands. RTD coffee is a $9.5 billion market in Japan, where it comes in different formats: bottled can, Stay-on-tab (SOT) can, bottled format, chilled cups and paper pack format. More than half the sales of RTD coffee in Japan is through nearly 2.5 million vending machines across the country.  This is a great platform for the company to expand its RTD business. Moreover, with a huge brand appeal and marketing strength of Starbucks in Japan, as well as with its premium quality of products, the company might attract large number of customers to try its innovative RTD drinks. In June 2014, Starbucks introduced Fizzio- the company’s brand of preservative-free, hand-crafted, cold carbonated beverages in nearly 3,000 stores in the U.S. The company is expanding its cold beverage portfolio with the addition of the Fizzio Hand-crafted Sodas and Teavana Shaken Iced Teas. The company might introduce its hand-crafted carbonated beverages in Japan to generate incremental revenues. In the latest Q3 report, the company reported its three quarters ended revenues of $820 million for the CAP segment. With this consistent pace, the company might report just over $1 billion in revenues, an increase of 10% year-over-year, for the segment in fiscal 2014. Moreover, Japan is one of the countries, that has the highest prices of retail coffee in the world. Despite the struggling economic conditions in Japan, the margins in Starbucks Japan stores are among the highest in the world, as mentioned by the company in its conference call. Also, coffee accounted for 21% and carbonated drinks accounted for 15% of the $45 billion RTD market in Japan in 2013. Taking all the above factors into account, the revenue growth in fiscal 2015 might jump to 11% for the CAP segment, an increase of $100 million to the net revenues. Starbucks might be looking forward to see how the Japanese customers respond to its RTD products. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Weekly Chinese Internet Notes: Perfect World, Sina and Baidu
  • by , yesterday
  • tags: BIDU PWRD SINA
  • In this article will give updates on game developer Perfect World (NASDAQ: PWRD), media company Sina (NASDAQ:SINA) and search giant Baidu (NASDAQ:BIDU) for the last week in the Chinese Internet segment. It is worth noting that all these company stocks are trading lower compared to their levels at the beginning of the week. This is on account of expectations of sluggish economic growth in China, after officials ruled out stimulus measures to boost its economy.. Last week, Perfect World announced an expansion pack to one of its most popular games. Sina, on the other hand, was accused of spreading pornographic content by the Chinese Government. Baidu continues sealing strategic agreements by partnering with Chinese banks and an Australian advertising agency. Perfect World Expands Its Best-Selling Game Perfect World  announced last week that it would release an expansion pack for its MMORPG (Massively Multi-player Online Role Playing Game) Neverwinter, titled Rise Of Tiamat . Neverwinter has been a very successful title for Perfect World. Within a month of its launch, over two million people had registered to play the game. It has also been credited with helping Perfect World’s international subsidiaries register 15% Y-o-Y revenue growth last year. Our forecasts for international revenues of Perfect World below. Earlier we have written on how new game launches are helping Perfect World grow its revenue (see  New Games Fuel Perfect World’s Growth ). Expansion packs are the next best thing to new game launches for online gaming companies as they help sustain player interest in the game. With new in-game purchases, they can also help augment the game’s revenue generation potential. Hence this expansion pack is expected to help Perfect World  grow its revenue for the remainder of the year, especially outside China. Perfect World lost ~$1 per share this week. At the time of writing this report, the stock is trading at $19.69 per share. We have a price estimate of ~$18 per share for this stock. Our revenue estimate for Perfect World in the calendar year 2014 is $594 million, lower than the Reuters consensus estimate of  $628 million. Sina Fined For Hosting Objectionable Content Sina has once again come under the Chinese Government scanner. Sina’s micro-blogging site Weibo was found to have hosted more than 20 erotic stories on a photo-blog format. Character restrictions on Weibo posts were overcome in the said posts by keeping the text inside the images. Sina had been fined close to $815,000 in April for allowing such content. Such incidents highlight the regulatory risks that even home grown Chinese companies face in doing business online in China. Sina dropped by over $2 a share in trading this week to reach ~$43 per share. We have estimated the value of Sina’s equity to be $71.25 per share. We have a revenue estimate of $719 million for Sina in the year ending December 2014, lower than the Reuters consensus estimate of $765 million. See our complete analysis of Sina here Baidu’s New Agreements Baidu has entered into strategic partnerships with China Guangfa Bank and Industrial Bank Co Ltd. China Guangfa Bank is seeking big data analytics support from Baidu to help it evaluate and understand potential customers for its wealth management products. The bank is also interested  in availing Baidu’s location-based service in optimizing the location of its brick and mortar banking infrastructure. Industrial Bank seeks to avail Baidu’s competencies in data analysis, customer investigation and online marketing to improving its online banking business. Such business development activities can help establish Baidu as a strong player in the big data domain going ahead, especially among the firms in the BFSI sector. See our complete analysis of Baidu here We had also reported about Baidu’s strategic research agreements with Seagate Technology and BMW (See Baidu Inks Strategic Research Agreements ). It has now also tied up with an advertising firm called Belimark Australia, to help Australian businesses gain access to potential customers in China through Baidu’s search advertising. The services to be offered by Australian firms to Chinese consumers through this channel are likely to be travel and accommodation, real estate, retail and educational services. This tie-up could provide an opportunity for Baidu to increase its $5.12 billion revenue from online advertisng in China that it earned last year. Baidu lost ~$12 per share in trading this week. Its current market price is ~$218. Trefis price estimate for  this stock is $225. Bloomberg BusinessWeek has a consensus estimate of $7.9 billion revenues for Baidu in calendar year 2014. Trefis estimate for this metric is $7.7 billion. 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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    China Telecom Showing Signs Of Revival With Steady Growth In High Speed Subscribers
  • by , yesterday
  • tags: CHA CHU CHL AAPL
  • China Telecom (NYSE:CHA) reported a steady improvement in its performance in the Chinese wireless subscriber market in August, as it gained about 1.8 million new 3G subscribers. This marked the sixth consecutive month of improvement in 3G user adds for the carrier, taking its total 3G user base to about 145 million. It was also the first time this year that China Telecom recorded more monthly high speed (3G & 4G) user adds than China Unicom (NYSE:CHU), which recorded a gain of 1.26 million, although it still lags significantly behind market leader  China Mobile (NYSE:CHL), which reported gains of about 10.5 million high speed subscribers in the same period. China Telecom has been struggling with subscriber additions since December, when China Mobile launched its 4G service and formalized the iPhone deal with  Apple (NASDAQ:AAPL). Increased competition in the 3G market and aggressive 4G network expansion by China Mobile seem to be weighing on China Telecom’s performance. This is evident from the fact that China Telecom has lost over 5 million subscribers (net of 2G declines and 3G adds) in the last eight months, and its share in the Chinese wireless market has declined by 86 basis points to about 14.2%. In the same period, China Mobile increased its share by 34 basis points to 62.5% and China Unicom’s share improved 50 basis points to 23.3%. However, the third largest Chinese carrier stands to benefit in the near term from the recent issuance of FDD-LTE 4G licenses by the government, the introduction of new 4G handsets on the carrier’s network, a reduction in handset subsidies, a favorable revision to interconnection fees and the establishment of a network infrastructure joint venture (JV) by all the carriers in the country. We have a  price estimate of $55 for China Telecom, which is about 15% below the current market price.
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    Key Takeaways From BlackBerry's Q2
  • by , yesterday
  • tags: BBRY SSNLF AAPL
  • BlackBerry (NASDAQ:BBRY) posted relatively strong Q2 2015 (FY ends in February) earnings on September 26, beating expectations on earnings but falling short of the market consensus on revenues. The company’s restructuring initiatives have certainly been yielding results, helping to cut quarterly adjusted net losses to around $11 million from about $60 million in the previous quarter, while reaching break even adjusted operating margins. However, the company’s top line remains a concern, with quarterly revenues continuing their descent, falling from around $966 million during Q1 to around $916 million currently. Here is an overview of some of the key takeaways from the company’s earnings release.
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