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


Trina Solar reported earnings on Tuesday, with revenues growing by 16.7% sequentially to $519 million driven by higher panel shipments, although net income fell sequentially to $10.7 million due to higher polysilicon costs, lower average selling prices and lower contribution from the company's high-margin downstream business. Our earnings note provides a look at the key factors that drove the company's earnings.

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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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Key Trends Impacting Johnson Controls' Business Efficiency Segment
  • by , 18 minutes ago
  • tags: JCI
  • Johnson Controls ‘ (NYSE:JCI) generated 34% of its revenues from its Building Efficiency segment in fiscal year 2013 (Fiscal year end Oct 31). The segment’s revenue contribution towards overall income has declined significantly from 43.8% in fiscal year 2009. This is primarily due to the soft global commercial Heating, Ventilation and Air-Conditioning (HVAC) market and the outpacing growth of Johnson Controls’ Automotive and Power Solutions segments. In this article, we take a deeper look into the segment and the key trends driving its growth in the future. We currently have  a stock price estimate of $52 for Johnson Controls, approximately 6% higher than the current market price. See our complete analysis of Johnson Controls here Overview of the segment Johnson Controls Building Efficiency segment sells heating, ventilation, air conditioning (HVAC) and refrigeration systems. The company’s systems include York® chillers, industrial refrigeration products, air handlers, equipment that provide heating and cooling in non-residential buildings and the Metasys control system, which monitors and integrates HVAC equipment with other buildings systems. It also offers technical services which include service and maintenance contracts for HVAC equipment, as well as installation of controls and equipment in new buildings. Johnson Controls generates 43% of its Business Efficiency revenues from HVAC equipment and the remaining 57% from technical services. Within the segment, Johnson Controls also offers a service called Global Workplace Solutions (GWS), which provides full-time on-site operations staff and real estate and energy consulting services to help customers (mainly corporate and multi-national companies) reduce costs and improve the performance of their buildings. The company’s on-site staff typically performs tasks related to the comfort and reliability of the facility, and manages subcontractors for functions such as food service, cleaning, maintenance and landscaping. Weak Commercial HVAC Markets Present Headwinds Building Efficiency revenues declined 2% from fiscal year 2011 to fiscal year 2013. Even as the residential HVAC market in North America has recovered driven by an improving housing market, the commercial HVAC market has remained soft due to weak non-residential construction spending. With Johnson Controls’ HVAC portfolio focused on non-residential buildings, the market weakness has weighed on the segment’s results. Between 2008 and 2013, non-residential construction spending in the U.S. declined 20%, from $710.4 billion to $568.6 billion. Despite a 5.7% growth in non-residential construction spending in the nine months ended June 30, Building Efficiency revenues declined 4.4%. This is because a large part of Johnson Controls’ Building Efficiency segment is exposed to healthcare and educational construction spending, and government spending in the non-residential construction sector. Spending in these sectors continued to decline in 2014, affecting Johnson Controls Building Efficiency segment. Weak construction spending in Europe has also had a negative impact on the segment’s revenues. During the third quarter fiscal year 2014 earnings presentation, Johnson Controls said that it is beginning to see improvement in some verticals of the global commercial HVAC market. However, it is too early to consider the improvement to be a sign of a turnaround in the market. Johnson Controls’ acquisition of Air Distribution Technologies (ADT) increases its exposure to these growing verticals along with broadening the HVAC portfolio. This should help bolster Business Efficiency revenues in the present weak construction spending environment. Even though the weak U.S. HVAC market is likely to present headwinds for Johnson Control’s Business Efficiency segment growth in the near future, the company may benefit from growth in the Asian HVAC market. At a time when Business Efficiency revenues from North America and Europe were declining, revenue from Asia performed relatively well. Between fiscal year 2011 and 2013, the segment’s revenue from Asia grew 10%, and in the first nine months ended June 30, 2014, revenue grew 2%. The Asia-Pacific region constituted the largest market for HVAC equipment in 2013 and is expected to grow at a strong pace driving the global HVAC market to $120 billion in 2018, compared to $91.5 billion in 2013. Developing markets such as China, India and Indonesia will be the fastest growing markets in Asia due to the rapid economic growth, greater product availability and high demand for cooling systems, which will drive sales of HVAC equipments in these countries. Johnson Controls has significant exposure to the Asian market and is well positioned to take advantage of the growth in sales. ADT acquisition strengthens Johnson Controls’ position in the HVAC market During the third quarter fiscal year 2014, Johnson Controls completed its acquisition of ADT, which is one of the largest providers of air distribution and ventilation products for buildings in North America. We believe that ADT will provide growth opportunity for Johnson Controls’ Business Efficiency segment by adding new products to its existing HVAC portfolio. In the near term, this acquisition will likely help lift the company’s revenues through cross-selling opportunities. ADT’s acquisition is expected to add approximately $150 million to Johnson Controls top line by extending its reach within the U.S. commercial HVAC market and enhancing distribution channels. Additionally, it will help lower costs by $75 million – $100 million. By 2016, the acquisition will add $0.10-$0.15 to the company’s earnings per share. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)|  Get Trefis Technology  
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    A Closer Look At Anadarko's Key Business Drivers
  • by , 18 minutes ago
  • tags: APC COP EOG
  • One of the largest independent oil and gas companies in the U.S.,  Anadarko Corp. (NYSE:APC), is primarily involved in the exploration and production of crude oil, natural gas liquids and dry natural gas, along with the transportation and marketing of these hydrocarbons. Its assets portfolio includes positions in onshore resource plays in the Rocky Mountains region, the southern United States and the Appalachian basin. The company is also an independent producer in the Deepwater Gulf of Mexico, and has production and exploration activities globally, including positions in high potential basins located in East and West Africa, Algeria, Alaska and New Zealand. The valuation of an independent oil and gas company largely depends on a few key business drivers such as hydrocarbon production, proved reserves, cash operating margins, and capital expenditures. In this article, we see how these drivers have been trending for Anadarko over the past few years. We currently have a  $111/share price estimate for Anadarko, which is almost in line with its current market price. See Our Complete Analysis For Anadarko Hydrocarbon Production Anadarko’s second quarter hydrocarbon production stood at 848,000 barrels of oil equivalent per day (MBOED). Most of the company’s total hydrocarbon production (~80%) currently comes from its onshore assets in the U.S. Anadarko’s net hydrocarbon production from its U.S. onshore assets has grown at more than 13.3% CAGR between 2009 and 2013. This compares to the company’s overall production growth rate of around 6.5% CAGR over the same period. Within its U.S. onshore portfolio, the company’s acreage in the Wattenberg field, where it operates over 5,200 wells, stands out as being the most lucrative. This year, Anadarko plans to drill over 360 horizontal wells in the Wattenberg field, employing as many as 13 horizontal operated rigs on an average. During the second quarter, Anadarko’s oil equivalent sales volume from the Wattenberg field grew by 39 MBOED compared to the previous quarter. This made up almost 75% of the total quarter-on-quarter hydrocarbon sales volume growth from its U.S. onshore assets. Going forward, the company expects to grow its net hydrocarbon production at 5-7% CAGR in the long run, with sales volume from the Wattenberg field expected to grow at 20% CAGR until at least 2018. We currently forecast Anadarko’s net hydrocarbon production to reach around 1,215 MBOED by 2021, implying a CAGR of 5.7%. Proved Reserves The amount of proved hydrocarbon reserves is an extremely critical metric for any oil and gas exploration and production company. It directly impacts the company’s production growth outlook, as it represents the total quantity of technically and economically recoverable oil and gas reserves owned by the company at a given point in time. Anadarko’s proved hydrocarbon reserves stood at 2,792 million barrels of oil equivalent at the end of last year. This implies that the company held enough reserves at the end of 2013 to be able to produce oil and gas for the next 10 years at 2013 production rates. More importantly, despite the sharp growth in annual hydrocarbon production rate (around 6.5% CAGR between 2009 and 2013), the company has been able to grow its proved reserves base quite consistently. The company’s average reserve replacement ratio for the last five years has been over 151%, which implies that on average, it added 51% more hydrocarbons reserves to its proved reserves base than the amount of oil and gas it produced each year during this period. This speaks volumes of the successful exploration program and long term sustainability of Anadarko’s core business. The table below summarizes the company’s proved reserves (in millions of barrels of oil equivalent) and reserve replacement ratio for each of the last five years. Cash Operating Margins According to our estimates, Anadarko’s cash exploration and production (E&P) margins have increased from around 41.7% in 2009 to 59.4% last year. Most of the increase in the company’s cash E&P margins during this period has come from higher price realizations, improving sales volume-mix and the growing proportion of Wattenberg production. Since Anadarko’s price realizations primarily depend upon the global benchmark crude oil prices and spot Henry Hub natural gas prices in the U.S., in this article, we will just be looking at the other two factors in detail. Anadarko derives all of its natural gas production from the U.S., where a supply glut has led to severely depressed domestic natural gas prices by international standards. Therefore, despite lower finding, development and lifting costs per barrel of oil equivalent (BOE) of natural gas, the production of liquids (crude oil and natural gas liquids) has become a far more lucrative source of revenue for upstream oil and gas companies in the U.S. Last year, Anadarko sold liquids at an average price of around $84.5 per barrel, compared to just around $21 realized per BOE of natural gas. Therefore, the company has been increasing its focus on liquids production to drive margin growth. As a result, the proportion of liquids in Anadarko’s total sales volume has increased from 38.6% in 2009 to 43.5% last year. Going forward, we expect the company’s sales volume-mix to improve further with liquids making around 45% of its total hydrocarbon production in the next couple of years. Apart from better sales volume-mix, the growth in Anadarko’s Wattenberg production is also boosting its consolidated E&P margins. This is because the company generates the highest, more than a 100%, rate of return on the development of its acreage in the Wattenberg field. This can be primarily attributed to its land grant advantage in the region. Anadarko holds fee ownership of mineral rights under approximately 8 million acres in the U.S. Rocky Mountains region. The acreage passes through southern Wyoming and portions of Northeast Colorado and Utah. It is commonly referred to as the land grant. By owning mineral rights, Anadarko not only gains from lower operating costs in the land grant area, but it also earns royalty income from third-party operations in the area. During the 2014 annual investor conference held in March, Anadarko pointed out that for each operated well with an estimated ultimate recovery (EUR) of around 350,000 barrels of oil equivalent, the land grant increases its before-tax net present value (NPV) by $2.2 million or more than 45%. What’s even more significant is the fact that the land grant area covers a large part of Anadarko’s 350,000 net acres in the Wattenberg field, which is the primary growth driver for the company. The contribution of Anadarko’s Wattenberg operations to its total sales volume has grown from around 9.4% in 2010 to 14.3% during the second quarter of this year. Going forward, the company expects to grow its hydrocarbon sales volume from the Wattenberg field at around 3-4 times the company’s total sales volume growth target of 5-7% CAGR. Therefore, the weight of Wattenberg production in Anadarko’s total sales portfolio is expected to increase, which would exert downward pressure on its total unit operating costs resulting in thicker consolidated E&P margins. According to our estimates, Anadarko’s 2014 first six months adjusted E&P margins improved by around 80 basis points y-o-y. Capital Expenditures Anadarko’s annual capital expenditure has increased from just over $4.5 billion in 2009 to more than $8.5 billion in 2013 on increased investments in development and exploration activities. As the company continues to develop the U.S. onshore plays and supporting midstream infrastructure, we expect its 2014 capital expenditure to be north of $8.5 billion as well. However, proceeds from the recent 10% stake sale in the Mozambique gas project and other asset sales in China will partly offset its net capital expenditures this year. Going forward, we expect Anadarko’s upcoming new projects in the Gulf of Mexico and Mozambique to drive its gross annual capital expenditures even higher in the long run. The company estimates the gross cost of building the first two LNG (liquefied natural gas) trains in Mozambique along with the wells and supporting subsea infrastructure to be around $15 billion. However, it has been observed in the past that large-scale LNG projects are generally marred with start-up delays and cost escalations. This poses a downward risk to the company’s rate of return on invested capital in the long run. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    International Trade Commission Ruling In OCTG Case Boosts Prospects For U.S. Steel
  • by , 18 minutes ago
  • tags: X AA MT
  • The U.S. International Trade Commission (ITC) recently ruled that oil country tubular good (OCTG) imports from six countries would be subject to anti-dumping duties. OCTG refers to steel casing and tubing primarily used in the oil, gas and petrochemical sectors. The ITC ruled that anti-dumping duties would be levied against OCTG imports from South Korea, India, Taiwan, Turkey, Ukraine and Vietnam, with imports from the Philippines and Thailand exempted from additional duties. Imports from the Philippines and Thailand were a part of the U.S. Department of Commerce (DOC) ruling on additional duties on OCTG imports. Imports from Saudi Arabia, which were a part of the original complaint made by domestic steelmakers, were exempted from additional duties as a part of an amended final determination by the DOC. The ITC ruling is a major victory for domestic steel producers such as  U.S. Steel (NYSE:X). See our complete analysis for U.S. Steel OCTG Imports U.S. Steel’s foreign competitors have lower labor costs, and some are owned, controlled or subsidized by their governments. This may result in their production and pricing decisions being influenced by political and economic policy considerations, in addition to prevailing market conditions. Energy-related tubular products imported into the U.S. accounted for approximately 49% of the U.S. domestic market in 2013. U.S. Steel and other domestic steel producers contend that a significant number of these imports are priced unfairly low. These companies filed anti-dumping duty (AD) and countervailing duty (CVD) petitions against OCTG imports from India and Turkey along with AD petitions against OCTG imports from the Philippines, Saudi Arabia, South Korea, Taiwan, Thailand, Ukraine and Vietnam. OCTG imports from these nine countries had a combined value of $1.8 billion in 2012 which was more than double their 2010 values. Rising U.S. oil and natural gas production has increased the demand for these OCTGs. The ITC ruling includes OCTG imports from South Korea. This is extremely significant as OCTG imports from South Korea were worth around $818 million in 2013, much more than the combined value of tubular imports from the other countries involved in the case. The ITC ruling may help boost the prospects of U.S. Steel, which was reeling under the impact of these OCTG imports. Impact on U.S. Steel The imports of cheap OCTG products have negatively impacted the fortunes of U.S. Steel’s Tubular Products division. Though this division accounted for only around 16% of U.S. Steel’s revenues in 2013, it is an important segment because of the high margins that tubular goods command. Gross margins for Tubular Products stood at 15% and 11% in 2012 and 2013, respectively. In comparison, gross margins stood at 8% and 7% in 2012 and 2013, respectively, for Flat-rolled Products and U.S. Steel Europe, U.S. Steel’s other reportable segments. Demand for OCTGs is strong due to robust oil and gas drilling activity in North America. However, margins for the Tubular Products division have been under pressure due to competition from imported OCTGs. Segment income from operations for the Tubular Products division fell nearly 48% from $366 million in 2012 to $190 million in 2013. This was primarily because of a fall in the average realized price for this division. Realized prices for the Tubular Products division have fallen due to competition from cheap OCTG imports. The average realized price fell from $1,687 per ton in 2012 to $1,530 per ton in 2013, and further to $1,479 per ton in the first half of 2014. The company had recently announced the idling of two facilities producing tubular steel, citing difficult business conditions created primarily by the imports of tubular goods. The faltering prospects of the Tubular Products division are a blow to U.S. Steel, particularly as both demand and pricing for its other segments remain weak, with the U.S. and European economies still recovering. The Road Ahead The ITC’s ruling is subject to appeal and the countries involved have 30 days to file their appeals. However, if the ruling withstands any appeals filed, it will be a major boost to the prospects of U.S. Steel. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)|  Get Trefis Technology
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    Deere Could Turnaround On Long Term Agricultural Equipment Sales
  • by , 18 minutes ago
  • tags: DE CAT
  • Deere’s (NYSE:DE) third quarter fiscal year 2014 earnings (fiscal year ends October 31) declined 5% due to weak farm equipment demand. Deere’s sales of agricultural equipment fell in response to declining crop prices such as corn and soybean, which have led to reduced farm incomes. Given the present conditions, Deere decided to cut down production to bring it in line with current market demand. Deere also cut down its revenue guidance for the fiscal year 2014 citing the weak farm equipment demand. Earlier, it had forecast revenues to decline 4% year-on-year, but now expects to see a 6% year-on-year decline. Additionally, the company lowered its net earnings forecast from $3.3 billion to $3.1 billion. We believe that Deere’s weak performance could turnaround driven by the long term growth potential of its Agriculture & Turf Equipments segment. Also, strong growth in the U.S. housing and construction market should aid in offsetting the present revenue declines. Click here to see our complete analysis of Deere Weak farm equipment demand pushes Deere to lay off workers and shutdown plants Prices of crops such as corn, soybean and wheat are trading at its lowest since 2012 due to high production levels enabled by favorable weather conditions. Decline in the price of these crops negatively impacts farmers’ income since receipts from corn and soybean alone account for around 50% of crop receipts or 28% of overall commodity receipts. With price of major crops at their lowest in the past two years, farmers are becoming increasingly conservative in their capital spending, which includes purchase and repair of farm equipments. This has led to a decline in Deere’s sales of agricultural equipment. The low grain price environment in the U.S. is expected to continue through 2014 and 2015, on account of record-high corn and soybean production expectations this year. The USDA forecast a 27% decline in U.S. net farm income in 2014 due to the declining crop prices. Deere expects to see weak farm equipment markets in Europe and South America as well due to similar reasons. The company has therefore decided to scale back production of its agricultural equipment in line with the expected demand. On August 15, Deere announced it will be laying off more than 600 workers at four of its plants in Midwest U.S. in order to reduce production. This included plants at John Deere Harvester Works, East Moline, IL; John Deere Seeding and Cylinder, Moline, IL; John Deere Des Moines Works, Ankeny, IA; and John Deere Coffeyville, Coffeyville, KS. In addition to the indefinite layoffs, the company will be implementing seasonal and inventory adjustment shutdowns and temporary layoffs at these factories. A week later, Deere announced indefinite layoffs of another 460 workers at its plant in Waterloo. It is likely that a decline in production will hurt margins due to loss of economies of scale. Agriculture & Turf margins are already under pressure due to implementation costs related to Tier 4 engines, developed in order to ensure compliance with the latest emission standards. The segment’s margins are expected to decline 2 percentage points in the fiscal year 2014, to reach 14% due to these trends. Deere’s Agriculture & Turf Equipments segment is a long term growth driver We believe that the weakness in global farm equipment demand will be short lived and Deere’s Agriculture & Turf Equipment revenue will soon grow. The primary factor that will ensure growth in revenue is the level of food production that is needed to support the growing population. The global population is expected to grow by another 2 billion by 2050, crossing 9 billion. Population growth will drive demand for food for sustenance, necessitating an increase in agricultural output. The United Nations believes that agricultural production will have to be increased by 60% in order to cater to the additional 2 billion population of the world by 2050. In order to increase agricultural production, farmers will resort to equipment such as tractors, harvesters, sprayers, tilling and seeding equipment. This will help drive growth in sales of agricultural equipment, the market for which is expected to grow at an average rate of 8% through 2018. Construction equipment sales should partially offset decline in Deere’s revenue We believe that strong U.S. housing and construction market should provide some relief to Deere from the poor agricultural equipment sales. Driven by strong year-on-year construction and housing activity in the U.S., Deere’s Construction & Forestry segment posted 19.4% year-on-year growth in the third quarter fiscal year 2014. Construction spending was up 8% and 5.5% year-on year in the months of May and June respectively. Housing starts were up 7.5%, 7.6%, and 21.7% in the months of May, June and July respectively. We expect the U.S. housing and construction market to continue to grow in the coming years driven by favorable macroeconomic factors, which includes declining lending rates and addition of jobs in the construction sector, and increase in new housing permits. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage declined to 4.13% in July from 4.43% in January and 4.37% in July last year. Low mortgage rates will make purchase of homes more affordable for potential buyers. Addition of jobs in the construction sector is a good indicator of housing construction companies’ outlook. In the quarter ended July 31, 41,000 jobs were added in the construction sector, more than double the jobs added in the same quarter of the previous year. New building permits increased 8.1% to reach 1.052 million in the same month, indicating healthy demand for new homes. Continued growth in U.S. housing market will help drive demand for construction equipment, which in turn should boost Deere’s Construction & Turf Equipment revenues. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) |  Get Trefis Technology
    Why We’re Pitting Stocks Against Vintage Cars
  • by , 3 hours ago
  • tags: TIF BID
  • Submitted by Wall St. Daily as part of our contributors program Why We’re Pitting Stocks Against Vintage Cars By Robert Williams, Founder   Automotive history was made last week when a 1962 Ferrari 250 GTE sold for $38,115,000 at the Bonhams Quail Lodge Auction. It was the most expensive car ever sold in an auction-style format. The car is famous for a fatal accident during a race at Montlhéry, France in 1962 that killed French Olympic ski champion, Henri Oreiller. After the accident, the car was rebuilt by the Ferrari factory. Now, since the S&P 500 also sits in record-setting territory, I went back to 1971 and pitted the stock market against the luxury-vintage car market. The results were nothing short of spectacular. During my research, however, I discovered something even more fascinating. That is, a rare market anomaly with the potential to make you a fortune in the weeks ahead. First, let’s review the results from my research . . . As it turns out, the stock market doesn’t even come close to measuring up. Below is a list of the top 14 car auction sales of all time, beginning in 1971 with the sale of a Bugatti Type 57SC Atlantic Coupe. Over the last 43 years, sale prices in the high-end luxury-vintage car market have expanded by nearly 11,000%. The S&P 500 has only appreciated by 1,834% over the same period. I suspect it would’ve been much closer had I used the returns of the financial markets’ best-performing asset class, rather than just the benchmark for U.S. stocks. Nonetheless, stocks alone were no match for Ferraris, Alfa Romeos, Mercedes, and Bugattis. And the vintage-luxury car market continues to explode. Values of collectible Ferraris shot up 62% in 2013 alone, and the value of all high-end collector cars has jumped 47%. What’s interesting to note, however, is that shares of high-end auction house Sotheby’s ( BID ) are in decline. (Even though Sotheby’s specializes in fine art and jewelry, this market typically shares a strong correlation with the luxury-vintage car market.) As it turns out, Sotheby’s has been publicly feuding with activist investor Daniel Loeb, which hasn’t been good for business. As one industry insider describes, “The uncertainty around the future management and direction of Sotheby’s has very likely caused some hesitation for clients.’’ Loeb and Sotheby’s have since tabled their seven-month feud, however, they have made an agreement to add board seats for Loeb and two of his allies. How to Play a Convergence The fact that Sotheby’s has settled its feud with Loeb puts a fantastic investment opportunity on the table.  That is, since the high-end auction market is otherwise quite robust. It’s a perfect situation for what’s called a “ pairs trade .” A pairs trade seeks to profit from a temporary disconnect in two historically correlated securities. The trade is executed by shorting the outperformer (the high-end luxury market) and going long the underperformer (Sotheby’s), betting that the “spread” between the two will converge. All we need to execute this trade effectively is an outperforming stock to use as a proxy for the high-end luxury market. That stock is Tiffany & Co. ( TIF ). The beauty of a pairs trading strategy is that it’s market-neutral. Whether the stock market goes up, down, or sideways over the next few weeks, the convergence of Sotheby’s and Tiffany should put a nice premium in your pocket. Just take note, though . . .  shorting stock does require that you open a margin account. Onward and Upward, Robert Williams Founder, Wall Street Daily The post Why We’re Pitting Stocks Against Vintage Cars appeared first on Wall Street Daily . By Robert Williams
    Is This Nuclear Power System Set for Disaster?
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  • Submitted by Wall St. Daily as part of our contributors program Is This Nuclear Power System Set for Disaster? By Marty Biancuzzo, Chief Technology Analyst   The nuclear power debate has raged for nearly 60 years – yet today, the issue is more divisive now than ever. But whether you’re for it or against it, one thing is certain: Similar to water, nuclear is an energy source that we tend to take for granted. That is, until something catastrophic happens that crushes supplies and put lives at risk. Or worse… kills people. With the Fukushima disaster of 2011, and even Chernobyl in 1986, still fresh in our memories, some industry experts have a radical solution to boost safety, while keeping this important industry humming . . . Go Nuclear . . .  Or Not? Advocates say nuclear power is a cleaner, more viable, sustainable energy source than oil. One that’s essential, as it reduces our carbon footprint and frees us from Middle Eastern oil dependency. Opponents couldn’t disagree more. They see nuclear as a high source of emissions and argue that nuclear harvesting (like uranium mining and nuclear decommissioning) is fuel-intensive. In other words, we’re polluting the air in order to stop polluting the air! Critics also emphasize the well-publicized dangers of nuclear power . . . with the Chernobyl and Fukushima disasters to support their claims. These are the two highest-profile catastrophes out of the 99 total nuclear accidents that have occurred around the world. And given that there are 435 nuclear reactors in 31 countries, the question isn’t “if” the next accident will happen . . .  it’s when and where number 100 will go down. So how are we going to prevent it? Unlucky Seven In 1986, the Chernobyl disaster was the first to hit Level 7 on the International Nuclear Event Scale, based on the extreme amount of radiation exposure, and widespread human and environmental damage caused… Click to enlarge To this day, cancers and deformities related to the accident are still turning up. And in terms of casualties and costs, Chernobyl is considered the worst nuclear catastrophe in history. Until Fukushima matched it in 2011. When a tsunami destroyed three of the six nuclear reactors, 300,000 people were sent fleeing for their lives. Sadly, 17,484 didn’t make it. And today, those who live in neighboring cities face a 70% greater chance of developing cancer. So what’s the solution? How do we prevent another Level 7 from occurring in the 31 countries that house the world’s 435 nuclear reactors? According to a few leading countries, we should sail nuclear power plants off into the sunset . . . Nuclear Waves Russia is a dirty word these days, but when it comes to the country’s energy expansion and diversification strategy, they have the right idea . . . Innovate. The country is designing radical new nuclear power plants. Specifically, floating nuclear power plants. Back in 2000, Russia’s Ministry for Atomic Energy drew up designs for seven floating plants to be built. However, a sagging Russian economy, combined with an outpouring of environmental activism, quickly knocked that number down to just one: the Akademik Lomonosov. The project is being led by Rusatom Overseas, part of Russia’s nuclear reactor monopoly, Rosatom. But years of complications and overspending have delayed the project again and again. Russia’s response? Find a friend. Namely, China. Now, with a little help from China’s deep pockets, that floating nuclear plant has finally set sail, making it the first of its kind in the world. Nuclear Plant Sets Sail It’s quite a feat of engineering. Developed using Russian nuclear icebreaker technology, floating nuclear power plants are designed to deliver heat and electricity to remote regions of the country, and power various resource exploration ventures. Have a look… Click to enlarge The barge is comprised of three decks, divided into 10 compartments – all of which serve a specific purpose in the nuclear energy generation process – whether it’s creating the nuclear energy, or storing the waste. It also comes with two KLT-40S reactors and will have a crew of 70 employees, 56 of which are dedicated engineers. Each barge is designed to serve three 12-year cycles. After each cycle, the plant will be towed back to harbor for waste removal and maintenance. For Russia, now that this innovation is finally off the ground (or, more specifically, out to sea!) it could be a lucrative project . . . Will Regulation Sink Floating Nuclear Power Plants? You see, the technology and energy generated from Russia’s floating nuclear power plant won’t just go to Russian interests. The country plans to lease the technology to developing nations for emergency power scenarios and desalinization efforts. In fact, nearly 20 countries have already expressed interest in signing a lease contract with Russia. But what about safety? Well, Russia swears its floating nuclear power plants meet international safety, security, and non-proliferation standards. But many scientists and analysts question this unproven concept. Also, international standards are intended for conventional nuclear power plants, not floating ones, and don’t address the unique issues with this emerging technology. So keep in mind that regulatory action may stifle future progress of floating nuclear power plant technology. But would that necessarily be a bad thing? Are floating nuclear power plants really the future of nuclear energy technology? Stay tuned to my next edition, where the company I’ll profile says, “No.” And not only will you find out why, I’ll also reveal whether its own nuclear innovation is worthy of your investment. Stay tuned. Your eyes in the Pipeline, Marty Biancuzzo The post Is This Nuclear Power System Set for Disaster? appeared first on Wall Street Daily . By Marty Biancuzzo
    One Industry That’s Holding Up the Rest
  • by , 3 hours ago
  • tags: GBX UPC
  • Submitted by Profit Confidential as part of our   contributors program One Industry That’s Holding Up the Rest The resilience of this stock market is uncanny. Just when transportation stocks, a leading market sector at any time, took a well-deserved break, components turned upward and are once again pushing record highs. Union Pacific Corporation (UNP) is a benchmark stock in transportation. It’s up fivefold since the stock market low in 2009 and looks to have continued upward price momentum. This is an exceptional performance for such a mature, old economy type of enterprise. The position has a forward price-to-earnings (P/E) ratio of approximately 17 with a current dividend yield of 1.8%. Three weeks ago, Union Pacific increased its quarterly dividend 10% to $0.50 a share, payable October 1, 2014 to shareholders of record on August 29, 2014. In three of its last five quarters, the company has increased its quarterly dividend at a double-digit rate and as much as anything else, this is responsible for its great stock market performance. Union Pacific had an exceptionally good second quarter. Freight revenues grew 10%, driven by gains in freight volume and rising prices. The company’s operating ratio, which is key in the railroad industry, hit an all-time quarterly record of 63.5%, and management bought back 8.3 million of its own shares during the quarter, spending $806 million. It’s a very good time to be in the railroad business. Not only are the pure-play rail companies mostly doing well, but the railroad services sector is also experiencing great business conditions. The Greenbrier Companies, Inc. (GBX) is a company we’ve looked at before. It has been a huge stock market success. (See “ Why These Stocks Are a Leading Indicator of the Market and What They Foresee Now .”) After a recent stock market consolidation, which was followed by a small sell-off, the position shot up ten points to its current all-time record high. Wall Street estimates for Greenbrier have also been increasing and the company is likely to experience continued upward price momentum on the stock market. As odd as it sounds, in this day and age, where technology seems like the highest growth sector, the business of delivering freight by rail is really good. Demand for new railcars and those that carry hydrocarbons is very strong; the energy production boom is a major catalyst. And it’s not just oil representing the freight growth. Fracturing sand is also contributing to the boom times in the railroad business. It may be old school, but what happens in the transportation sector is material to the direction of the broader stock market. The Dow Jones Transportation Average is back after a well-deserved sell-off. And if Union Pacific and Greenbrier have upward price momentum on the stock market, then it’s highly likely the broader market will too. It’s hard to imagine railroads still being so influential on the economy and Wall Street—but they are, and as a leading indicator, the trend in rail is very positive.   The post One Industry That’s Holding Up the Rest appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
    Stock Market Fake? Economic Growth Falls to Slowest Pace Since 2009
  • by , 3 hours ago
  • tags: EZU SPY
  • Submitted by Profit Confidential as part of our   contributors program Stock Market Fake? Economic Growth Falls to Slowest Pace Since 2009 Not too long ago, I reported that Italy, the third-biggest economy in the eurozone, had fallen back into recession. Now Germany’s economy is pulling back. In the second quarter of 2014, the largest economy in the eurozone witnessed a decline in its gross domestic product (GDP)—the first decline in Germany’s GDP since the first quarter of 2013. (Source: Destatis, August 14, 2014.) And more difficult times could lie ahead . . . In August, the ZEW Indicator of Economic Sentiment, a survey that asks analysts and investors where the German economy will go, posted a massive decline. The index collapsed 18.5 points to sit at 8.6 points. This indicator has been declining for eight consecutive months and now sits at its lowest level since December of 2012. (Source: ZEW, August 12, 2014.) Not only does the ZEW indicator provide an idea about the business cycle in Germany, it also gives us an idea of where the eurozone will go, since Germany is the biggest economic hub in the region. But there’s more . . . France, the second-biggest economy in the eurozone, is also in a precarious position—and a recession may not be too far away for France. After seeing its GDP grow by only 0.4% in 2013, France’s GDP came in at zero for the first two quarters of 2014. (Source: France’s National Institute of Statistics and Economic Studies, August 14, 2014.) France’s problems don’t end there. This major eurozone country is experiencing rampant unemployment, which has remained elevated for a very long time. While I understand North Americans may not be interested in knowing much about the economic slowdown in the eurozone, we must remember that about 40% of the public companies that make up the S&P 500 derive sales from Europe. If the eurozone faces an economic slowdown—and it does—corporate earnings of American companies will suffer. In the global economy, America won’t be able to avoid the ramifications of a slowdown in the eurozone simply because the U.S. economy is so weak itself. After all, it has been six long years of zero interest rates due to the fear our economy can’t sustain higher rates. Thus, how can we survive a global economic slowdown? For the benefit of my readers: the International Monetary Fund (IMF) is expecting economic growth of only 1.7% for the U.S. in 2014 and 1.1% for the eurozone this year. (Source: IMF World Economic Outlook Update, July 24, 2014.) This is the slowest economic growth we’ve experienced since 2009. Why does the stock market keep going up on the backdrop of this? Maybe it’s not a real stock market rally. Maybe it’s a fake.   The post Stock Market Fake? Economic Growth Falls to Slowest Pace Since 2009 appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
    ADBE Logo
    Adobe Is Overvalued At $71
  • by , 20 hours ago
  • Adobe (NASDAQ:ADBE) stock has rallied from $31 in August 2012 to its current market price of over $71. This translates into a return of over 135% in the last two years. Furthermore, this rally coincides with the launch of Adobe’s Creative Cloud (CC), which contributes 57% to our estimated price of Adobe, and its rapid adoption amongst creative professionals. However, we believe that the current market valuation of Adobe is stretched, even as the company has entered the digital marketing market to diversify its product portfolio. In this note, we will discuss the factors that we believe will limit Adobe’s valuation in the short term. Check out our complete analysis of Adobe Limited Total Addressable Market for Creative Cloud The Creative Cloud (CC) division together with the Adobe’s packaged division makes up 60% of Adobe’s estimated value. The key drivers for this division are total creative software market and the average revenue per subscriber. While Creative products (Creative Suite and Creative Cloud) contributed nearly 50% to Adobe’s revenue in 2013, the total number of licensees for Adobe’s creative products stood at 12.8 million. Currently we estimate that the company is well underway to add over 3.4 million subscribers in 2014, and on track to add 10.8 million subscribers by the end of 2020. This figure represents 80% of the current 12.8 million point and suite licensees. However, to justify Adobe’s current market price the number of subscribers will have to grow to over 13.8 million, which in turn will require a higher growth rate in the total addressable market (TAM). Average revenue per subscriber (ARPS) for the company consists of a blend of subscribers that have enrolled to different levels of cloud services. While access to the complete Creative Cloud suite costs $74.99 per month, access to standalone Photoshop is priced at $9.99 per month. We estimate that the blended ARPS for the company was $27.5 in 2013. The recent trend in subscriptions indicates that users are subscribing to the annual full version of Creative Cloud. The company has also reported good growth in its enterprise term licensing agreement (ETLA), which have tenure of three years. This leads us to believe that the ARPS will increase in the coming years as it converges to the sticker price of $74.99. We estimate that the ARPS will grow to $51 by the end of our forecast period. However, the market expects ARPS to grow at a much faster pace, which might be difficult to achieve if more products with lower price points are introduced within the cloud portfolio. Market Share in Online Marketing Cloud Adobe’s cloud marketing division is the second biggest division and makes up 20% of its value. Over the past few years, Adobe has built a comprehensive digital marketing platform that addresses most of the needs in digital marketing. This build up started in 2009 with the acquisition of Ominiture. Since then, the company has scaled up the functionality and product offering of its marketing platform through organic and inorganic growth. Currently, Adobe offers six products under its marketing cloud solution. The Adobe marketing cloud includes a complete set of analytics, social media optimization, consumer targeting, web experience management and cross-channel campaign management solutions. It generated around $1 billion in annual revenues in 2013. Having been built from the acquisition, the business has had a compounded annual growth rate (CAGR) of 106% over last four years. Well positioned in a growing market, this division is expected to witness robust growth in the coming years. Adobe is aiming to increase its revenues from cloud based marketing solutions by expanding in new geographies and verticals. According to the CEO of Adobe, Shantanu Narayen, the marketing cloud is easily a $10 billion opportunity. Currently, we project revenues from its digital marketing division to reach $3.4 billion by the end of our forecast period. However, to justify the current market price of Adobe, the company will have to rake in over $4.8 billion in revenue for marketing division. We believe that this would be a difficult feat considering the intense competition in this space from companies such as IBM, Accenture, Salesforce and Oracle. Acrobat Family Revenue To Grow Acrobat family is the third largest division and makes up 10% of Adobe’s estimated value. In the past few quarters, revenues from this division have been on a decline, primarily due to launch of document cloud services that have subscription fee spread over the period of usage. The company has amassed over 1.9 million subscribers for document cloud service. We expect this trend to continue and forecast the subscriber base to grow to 8 million by the end of our forecast period. Furthermore, as this service gains momentum, we expect the ARPS to increase from $5.91 to $10 by the end of our forecast period. Despite this growth rate, we expect revenue to grow from $768 million to $1 billion by 2020. Transition to Cloud Services to Negatively Impact Smaller Divisions Smaller divisions of Adobe, which include Adobe packaged software, LiveCyle software and Print & Publishing, makeup 6% of its estimated value. The adoption of Creative Cloud will negatively impact Adobe’s packaged software, while up-selling to Adobe marketing cloud will cause LiveCyle & Connect pro revenues. We expect revenues from these divisions to decline in the future. We estimate average selling price of packaged software and LiveCycle software to decline in the future to $200 and $85,200, respectively. We also expect the number of licenses sold for both the divisions to decline. Even if these metrics were to improve for both the division, it will have little impact on our stock price valuation, since contribution from these divisions is small. We currently have a  $58.14 price estimate for Adobe, which is 20% below the current market price. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) |  Get Trefis Technology
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    P&G's Brand Divestitures Should Unlock Greater Value
  • by , 20 hours ago
  • tags: PG UL CL
  • Procter & Gamble (NYSE:PG) is the world’s largest consumer goods company, with almost 200 brands in its portfolio. And it competes with other global consumer goods companies such as Unilever (NYSE:UL) and Colgate-Palmolive (NYSE:CL). The company has a market capitalization of approximately $224 billion and annual revenues of about $83 billion in fiscal year 2014, marginally higher than sales from fiscal year 2013. Operating profit margins for FY14 stood 1 percentage point higher over FY13, at 18.4%. Similarly, net earnings margin (from continuing operations) expanded 40 basis points to 14.1% in FY14. P&G classifies its extensive brand portfolio across five broad product categories, namely: 1) Beauty; 2) Grooming; 3) Health Care; 4) Fabric Care and Home Care; and, 5) Baby, Feminine & Family Care. In this note, we talk about key trends that could impact P&G’s business briefly. We currently have a $70 price estimate for P&G’s stock, about 16% lower than its current market price. See our complete analysis of Procter & Gamble P&G Plans to Trim Portfolio as Consumer Spending Starts Recovery The sheer size of its brand portfolio has been an issue for P&G in terms of sales growth. The company’s top 70 t0 80 brands make up about 90% of net sales and over 95% of net profit, with the remaining 120 to 130 brands contributing a minimalistic 10% to net sales for the company. However, declining consumer spending in developed markets after the economic crash, combined with inflationary pressures in emerging economies created a weak sales environment globally for consumer goods companies, resulting in a greater emphasis on bottom line through cost savings. The higher emphasis on its earnings growth has led to a deferral in shedding underperforming brands for P&G. In this regard, P&G has planned an ambitious five-year plan lasting until fiscal year 2016 and expects to cumulatively save about $10 billion in cost of goods sold, marketing expenses and non-manufacturing related overhead. It saved $1.2 billion in cost of goods sold in FY2013 and delivered on its earlier guidance of saving $1.6 billion in cost of goods sold in FY2014. However, more recently, the company announced its intention to shed close to 100 brands that have minimal contributions to P&G’s top line in a bid to accelerate sales growth in the improving global economy. This strategy should bode well for P&G’s sales, with the savings from discontinuing underperforming brands being reinvested into expanding operations in high growth markets. P&G derived about 43% of FY14 sales from Asia, Central and Eastern Europe, the Middle East, Africa and Latin America combined. Comparatively, the contribution from emerging and frontier markets is much higher for its competitors, such as Unilever and Colgate Palmolive. Despite the recent currency depreciation in emerging economies that has created inflationary pricing pressures on consumers, uptake of consumer goods and products remains higher in emerging markets compared to developed economies and should attract P&G into enhancing its position in these markets. Portfolio and Manufacturing Streamlining Could Improve Sales and Margin Growth As a percentage of revenues, P&G generates about 32% of its sales from the Fabric and Home Care segment, 25% from the Baby, Feminine and Family care segment, and 24% from its Beauty segment. Grooming and Health Care segments constitute smaller revenue shares for P&G, at 10% and 9%, respectively, in fiscal year 2014. The Fabric, Home and Pet Care unit is also P&G’s most valuable segment, accounting for approximately 28% of overall value. Its Beauty segment comes second in the value chain, contributing about 22.5% to P&G’s business. In Q3FY14, the company completed its sale of the Pet Care business unit to Mars Incorporated for $2.9 billion. P&G’s CEO, AF Lafley, stated that exiting the pet care business was an important part of the company’s overall strategy to focus its product portfolio on the core businesses that provide the most value for consumers and shareholders. We are presently adjusting our P&G model to reflect the sale of its pet care business. However, the divestiture should have marginal impact on the divisional valuation, given that the pet care sales in fiscal year 2014 accounted for a meager 0.9% of overall revenues. Additionally, the company plans to combine business units and redesign its supply chain system so as to save between $200-$300 million annually over three to four years. P&G plans to reduce its manufacturing footprint from many, single product plants into fewer, multi-category plants that have common manufacturing platforms. Last fiscal year, P&G’s unit volume sales increased 3%, driven by mid-single-digit increases in volumes of its two largest divisions. Unit volumes increased low single digits for Grooming and Health Care segments, while Beauty products had negligible growth in volume sales. Shedding underperforming brands, streamlining manufacturing operations, and innovating further with its billion dollar brands across business units should take P&G growth higher going forward. Innovation has been a core part of Procter & Gamble’s business strategy, and this has allowed it to become the market leader in consumer products. Seven of the company’s products made it to leading market research company IRI’s list of top 10 non-food U.S. consumer product innovations in 2013. P&G’s recent launches in fabric care, such as Tide Pods, Ariel Pods and Gain Flings, are gaining traction in the developed markets and should be able to lift a nimbler P&G higher post the brand divestitures. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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