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

COMPANY OF THE DAY : TIME WARNER CABLE

Time Warner Cable recently reported earnings, with a 10% increase in adjusted earnings. Revenues grew 3.6% to $5.71 billion, led by 11% growth in the residential broadband business, but the company lost 184,000 pay-TV subscribers during the quarter. This was far worse than Comcast, which lost only 81,000 video subscribers in the quarter. In our earnings note we discuss these results and our outlook for the company going forward.

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FORECAST OF THE DAY : RADIOSHACK'S U.S. STORE GROSS MARGIN

RadioShack's recent debt restructuring deal will give the company more runway for a turnaround. It has been plagued by declining sales and compressed gross margins of late. While we expect the company's gross margins to bounce back slightly, there could be a significant upside to our price estimate if it is able to stabilize sales and cut costs, thereby expanding margins further.

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RECENT ACTIVITY ON TREFIS

AAPL Logo
Monthly Updates: Home Improvement Sector
  • By , 10/31/14
  • tags: HD LOW
  • As we enter November and gear up for the quarterly result announcements for both  Home Depot (NYSE:HD) and  Lowe’s (NYSE:LOW), we take a look at the months events for America’s two largest home improvement retailers. Both stocks have had a similar growth trajectory, growing by around 7% in the last month, while the overall S&P 500 Index rose only 2.5%. Falling unemployment rates, rising builders’ confidence and an increasing number of housing starts- all bode well for the U.S. housing industry in the near term. In turn, this trend should benefit the home improvement industry, which depends on consumers who look to buy home improvement goods and services to furbish their newly bought/rented homes. However, the impact of the data breach at Home Depot last month could have deterred consumers from using their credit/debit cards to make payments, and although the company’s stock has remained strong, a possible decline in sales this quarter could soon catch up with Home Depot’s share price as well. But despite the possible loss in consumer confidence, home improvement sales could benefit from the expected overall surge in demand due to improving macro conditions in the U.S. We look at recent trends that could have bolstered growth in both Home Depot’s and Lowe’s sales in the last month. We have a  Trefis price estimate of $92.65 for Home Depot’s stock, which is roughly 5% below the current market price. Our complete analysis for Home Depot’s stock Accelerating New And Existing Home Sales: Home improvement retailers are impacted by the number of house sales, as new occupants spend on home improvement supplies and construction products and services. Following the first quarter, house sales have picked up in the U.S., with existing home sales reaching a seasonally adjusted annual rate (SAAR) of 5.17 million last month, the highest sales figure since seen in September last year, and also higher than the overall adjusted figure of 5.07 million for 2013. New home sales also rose to a SAAR of 467,000 last month, highest in over a year. Increases in new and existing house purchases in the last two months could have boosted sales of home improvement equipment in October. We have a  $52.30 Trefis price estimate for Lowe’s stock, which is roughly 8% below the current market price. See our complete analysis of Lowe’s here Improving Employment Rates And Spending: Following a negative 2.1% contraction in the U.S. GDP in Q1, the country’s GDP returned to positive growth in the second and third quarters, increasing by 4.6% and 3.5% respectively. In particular, the recent job growth, that saw the unemployment rate drop to below 6% in September, fueled a rise in consumer spending by 1.8% in Q3. This growth can act as a reference, reflecting how home improvement sales might also have grown in line with increases in employment rates and consumer spending. Mortgage Rates Remain Low As Of Now: According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage climbed to 3.98% this week from 3.92% last week. Even though the mortgage rate is up, it has remained below 4% in the last three weeks, and lower than last year’s levels. Potential home buyers have looked to take advantage of the lowered borrowing costs, boosting home sales. Lending rates are expected to rise going forward, fueled by the Federal Reserve’s announcement of reduction in bond purchases, which had kept the long-term interest rates low. The rates haven’t risen as aggressively as they did mid-last year when the Fed first announced reduction in bond purchases. However, the average rate for a 30-year fixed-rate mortgage is expected to rise to 5.1% by the end of 2015, which could further prompt house purchases in the near term, consequently boosting home improvement sales. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    TSLA Logo
    Weekly Auto Notes: Tesla Shares Up On New Lease Program
  • By , 10/31/14
  • tags: TSLA VLKAY TM
  • Shares of Tesla Motors (NYSE:TSLA) gained by as much as 7% following the announcement of a new leasing program for its electric cars. Currently, Tesla offers a leasing package that allows consumers to purchase a Tesla Model S, which sells at a base price of $71,000, for installments between $800 and $1,300 a month, depending on options, following an initial down payment of $6,500. Tesla’s Elon Musk announced a new agreement with U.S. Bank which could allow consumers to purchase the Model S on a lease that could be 25% cheaper than the lease program currently offered by the company. The option will allow consumers to return the vehicle in case they do not like it, while also getting their lease obligation waived off. Considering the fact that the cost of ownership of a Tesla Model S is already lower than most cars in its class, a cheaper lease program should make the car even more attractive to potential buyers. Tesla was also in the news during the week for doubts over whether the company would be able to meet its target of 35,000 vehicles for the year. Last week, a Barclays analyst said that Tesla would not meet its guidance of 13,000 vehicle deliveries for the fourth quarter, thus failing to meet the 35,000 target for the year. In response, Elon Musk took to Twitter to announce that sales of the Model S sedan were up by 65% in North America and had reached a “record high” worldwide. Tesla will announce its earnings on November 5. Currently,  our valuation of $150 (market cap of $18.5 billion) for the company is about 40% below the current market price of $226 (market cap of $27.9 billion). We expect Tesla to report revenue of around $4 billion and operating income of $700 million for calendar year 2014. We forecast non-GAAP diluted EPS of $0.79, which is lower than the market consensus of $1.01 ( Financial Times ). Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    AVP Logo
    Latin America Adds To Avon's Top Line Woes In Q3FY14
  • By , 10/31/14
  • tags: AVP REV EL LRLCY
  • Avon Products (NYSE:AVP) reported third quarter results that were in-line with analyst estimates on October 30th. Quarterly sales stood at $2.14 billion, marginally lower than consensus estimates of $2.16 billion. Geographically, sales from the EMEA region continued to improve from the change in strategy, registering sales that were 5% higher on a constant currency basis at $620 million. In reported terms, sales from the EMEA market remained flat due to a 5% currency headwind from depreciating local currencies against the U.S. Dollar. However, performance from North America continued to remain dull, with the representatives count and sales declining 18% and 15% respectively. Additionally, its largest market of Latin America failed to deliver on management expectations during the quarter, with weaknesses in Brazil, Argentina, Mexico and Venezuela weighing on constant currency sales. Sales from the Latin American market stood at $1.07 billion, 2% higher from a year prior period in constant currency terms. In reported terms however, depreciating currencies resulted in a steep 14% headwind on sales. In terms of margins, overall gross margins adjusted for certain non-GAAP items declined from 63.1% in Q3FY13 to 62.2% this quarter, primarily impacted by currency fluctuations in EMEA markets. However, operating profits witnessed a strong expansion following prudent cost savings and management realignment from Avon. Q3FY14 operating profit margins, adjusted for various non-GAAP charges, stood at 7.9% compared to 5.4% in Q3FY13. Primarily, the expansion in margins were facilitated by a decline in sales & marketing, general, and administrative expense, which helped boost earnings per share from $0.14 in Q3FY13 to $0.55 in Q3FY14. See Our Full Analysis for Avon Products Weak Brazilian Economy, High Representative Attrition in Mexico Weigh on Q3FY14 Latin American Sales Within the Latin American region, Brazil is Avon’s single largest market. Direct selling penetration is relatively high in Brazil compared to other emerging markets, and this has favored Avon, particularly in the skincare, color and fragrance categories. The direct sales channel in these categories in Brazil accounts for nearly 70% of market sales, making the market attractive and highly competitive at the same time. In the third quarter, organic sales from Brazil remained depressed by approximately 4% in constant currency terms due to a challenging macroeconomic environment. Avon states that the launch of new, premium products in Brazil when consumers were becoming more price sensitive did not help sales, particularly in color cosmetics. However, incremental VAT credits offset this decline of 4% in organic sales from Brazil, leaving overall constant currency sales flat on a year on year basis. Furthermore, sales in Mexico suffered from continued attrition in its representative base. Sales declined 7% in reported terms and 6% in constant currency terms due to a decrease in Active Representatives for the company. In addition to the decline in representative count, Avon’s performance in Mexico was negatively impacted by its portfolio price mix. While the company has made some progress in balancing its product portfolio for the Mexican market, it states that the decline in representatives is due to low engagement with new recruits in the first 6 campaign cycles. To address this issue of high attrition amongst new recruits, Avon plans to roll-out its strategy for the U.K market, which generated nearly double digit gains in sales last quarter, and expects sales from Mexico to stabilize in Q4FY14. Representative Engagement in North American Remains Low For the nine months in FY14, North American revenues declined 19% year on year to $877 million. The decline was primarily a result of low engagement with its independent representative base in the region. Active Representatives, which represent the total number of representatives actively involved in Avon’s field programs, registered an 18% decline in numbers. This sharp fall in the number of representatives the company has in the field has resulted in low unit volumes, which have declined nearly 26% year on year in 9MFY14. Although the third quarter has displayed marginal improvement in the rate of representative attrition, and a subsequent slowdown in the decline rate in sales, it still remains at worrying levels for sustainable running of the business in North America for Avon. The region continues to operate at a  loss, with 9MFY14 adjusted operating profit margins standing at (-1.7%) compared to (-4%) in 9MFY13. The company has a new management team in place to turnaround the business and has made some progress in curtailing excess costs, and expects to turn profitable in the market by 2015. However, the double-digit decline in sales from the market should have substantial impact on North American operations in the near to medium term. We are in the process of updating our model to reflect key trends from the latest Q3FY14 earnings for Avon Products. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    NKE Logo
    Division In Focus: The High Performing Footwear Division Fueling Nike's Growth
  • By , 10/31/14
  • tags: NKE UA
  • Sports giant  Nike (NYSE:NKE) has continued its upward trajectory in 2014 after an excellent 2013, in which its stock price appreciated by about 60%. The company has been posting solid bottom line growth driven by strong performance across all divisions, product types and geographies. This is likely to continue in the future as the outlook for the global sports footwear market is very promising. According to our analysis, this division makes up about 44% of Nike’s valuation. In this article we take a closer look at the trends impacting our valuation of this division. Our price estimate for NIKE stands at $68, implying a downside of ~20% to the market price. See our complete analysis for Nike What Is The Footwear Division? This is the division that designs, manufactures and markets footwear globally under the Nike brand. Nike footwear is typically designed for athletic purposes, but is also worn as part of casual and leisure attire. The top selling footwear categories include training shoes, running shoes, basketball shoes and sports-inspired casual shoes. Nike also sells flip flops and sandals in addition to shoes, but the percentage contribution to overall sales for these categories is quite low. Global Footwear Market Share The global athletic footwear market is estimated to grow at a CAGR of 1.8% to reach $84.4 billion in 2018, according to a report by Transparency Market Research. In comparison, Nike’s footwear sales have historically grown at a high CAGR of about 20% over fiscal years 2012-2014, a rate far in excess of the average industry growth rate. Nike footwear global market share has consistently grown over the years and reached about 19.7% at the end of calendar year 2013. ( (Forecast of Nike’s global market share in athletic footwear from 2011 to 2020, Statista)) This can be attributed to strong marketing and constant evolution of its product line. We believe Nike will continue to outpace the industry growth rate in the future, helped by its association with major sporting events such as the Olympics and continued innovation. By the end of our forecast period, we expect Nike’s share to grow to 27%. Some factors supporting our projection for Nike’s share in this market are as follows: Nike is currently recognized as one of the top sports brands in the world. Nike doesn’t manufacture the footwear sold under its brand name. Instead, the production is outsourced, allowing the company to focus on design innovation. This gives the company flexibility to get the best products at the right prices and to move production in case a better cost opportunity emerges. Nike has several top sportsmen around the world as brand ambassadors. The company leverages the global appeal of these endorsers to create brand awareness and market its products. Nike has strong R&D potential which is evident from its ever evolving product line and product introduction to the market. Nike has a strong hold of the North American market with nearly 45% share(60% if you also include the AIR Jordan and Converse brands). This is the biggest contributing region to Nike’s topline and the company’s strong performance in the region is expected to continue in the future. Nike’s footwear sales are growing rapidly in Europe, which has historically been a strong hold of the company’s competitors Adidas and Puma. In the fiscal year 2014, Nike’s footwear sales grew by ~25% in Europe, and on the back of this growth the company is edging closer to becoming the market leader in the region. Improving Margins Nike’s gross margins are sensitive to higher product input costs, including materials and labor. However, in the recent past the company has been able to offset the negative impact of higher labor prices in China and rising synthetic rubber prices with higher product selling prices, as well as the growth of its direct-to-consumer business. Some Nike products, such as t-shirts, are quite price sensitive. Increases in their prices tend to result in lower sales numbers. However, Nike’s basketball shoes, one of it’s core products, witnessed stable demand. Over the past few years, demand for these shoes has proven to be inelastic. Price increases have been absorbed by consumers even though this is one of the highest priced product category. Consumers have increasingly shown a willingness to buy premium shoes styled around sportsmen such as Kobe Bryant, Michael Jordan and Lebron James, irrespective of price points. In the running category, Nike’s sales have been driven by increasing unit volumes rather than price increases. Since, the runner’s market makes up about a third of the total U.S. sneakers market, there is a huge opportunity in this market. In fiscal 2014, Nike’s margins increased by 120 basis points to 44.8%. Going ahead, we expect margins to gradually increase in the future and surpass 45% in the long run. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    CHK Logo
    Here's Why Chesapeake Recently Sold $5 billion Worth Of Its Assets
  • By , 10/31/14
  • tags: CHK COP
  • A few days ago Chesapeake Energy announced the sale of non-core assets in its Marcellus and Utica shale plays to Southwestern Energy for $5.4 billion. As part of this sale, the company will divest over 400,000 acres and about 1,500 wells in Western Virginia and Southern Pennsylvania and generate cash flows from assets that are not central to its growth plans. In our note below, we take a look at Chesapeake’s motives in organizing this sale. Chesapeake’s Growth Plans The Texas based company is focusing on three specific areas in order to unlock value for its shareholders: 1) Reducing Leverage: Over the past six months, Chesapeake has increased its cash and cash equivalents by almost 67%, from $900 million in December to $1.5 billion in June. More importantly, the company has reduced its long-term debt by almost $1.3 billion over the last six months.  In the last two years, it has reduced its net leverage by as much as $6 billion. In addition to reducing its leverage in order to strengthen its financial security, CHK has also reduced the complexity of its balance sheet, offloading several term loans, VPP’s and levered subsidiaries. The net result has been the improvement of the company’s liquidity position-its quick ratio has gone from 0.47 in 2012 to 0.75 and the lowering of its net-debt to total capitalization ratio to about 35%. 2) Increasing Production of Oil: The company has consolidated its position in the Powder River Basin, which is seen as a significant resource reservoir by Chesapeake. More importantly, the company is leaning on oil to fuel its sales growth in the region and sees the Niobrara oil play as key in order to diversify its production. The company is already generating returns in excess of 40% in the Niobrara. Unlocking Value in the Marcellus Shale The third area that Chesapeake Energy had been looking at to fuel its future growth was the potential spin-off of its Southern Marcellus shale assets. Even though these assets were generating strong returns for the company, those returns could be even stronger if the assets were no longer a part of Chesapeake. In an investor presentation in August, the company had noted that the asset could generate nearly 50% organic production growth if it were set free. The company estimated the value of its non-core assets in the southern Marcellus shale and the Utica shale plays at $4 billion to $8 billion based on the market valuation of some of its peers. Despite considering the idea of spinning off the asset to unlock its value, the company has decided that a more efficient way of achieving its goal was the sale of this acreage to Southwestern Energy. The sale will provide the company with a bucket load of cash that it can invest in other potentially profitable ventures to fuel even more shareholder value. The deal will also contribute further to the improvement of its balance sheet. Chesapeake can now use its new cash to make acquisitions, buy back shares, or accelerate growth. The company expects the sale will have no impact on its growth because these assets were not a core part of its growth plans, which is why it still expects to deliver a 7%-10% production increase next year even as it maintains a tight capital program. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    TWC Logo
    Time Warner Cable Profits Drop As It Continues To Lose Pay-TV Subscribers
  • By , 10/31/14
  • tags: TWC CMCSA DISH DTV
  • Time Warner Cable (NYSE:TWC) recently reported its Q3 2014 earnings with a 6% drop in profits to $499 million. However, adjusted earnings grew 10% to $1.86 per share. The revenues grew 3.6% to $5.71 billion, led by 11% growth in the residential broadband business. The company continued to bleed pay-TV customers and lost 184,000 subscribers during the quarter. This is far worse than Cable giant Comcast (NASDAQ:CMCSA), which lost only 81,000 video subscribers in the third quarter (Read More -  NBCUniversal Boosts Comcast’s Q3 Earnings ). Time Warner Cable’s business services segment continued to outperform with 22% revenue gains, driven by a growth in broadband and voice segment. The company has lowered the revenue guidance for the year primarily due to its Los Angeles Dodgers regional sports network failing to gain carriage with major pay-TV operators. While we continue to believe that the company will see robust growth in its broadband business due to the increasing demand for higher speed and connectivity, taming the pay-TV subscriber losses remains a key challenge for the company and it could lead to continued drop in pay-TV market share over the next few quarters. We estimate revenues of about $22.72 billion for Time Warner Cable in 2014, with Non-GAAP EPS of $7.75, which is in line with the market consensus of $7.43-$8.34, compiled by Thomson Reuters. We currently have a $120 price estimate for Time Warner Cable, which we will soon update based on the third quarter earnings announcement.
    NYT Logo
    New York Times Earnings: Digital Services Boost Circulation And Advertising Revenue Even As Profitability Suffers
  • By , 10/31/14
  • tags: NYT AOL YHOO GOOG
  • The New York Times Company (NYSE:NYT), one of the leading newspapers in the U.S., posted its Q3 results on October 30th. Even though the company rolled out new digital products (e.g., NYT Now, NYT Opinion and Times Premier) to bolster its digital circulation and revenues over the last two quarters, its print circulation and the related ad revenue continue to decline, reflecting the secular downturn in print industry. During the quarter, NYT’s revenues grew by just 0.8% year over year to $364.71 million from $361.73 million. Circulation revenues increased 1.3% and other revenues increased 2.7%, while advertising revenues were flat. However, the company reported an operating loss of $9.03 million on higher compensation and benefits expense, and marketing costs associated with the strategic growth initiatives in digital, as well as higher retirement costs. Click here to see our complete analysis of New York Times Outlook for Q4 2014 The company expects circulation revenues to increase by 1%-1.5% in fourth quarter of 2014 compared with the fourth quarter of 2013, as benefits from its digital subscription initiatives and the increase in print subscription prices bear fruit. Total advertising sales in the Q4 FY14 are expected to decrease at a mid-single digits rate compared with the Q4 FY13, primarily due to a challenging business environment in the print ads business. The company expects to incur a charge of $9 million in non-operating retirement expense in the fourth quarter. In addition, the Company expects the following on a pre-tax basis in 2014: Results from joint ventures: loss of $1 to $3 million, Depreciation and amortization: $75 to $80 million, Interest expense, net: $53 to $57 million, and Capital expenditures: $35 million. Digital Subscription Boosts Circulation Revenues According to our estimates, NYT’s print circulation and digital subscription division contribute over 45% to its stock value. During the quarter, circulation revenues grew marginally by 1.3% to $206.72 million. While NYT’s daily print circulation continues to decline, its digital subscriber base has continued to expand at a fast pace. In Q3, NYT’s paid digital subscriber base grew by 44,000 to 875,000. Digital subscription grew by 13.3% to $42.8 million, and now accounts for nearly 20% of NYT’s circulation revenues. During the quarter, the company announced a host of new steps (such as mobile apps) to bolster its mobile platform and boost its digital subscriber base.  It includes an improvement in content that is delivered through mobile apps at different price points. We currently estimate that the number of NYT’s online subscribers will increase to around 1.4 million by the end of our forecast period. Print Subscription Revenues Stabilize Over the past few quarters, NYT has been able to leverage its brand name and popularity to raise print subscription prices, which has helped the company to stabilize its print subscription revenues, even as volume continued to decline. As per our pre-earnings note, an increase in home-delivery prices of The New York Times more than offset a decline in print copies sold. We expect this trend to continue in the coming quarters, and print subscription revenue to stabilize. Currently, we forecast NYT Times weekly price to increase to $15.40 by 2020. Digital Ads Stem Decline in Ads Revenue With the advent of the Internet, the print ads business has been on a decline as advertisers are increasingly earmarking more funds for online ads. NYT’s print ads division, which makes up 28% of its estimated value, has not been able to buck the trend and continues to report declines in revenue. NYT reported a 5.3% year-over-year decline in print ad revenues. We currently project NYT’s print ads revenues to continue to decline, in line with U.S. national print ad spending. However, the online advertising division, which is the third largest division of NYT and makes up 25% of its estimated value, posted a 16.5% year-over-year increase in revenues to $38.2 million in Q3. The primary reason for this growth was NYT’s native advertising product – the paid post. The company only introduced Paid Posts in January but will end the year with more than 30 clients. NYT continues to add content, especially video content, to its websites to increase user engagement and bolster online ads revenues. Although it still represents a relatively modest portion of our total digital advertising revenue. Additionally, the company continues to experiment with custom advertising and has increased its ads offering on mobile devices such as Tap NYT which is a full-screen, self-propelled tapable story. We estimate these initiatives will improve user experience and boost the number of unique visitors to NYT’s website and expect the unique visitor count to grow to 60 million by the end of our forecast period. We are in the process of updating our valuation to incorporate the Q2 2014 earnings. At present, we have a  $8.33 price estimate for New York Times, which is 35% below the current market price. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    TSL Logo
    Why The Japanese Solar Market Could Be Poised For A Slowdown
  • By , 10/31/14
  • tags: TSL YGE SPWR
  • The Japanese solar market has proven to be one of the key growth levers for the photovoltaics industry over the past two years, driven by the void created by the suspension of the country’s nuclear power plants; attractive incentives and the availability of cheap funding for solar power projects. The country is now the world’s second largest solar market in terms of annual capacity additions. The surge in Japanese installations have helped solar companies to largely offset declines in markets such as Spain and Germany, which had previously accounted for a bulk of global panel demand. According to Bloomberg New Energy Finance, Japan’s investment in solar technology rose to about $30 billion in 2013, or almost triple the 2010 level, with about 7 gigawatts (GW) of new capacity being installed through the year. However, the Japanese solar industry has been facing some headwinds of late, as utility companies have been unable to accommodate the flood of new installations on the electric grid and also due to concerns that the government will scale back its solar incentives. In this note, we take a look at some of the factors that could contribute to a slowdown in the Japanese solar market.
    C Logo
    Financials Weekly Notes: Citigroup, BofA and Deutsche Bank
  • By , 10/31/14
  • tags: C BAC DB
  • Bank shares started the week on a weak note, with concerning economic trends in the U.S. as well as Germany hurting investor sentiments. While U.S. home sales figures for the month of September did not improve as much as expected, the U. S. Services PMI (Purchasing Managers’ Index) also fell to a six-month low of 57.3. At the same time, Germany’s economic data indicated deflation – casting doubts about the pace of recovery in Europe as a whole.  But investors remained hopeful about a positive outcome from the Federal Reserve’s two-day policy meeting over Tuesday and Wednesday (28-29 October), and when the central bank announced plans to wind-up its asset purchase program, share prices across sectors saw a notable jump. Bank shares outperformed the larger equity market over the latter part of the week as the Fed’s move was seen as precursor to an increase in benchmark interest rates in early 2015 – something that will help ease the growing pressure on banks’ net interest margins next year. The KBW Bank Index gained roughly 3% over the week through Thursday.
    NFLX Logo
    Rupert Murdoch's Worry Over Netflix And Amazon Is Valid
  • By , 10/31/14
  • tags: NFLX AMZN NWSA
  • Rupert Murdoch, the chairman of 21st century Fox, recently made a statement that the media industry must answer to the competitive threat posed by online streaming companies such as Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN). There is a lot of value to what he said, and considering the recent moves from HBO and the increasing growth and traction of these streaming companies, the appeal subscriber rates of the traditional pay-TV industry are increasingly under pressure.  The possibility of Netflix and Amazon dominating the video streaming market could result in reduced negotiating leverage for media houses. It is going to be a battle for content distribution between traditional pay-TV providers and online streaming companies, and on the surface it appears that content owners stand to gain. However, if there is mass exodus of consumers from pay-TV to Internet for media consumption, the monopolistic effect of the duo (Netflix and Amazon) as well their relatively low revenue generating capacity can ultimately be detrimental for content companies. Our price estimate for Netflix stands at $300, implying a discount of about 20% to the market.
    S Logo
    Sprint Earnings Preview: Subscriber Additions, Spark Strategy In Focus
  • By , 10/31/14
  • tags: S T VZ
  • Sprint (NYSE:S) is scheduled to announce its Q2 fiscal 2015 earnings on Monday, November 3. The third largest wireless carrier in the U.S. is facing intense competition for new subscribers, with rival T-Mobile stepping up its “Uncarrier” promotions, market leader  Verizon (NYSE:VZ) banking on its superior network quality and “More Everything” offerings and  AT&T (NYSE:T) responding aggressively with its Next plans. Sprint has also been lagging rivals Verizon and AT&T in LTE coverage and network quality, which is proving key to retaining and adding new subscribers in a saturated market. The carrier lost 334,000 wireless subscribers in the previous quarter and has seen net losses of wireless subscribers for seven of the last eight quarters. Looking for a turnaround, the carrier appointed Marcelo Claure, founder/CEO of wireless distribution company Brightstar, as the new CEO in August this year. The new CEO was quick to devise a turnaround strategy and introduced a new set of shared data plans called Family Share Pack, providing customers more data per connection at lower costs than rivals. Sprint’s aggressive marketing and discounts were aimed at regaining its lost momentum in adding new subscribers, and it seems that its efforts are going to pay off, at least in some measure. According to Consumer Intelligence Research Partners, Sprint was ahead of T-Mobile in adding new subscribers in the July-September period, with the former accounting for 43% of all new customers additions, compared to T-Mobile’s 39%. Verizon and AT&T trailed the smaller carriers with 26% and 17% shares in new customer additions, respectively (these percentages combined exceed 100% because new customers include both first-time phone buyers and those joining from other service providers). Considering that T-Mobile added 2.3 million new customers in this three month period, we expect Sprint to report similar figures in its upcoming earnings report. Our  price estimate for Sprint is about $8.50, which is significantly ahead of the current market price.
    One Company Nears a Sweet Investment Spot
  • By , 10/31/14
  • tags: ECA HAL SLB
  • Submitted by Wall St. Daily as part of our contributors program One Company Nears a Sweet Investment Spot By Karim Rahemtulla, Chief Resource Analyst   The holiday season is almost upon us, and our thoughts are turning to planning trips, buying presents, and dealing with the dreaded in-laws. But before you get swept up in the frenzy, there’s one investment move you should make to ease the Yuletide strain on your wallet. You see, despite the current slump, energy prices are still going to rise this winter. In fact, one stock is already dropping down to Black Friday prices, but it’s sure to climb again. The time to buy is now . . . The Company to Watch More than a year and a half ago, I recommended buying shares of Basic Energy Services ( BAS ) at around $13 per share. In the subsequent months, the shares more than doubled . Then, in March of this year, I wrote that the shares were trading higher than they should be, and that natural gas wouldn’t be able to hold at the over $6 per thousand cubic feet (mcf) level reached last winter. Basic has since corrected along with the rest of the energy sector. The company lost more than 50% of its value and is trading back down in the $13 to $14 level. Accordingly, natural gas is back around $3 per mcf. But the opportunity to profit off of Basic is far from over. At current levels, Basic presents a very interesting speculation. It has overcorrected, and business is much better today than it was a year ago. A Gift Everyone Wants In its latest release, Basic echoed what Halliburton ( HAL ) and Schlumberger ( SLB ) have been saying recently: Oil and oil-related businesses aren’t retreating in the face of lower prices – not yet anyway… Basic hasn’t seen a drop in bookings for its oil and gas services through the first quarter of 2015. Couple that with the recent acquisitions in the energy space by Encana ( ECA ) and the sale of major assets by Chesapeake Energy ( CHK ), and you might just have a very interesting scenario developing. Oil prices are continuing to trend downwards and might hit $70 per barrel. But, energy shares have stopped their correction for now and are falling less. Some are even rising in the face of the most recent decline last week. This might indicate that both energy and energy shares are nearing a bottom… With cold weather approaching and continued global stimulus, energy prices should rebound this winter. Get the Best Deal If the rebound sticks – assuming China begins to increase imports, the eurozone stimulus takes hold, and the Organization of the Petroleum Exporting Countries comes to its senses – then we could see a rally in energy prices in the first half of 2015. Most energy shares are down, and the majors are down less than smaller companies… but their upside is probably 20% to 40% from current levels. Basic, on the other hand, has a much bigger upside due to its leverage in the industry and its much smaller market capitalization and share float. In other words, if the sector moves higher, Basic should outperform. Oil and gas prices over the next few months are anyone’s guess. But if you want to get in during this decline, then you should definitely consider stocks that are about to hit a sweet low spot, like Basic, to boost your returns. Ideally, the $10 to $12 level would be a great entry point. It’s around this level that insiders were buying shares before the rally to the mid to upper $20s. And “the chase” continues, Karim Rahemtulla The post One Company Nears a Sweet Investment Spot appeared first on Wall Street Daily . By Karim Rahemtulla
    3Q14 Earnings Results Suggest Strength into 2015?
  • By , 10/31/14
  • tags: ALXN MMM ALK
  • Submitted by Profit Confidential as part of our   contributors program 3Q14 Earnings Results Suggest Strength into 2015? by Mitchell Clark Corporate earnings are flooding in, and while there are always disappointments—typically in not meeting Wall Street expectations—the numbers are pretty good. The stock market was relieved when conglomerates started reporting. 3M Company (MMM) saw its share price pop almost five percent higher after beating estimates and reporting a solid improvement in U.S. market demand. I continue to like this position for long-term, income-seeking investors. (See “ Off-the-Radar Company Delivering Attractive Earnings .”) The company reported record third-quarter sales growing a modest 2.8% comparatively to $8.1  billion, with local currency sales growing 3.9% and acquisitions adding 0.1% to sales. Currency translation, which is a big issue for any company with international operations, reduced third-quarter revenues by about 1.2%, according to the company. Net income came to $1.3 billion, or $1.98 per share, representing an 11% gain over the same quarter last year with operating margins exceeding 22% in all of the  company ’s operating subsidiaries. It was a very good quarter for 3M Company. It’s important to remember that this is a mature conglomerate, so nobody is expecting double-digit top-line growth in this environment. Still, the bottom line was impressive along with management tightening its 2014 earnings range to between $7.40 and $7.50 per share from the previous $7.30 to $7.55 per share. Also jumping on the stock market after announcing its financial results was Alaska Air Group, Inc. (ALK). The company is up almost seven percent after reporting a record third quarter. This airline has been a very hot stock over the last five years. Passenger revenues in the third quarter grew a solid seven percent over last year. Excluding some one-time items, the company’s adjusted earnings came to $200 million, or $1.47 per diluted share, which is a big improvement over comparable adjusted earnings of $157 million, or $1.11 per diluted share, in the third quarter of 2013. Lower fuel costs should help the company post very good earnings in the fourth quarter this year. This stock is likely to convincingly break above the $50.00-per-share level. With so many prognosticators professing doom and gloom, that expectation is not representative in corporate reporting, which is why it’s so important to ignore the equity market’s noise and just focus on what corporations are saying about their businesses. Alexion Pharmaceuticals, Inc. (ALXN), which is a company I’ve covered for years, leapt more than seven percent higher after beating consensus on revenues and earnings. The company increased its 2014 full-year guidance over its previous forecast. The stock is now back up to where it was in February. A lot of stocks are fully priced in this market, but expectations for corporate performance in 2015 are going up; that means that stocks can still tick higher and not be unreasonably priced, even though they are at record-highs. Second-quarter earnings season quietly beat what a lot of investors were expecting. It was a strong quarter and so far, the third quarter reveals much of the same.       The post 3Q14 Earnings Results Suggest Strength into 2015? appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
    India Buying 450% More Gold?
  • By , 10/31/14
  • tags: GLD NUGT
  • Submitted by Profit Confidential as part of our   contributors program India Buying 450% More Gold? by Michael Lombardi, MBA The demand and supply situation for gold bullion, something I’ve often talked about in these pages, has taken a new course . . . one very favorable to gold bulls like me. Gold buying in India is up 450% in the first nine months of 2014 compared to the first nine months of 2013. (Source: Government of India, October 14, 2014.) The jump in gold bullion buying in India is related to the easing of restrictions on gold imports into the country by the Indian government in 2014. The buying of gold bullion in China continues to be strong. And world central banks are increasing their gold reserves, too. In the chart below, I’ve compared the gold holdings of various  central banks now compared to their gold reserves in 2011. Three-Year Change in Gold Reserves of Five Countries Country Gold Holdings in October 2011 (in tonnes) Gold Holdings in October 2014 (in tonnes) % Change Russia 841.1 1112.5 +32.27% Turkey 116.1 511.7 +340.74% Kazakhstan 67.3 181.9 +170.28% Korea 39.4 104.4 +164.97% The Philippines 147.8 194.4 +31.53% Data source: World Gold Council web site, last accessed October 23, 2014 Mind you, the central banks mentioned in the table above are just a few of the many that have posted a significant increase in their gold bullion reserves. Unfortunately, many countries (like China) do not regularly release data on their gold purchases. Meanwhile, the supply side of the gold bullion equation is bleak. As I wrote in 2013 when gold bullion prices got whacked, the lower gold prices go, the more mines taken off-stream as gold mining companies close operations where production costs come in at more than $1,200 an ounce. Below is a chart of U.S. gold bullion mine production in the first seven months of this year compared to the first seven months of 2013. In the chart, you’ll quickly see that gold production has declined in each reportable month of 2014. If the supply of gold bullion is declining and demand is rising, how can gold bullion prices fall? U.S. Gold Mine Production, January–July, 2014 vs. 2013 Month 2013 Production in Kilograms 2014 Production in Kilograms % Change January 18,500 17,800 -3.78% February 17,200 16,400 -4.65% March 18,700 17,500 -6.42% April 18,000 16,500 -8.33% May 18,900 17,200 -8.99% June 19,500 17,700 -9.23% July 20,100 18,400 -8.46% Total 130,900 121,500 -7.18% Data source: U.S. Geological Survey web site, last accessed October 23, 2014 While you may need to take the following words with a grain of salt, they are nonetheless thought-provoking to say the least. I leave you with some thoughts from my colleague Robert Appel, BA, BBL, LLB: “It’s official, the U.S. manufacturing index just showed the weakest numbers in over two years. The Saudis have caved to pressure and cut oil supply, so oil prices are higher. In response, the broad market popped again and the Dow Jones is running up again. If you can’t quiz your fifth-grader about this, because he or she is still in school, here is the answer: That horrible data has somehow ‘assured’ traders that the Fed really has no intention of cutting back on the heroin (oops, sorry, QE), and therefore all the ‘taper talk’ is just that (talk)—and therefore, since this entire bull market is mainly a function of Fed money finding its way into stock somehow as Rome burns (oops, sorry, while the average American struggles)—then, clearly, it’s time to let the good times roll and be merry again. And the greenback is crazy-strong again (which will do even more damage to exports, and, hence, manufacturing). The gold miners are trading at values like it’s the early 1900s, when men were wearing top hats and women hoop skirts. And as we hear when parents read bedtime stories to their children at night, many now start with the words, ‘Once upon a time, when the markets were free…’”     The post India Buying 450% More Gold? appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
    These 8 Stocks Beat Warren Buffett's Portfolio Return Easily
  • By , 10/31/14
  • tags: VYM ADP
  • Submitted by Dividend Yield as part of our contributors program . These 8 Stocks Beat Warren Buffett’s Portfolio Return Easily Warren Buffett is one of the most trusted investors in the world. When he put money on the table, many institutional investors follow his moves and discover if they could make any money with the stocks he has chosen. When I look at the recent earnings figures of some of his investments, I saw that many stocks reported results not in-line with investor’s expectations. As a result, they got sold massively out. IBM, Coca Cola, Tesco, Exxon and now diabetes drug maker Sanofi who lost yesterday nine percent. Are these long-term opportunities or will they run flat in the future? I don’t know but what I know is that some of the past results of those companies are not comparable to the current economic environment. The market has many great companies to offer which have doubled sales in the past decade and paid 40 percent of the current stock price in dividends over the recent ten years. That’s a good number in my view. Today, when the markets have recovered, I start a new screen of high-quality dividend stocks with attractive fundamentals. I know that it is hard to find cheap companies in highly valuated markets but sometimes we must be creative to calculate the real values. Below are eight stock ideas with double digit-expected earnings per share growth figures for the next five years. They have also a lower beta than the overall market and acceptable debt-to-equity ratios. I’ve compiled many stocks from different sectors and industries in order to create a good diversification. What do you think about my new ideas? Are they good enough to buy or do you still have some of them? Please let me know and thank you for reading and commenting. These are my results: #1 Automatic Data Processing ( NASDAQ:ADP ) has a market capitalization of $36.86 billion. The company employs 61,000 people, generates revenue of $12.206 billion and has a net income of $1.502 billion. Automatic Data Processing’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $2.559 billion. The EBITDA margin is 20.97 percent (the operating margin is 18.09 percent and the net profit margin 12.31 percent). Financials: The total debt represents 6.82 percent of Automatic Data Processing’s assets and the total debt in relation to the equity amounts to 32.75 percent. Due to the financial situation, a return on equity of 23.37 percent was realized by Automatic Data Processing. Twelve trailing months earnings per share reached a value of $3.11. Last fiscal year, Automatic Data Processing paid $1.83 in the form of dividends to shareholders. Market Valuation: Here are the price ratios of the company: The P/E ratio is 24.83, the P/S ratio is 3.05 and the P/B ratio is finally 5.56. The dividend yield amounts to 2.49 percent and the beta ratio has a value of 0.85. – See #2 – #9 here: These 8 Stocks Beat Warren Buffett’s Portfolio Return Easily…
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    Where Is Bed Bath & Beyond's Store Count Headed?
  • By , 10/30/14
  • tags: BBBY LOW HD WMT
  • Specialty retailer  Bed Bath & Beyond (NASDAQ:BBBY) operates a variety of businesses in the U.S., which have been doing reasonably well. This is evident from the fact that the company’s comparable store sales growth has averaged around 4.5% for the past four years. To maintain this growth momentum, Bed Bath & Beyond is focusing on sustaining its customer service excellence and developing a sound omni-channel platform. While same store sales is an important factor for the retailer, its ability to open new stores also plays a vital role in its growth. In this analysis, we look at Bed Bath & Beyond’s expansion across different segments and their probable future. Bed Bath & Beyond has expanded its namesake stores at a steady pace over the past and is likely to continue following the same strategy. For  World Market stores, the retailer will plan its expansion carefully in order to dilute the threat of self-cannibalization. Its  Christmas Tree Shops’ expansion has been slow so far, but the market holds good potential for them. The U.S. market also presents healthy room for growth for  buybuy Baby stores, but we expect  Harmon & Harmon Face Values ‘ expansion to remain slow. However, there exists an opportunity for the company to step up the expansion of  Bed Bath & Beyond,  Christmas Tree Shops, and  buybuy Baby . If Bed Bath & Beyond takes advantage of this opportunity, there can be about 10% upside in its value. Our price estimate for Bed Bath & Beyond stands at $ 75, implying a premium of less than 15% to the market price.
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    How Well Can Abercrombie Do In Its Biggest European Markets
  • By , 10/30/14
  • tags: ANF GPS GES
  • During the last few years,  Abercrombie & Fitch (NYSE:ANF) was very aggressive with its expansion in major European countries.  Ultimately, this resulted in a network of unproductive stores. Despite a slump in demand, the retailer persistently opened stores in key tourist locations and local attractions, that led to self-cannibalization even with a low store count (122 in 2013). However in 2012, the company finally decided to slow down its expansion in Europe in order to protect its bottomline growth. Abercrombie is now planning to target only under-penetrated markets for its expansion. The importance of European markets for Abercrombie’s business is evident from the fact that the retailer earns close to 20% of its revenues from Europe, but has roughly 7% of its store fleet there. The U.K. and Germany are two of the biggest markets for Abercrombie in Europe with a total of 61 stores (2013). While unfavorable economic headwinds still impact the U.K.’s apparel market, its large size and positive growth forecast look favorable for the specialty retailer’s growth. Germany is one of the largest apparel markets in Europe and has seen stable growth in the recent past, despite the uncertain economic environment. Germans have been buying high quality fashion products from popular brands, which bodes well for Abercrombie. It’s worth noting that e-commerce is likely to be the most crucial growth channel for the retailer in both these markets, given their high Internet penetration. In this analysis, we try to analyze how well is Abercrombie positioned in these two markets. 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 The U.K. Due to low disposable income, high promotions and changing shopping trends, the apparel market in the U.K. witnessed only marginal growth in 2012. Shopper’s not only lowered their spending on apparel products, but also started buying clothing and footwear that can be used for multiple occasions. In the following year, heavy discounting in the industry became prominent as unfavorable weather negatively impacted store traffic. While these factors suggest that the market isn’t too lucrative, it stands large at $59 billion and has seen marginal but positive growth despite the unfavorable economic headwinds. Given that Abercrombie is at a nascent stage in the market, it can continue to grow at a decent pace driven by targeted expansion and growing visibility. The retailer should be encouraged by the fact that casual wear is gaining tremendous popularity in the U.K. During the recent years, several U.K. offices have eased their regulations on professional attire and have adopted the “smart-casual” dress code. Jeans in particular, have become very common in workplaces as well as in social events. Professional attire retailers are struggling in the region as buyers are shifting to casual brands for their personal and professional shopping. For instance, tie retailer Tie Rack ended its operations in the country towards the end of last year due to a drastic decline in tie demand. Another factor that should please Abercrombie is growing market-wide focus on multi-channel retailing in the wake of soaring Internet penetration. About 72% of adults in the U.K. used Internet for shopping in 2013, compared to only 53% in 2008. Moreover, Internet access through mobile devices has doubled over the last three years. Since Abercrombie is no longer expanding aggressively in the region, it can divert its focus and resources towards the development of a sound e-commerce and omni-channel platform, which can help it foster better sales through the existing store network. Germany While Germany’s apparel sales growth has been slow over the past few years, it still remains one of the largest markets in Europe with annual sales of more than $75 billion. Some value growth is expected going forward, as consumer interest in high-end clothing is gradually improving. This was a prominent trend in 2012, when buyers exhibited tremendous affinity towards high quality long-lasting clothing from popular global brands. Although Abercrombie can take advantage of this trend to a certain extent, it is up against strong apparel brands such as Hennes & Mauritz and C&A Mode KG, which have grown strongly in the market. Given that Abercrombie hasn’t done well against fast-fashion retailers in the U.S., it might face a similar problems in Germany as well. Nevertheless, the market is huge and Abercrombie has several growth opportunities at hand in the form of store expansion and e-commerce. Since the company is not planning to expand aggressively in the market, it can focus solely towards the development of a strong e-commerce platform. The biggest positive of the German apparel industry is the robust growth of online apparel retailing, which has emerged as the most dynamic channel. This can be attributed to the fact that the proportion of Internet users in the region’s population is high at 86%. Going forward, online apparel industry is likely to sustain its momentum as Forrester forecasts online sales in Europe will grow at a compounded annual growth rate of 12% for the next few years. It also expects e-commerce sales to take up a significant portion of retail sales in Germany over the long term. Abercrombie operated 24 stores in Germany at the end of fiscal 2013 and all of them were opened during the last five years. Since the company is young in the region, we might see better customer response in the future as the brand gains popularity.  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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    Fox News Sees Ratings Growth In Q3; Subscription To Drive Growth In The Coming Years
  • By , 10/30/14
  • tags: FOX-BY-COMPANY FOX
  • 21st Century Fox ‘s (NASDAQ:FOX) Fox News Channel ended the third quarter as most watched basic cable network in primetime. It was up 2% in viewership and 4% in 25-54 demographic. In primetime it was up 11% as compared to the prior year quarter. The network averaged 2.11 million viewers in primetime between June 30 and September 26. Fox News’ performance was much better than its peers, including CNN and MSNBC. While CNN grew only 3% in primetime, MSNBC was down 21% for the quarter. Higher ratings translate into better advertising revenues for cable networks such as Fox News. The network generates revenues from both advertising slots sold to advertisers, as well as subscription fees collected from pay-TV service providers. An uptrend in ratings will boost Fox’s advertising income, which accounted for 25% of the company’s overall revenues for fiscal year 2014 (Fiscal years ends with June). We estimate revenues of about $34 billion for 21st Century Fox in 2014, with EPS of $1.59, which is in line with the market consensus of $1.45-$1.64, compiled by Thomson Reuters.  We currently have a  $39 price estimate for 21st Century Fox, which is about 25% ahead of the current market price. Understand How a Company’s Products Impact its Stock Price at Trefis
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    Shutterfly's Q3'14 Results Hit by Scaling-up Operations and Seasonal Slowdown
  • By , 10/30/14
  • tags: SFLY
  • Leading internet based image publishing service, Shutterfly (NASDAQ:SFLY) reported its Q3 2014 earnings on October 29th.  The company, on the back of a failed acquisition deal,  a seasonal slowdown of demand for its offerings, and internal restructurings, presented a lukewarm third quarter. Net revenues of $142 million (16% year-on-year growth) marked the 55th consecutive quarter of year-on-year increases. The topline performance was a consequence of customer order growths for the consumer brands, complemented by a boost from the enterprise business. Consumer net revenues for the quarter were $127.3 million, reflecting a 13% year-on-year rise. The Enterprise business displayed a 47% year-on-year rise in revenues amounting to $14.7 million. However, gross profit margin was lower by 506 basis points year-on-year due to production related expenses, relocation of the data center to Nevada, and the start-up of the Shakopee production facility. Hit by lower gross margins and increased M&A related expenses (due to inbound acquisition offers), adjusted EBITDA reflected a loss of $9.7 million as against a $1.1 million loss in Q3 2013. For Q4 2014, the company has guided net revenues between $466.7 million to $481.7 million with GAAP gross profit margin ranging from 57.5% to 59.1% of net revenues.. In this article we discuss the key trends which affected Shutterfly’s performance in the third quarter. Our $49.29 price estimate for Shutterfly is above the current market price. We will update our valuation shortly. See our complete analysis for Shutterfly Striving To Boost Demand With Product Upgrades And New Feature Introductions Shutterfly is on a constant trajectory of improvement and innovation across its wide array of offerings. This led to increased mobile monetization and the expansion of the customer base. The transacting customer base for Q3 2014 was 2.5 million, translating into a 6% year-on-year growth. Orders grew by 7% year-on-year to 4.2 million with an average order value (AOV) growth of 5% to $30.63. AOV is defined as total net revenues (excluding Enterprise) divided by total orders. Q3 is a seasonally weak quarter with no big holidays and, according to the management, this is the reason for a slower growth. They are gearing up, however, for the holiday season of Q4 where they expect the demand to surge. Some of the initiatives taken in the third quarter are discussed here. The Shutterfly flagship brand updated its popular tri-fold cards into ¾ fold cards, and migrated card options like oil stamping and additional edge treatments from TinyPrint to Shutterfly collection. Personalized stamps and an expanded variety of stationery types were also introduced. Within photo books, features such as new dust jackets, gift boxes and glossy pages were launched. Keeping the upcoming Christmas holiday season in mind, new products such as personalized gift wrap, glass ornaments, Christmas stockings, framed prints, candles, personalized portable chargers and iPhone 6 cases were launched. The TinyPrints brand also enhanced its collections, features, and user experience. In September, a TinyPrints mobile application was introduced. New features were added into the existing Shutterfly iPhone, Android, Kindle, and Fire phone applications. The company is also trying to target the professional photographer clientele in a larger manner and might combine its two erstwhile acquisitions, MyPub and BorrowLenses, in the future.   Scaling Up Production Network And New Facility Start Up Costs Adversely Impact Margins The third quarter margin performance was adversely impacted by the start-up costs of the Shakopee, Minnesota production facility, which went live in Q3. Also, the ramp-up of operations across the production network in anticipation of the upcoming holiday season led to hikes in manufacturing, customer services, labor, and training costs. This resulted in a $2 million hit on the gross profit margins, which contracted by 506 basis points year-on-year, to 36.8%. The product upgrades and new features, mobile initiatives, and ThisLife (ts new memory management solution) necessitated strategic investments in technology. This, along with the relocation of the data center to Nevada, resulted in higher depreciation expense, which led to a 22% year-on-year rise in technology and development spending to $33.5 million (24% of net revenues). Sales and marketing expense of $42.1 million amounted to a 20% year-on-year increase. This included headcount, advertising agency fees, direct response media, search fees and online media. However, the management believes that Shutterfly will observe healthier margin performance next year, as the expenses of opening new facilities get absorbed, and with the growth of ThisLife brand, and the wedding and mobile segments..   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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    Wynn's Macau Revenues And EBITDA Decline Amid Lower VIP Gaming Turnover
  • By , 10/30/14
  • tags: WYNN LVS MGM
  • Wynn Resorts (NASDAQ:WYNN) recently reported its Q3 2014 earnings, which came out largely on expected lines with slower growth in Macau due to a 17% decline in VIP gaming turnover. Casinos in Macau witnessed a 7% decline in gross revenues during the third quarter. This can be attributed to ongoing anti-corruption crackdown, which is keeping VIPs away from the world’s largest gambling hub. However, mass-market gaming continues to grow strongly in the region and Wynn has benefited from the same in previous few quarters. For Q3, Wynn’s mass-market table games win amount has increased by more than 36% to $327 million. We continue to believe that mass-market gaming will be a key driver for future growth in Macau and for Wynn. The company did well in Las Vegas with revenue growth of 9% and EBITDA growth of 25%, primarily led by an increase in table games win percentage. Wynn reported adjusted earnings of $1.95 per share as compared to $1.88 it reported in the prior year quarter. We estimate gross revenues of over $7 billion for Wynn Resorts in 2014, with EBITDA of $1.94 billion. We have revised our price estimate for Wynn Resorts from $211 to $186 reflecting the impact of the recent quarterly earnings and continued decline in VIP gaming.
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    Southwest Is Poised For Growth As Fuller Planes Lift Its Third Quarter Results
  • By , 10/30/14
  • tags: LUV
  • Southwest (NYSE:LUV) recently got free from flight restrictions imposed on it by the Wright Amendment. As a result, since October 13, the low-cost carrier has launched nonstop flights to several destinations from its home airport, Dallas Love Field. So far, the carrier has launched nonstop flights from Dallas Love Field to seven destinations – Denver, Chicago (Midway), Baltimore, Washington D.C., Las Vegas, Los Angeles and Orlando. In early November, the carrier will launch nonstop flights to eight more destinations and in January next year, it will launch nonstop flights from Dallas Love Field to two more destinations. We figure this sudden increase in the number of Southwest flights in the Dallas market, in which the carrier is very well established, will drive its near term growth. Separately, at its third quarter earnings presentation, Southwest said that bookings for November and December are good and that it is seeing no impact from Ebola on advance booking rates. In early October, all airline stocks including Southwest fell sharply due to mounting Ebola concerns, and we at the time wrote that this sudden sell-off seemed to be factoring in a worst-case scenario, which was not likely. In line with our expectations, airline stocks have recovered through the past 2-3 weeks. We currently have a stock price estimate of $35 for Southwest, marginally above its current market price. See our complete analysis of Southwest here Solid Demand For Flights & Lower Fuel Costs Lift Southwest’s Q3 Results Southwest reported solid growth in its third quarter results on higher demand for flights in the U.S.. Even though the carrier expanded its flying capacity just marginally, its occupancy rate (percentage of seats occupied by passengers in a flight) rose by about 3.5 points to over 84% in the third quarter. Fuller flights coupled with slightly higher average passenger fare lifted Southwest’s third quarter revenue by nearly 6% annually to $4.8 billion. Lower crude oil prices during the third quarter also helped lower Southwest’s fuel costs, which constitute nearly a third of its overall operating costs. Together, the higher revenue and lower fuel cost increased Southwest’s third quarter profit (excluding special items) by nearly 62% annually to $382 million. Southwest Is Well Poised For Growth Looking ahead, as Southwest takes over the remaining international routes being serviced by AirTran currently and completes integrating AirTran by 2014-end, we figure the carrier will be able to increase its focus on growth. Accordingly, Southwest could begin expanding its flying capacity at higher rates in 2015. The carrier has near term growth opportunities out of Dallas Love Field and long term growth opportunity in near international markets, which currently constitute a very small portion of its overall service network. This growth oriented capacity stance will in turn boost Southwest’s passenger traffic, growing its results in coming months. 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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    Revlon's Near Term Sales Growth Could Suffer With Strategic Focus On Fewer, Bigger Brands
  • By , 10/30/14
  • tags: REV AVP
  • Revlon (NYSE:REV) reported third quarter earnings on October 29th. Quarterly sales exceeded analyst estimates, although they were lower on a proforma adjusted basis from Q3FY13. The company reported quarterly sales of $472 million in Q3FY14, supported by a 4% increase in sales in the U.S. However, international markets failed to add to overall sales growth for Revlon, generating a 0.2% growth in constant currencies. Including currency fluctuations, sales from international markets fell 4.5% in Q3FY14. Revlon’s consumer product line generated sales of $348 million, marginally lower from $351 million in proforma sales in Q3FY13. Its professional products segment, which has lifted Revlon’s sales since the acquisition of The Colomer Group in December 2013, witnessed a marginal expansion in sales to $124 million this quarter. Excluding the impact of currency fluctuations, sales from both the consumer and professional product lines increased 2% in Q3FY14 in comparison to proforma Q3FY13. The constant currency increase in sales from the consumer segment was primarily a result of favorable returns reserve adjustments in the U.S. during the quarter. Going forward, the company expects lower discontinued products in the future as part of its strategy to focus on fewer, bigger and better innovations, and a slump in demand for these products could decrease sales by the reserve amount. Professional products from American Crew, Revlon Professional and Creme of Nature increased year on year in Q3FY14, partly offset by a decline in CND nail products. On a constant currency basis, segment profits for the consumer product line increased 1.6% due to the returns reserve while profits from the professional product line remained flat on a year on year basis. Total operating profit declined to $160 million from $184 million for the quarter as a result of higher advertising expenses. Revlon’s pre-tax income from operations declined on a year on year basis to $23 million, resulting from foreign currency losses due to balance sheet devaluation in its Euro-denominated intercompany loans. See Our Full Analysis for Revlon Near-term Sluggishness in Sales to Continue During the conference call, Revlon Chief Executive Officer Mr. Lorenzo Delphani stated that the company intends to reach its desired new rate of innovation in terms of quantity and quality in the next 2-3 years depending on the speed and effectiveness of executing of its strategy. This time frame in its brand renewal program indicates that core organic sales for the company could remain under pressure going forward. For Q3FY14, Revlon had nearly $9 million in returns reserve added to sales. The company’s new strategy to use individual performances of specific stock-keeping units (SKU) to either reset the SKU or keep it on retailer shelves is a good way to streamline its portfolio to market demands. Revlon will review the returns from retailers quarter by quarter to assess SKU performance and replace underperforming brands and products with new and innovative products to accelerate sales growth. While this might play out in the long term, near term sales are likely to see some fluctuations due to the addition and removal of these reserve adjustments. Additionally, the weakening economic environment in Europe and the depreciation of the Euro against the Dollar would add pressure to the company’s bottom-line in the near term. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    YAHOY Logo
    Yahoo! Japan's Results: Revenue Grows As Mobile Platform Gains Traction
  • By , 10/30/14
  • tags: YAHOO-JAPAN-BY-COMPANY YAHOY YHOO GOOG AOL
  • Yahoo! Japan Corporation (OTC:YAHOY) reported its Q2 FY 2015 results on Ocotber 29. (Fiscal year end with March) The company posted 2.5% year-over-year growth in revenues to ¥103 billion ($960 million). However, operating income declined by 7.6% to ¥46 billion ($430 million) due to the implementation of ‘no fee’ strategies for its shopping division. While the company reported 7.2% growth in its advertising revenues to ¥60.5 billion ($560 million), its transaction value across shopping, auctions and listing services grew by 11.9% to ¥281.1 billion ($2.6 billion). The highlights of the results are as follows. See our complete analysis of Yahoo! JAPAN here Mobile Boosts Revenue And Transaction Value In  our pre-earnings note, we stated that we would closely watch the progress the company has made in its mobile advertising division. The increase in mobile ads revenue was instrumental in bolstering search ads revenues. According to our estimates, mobile advertising contributes nearly 20% to Yahoo! Japan’s total value. During the quarter, the firm posted a healthy increase in mobile ad revenues, which grew by 74% to ¥17.4 billion ($160 million), and now account for 33.7% of total ad revenues. Furthermore, e-commerce transaction value through smartphones now amounts to 32% of total transaction value, and stands at ¥91.4 billion($850 million). We believe that revenues from this division will account for almost 25% by 2020, as ad budgets increasingly shift to mobile users. During the quarter, the company reported 55.6% year-over-year growth in smartphone daily unique browsers (DUB) to 39.43 million. As a result, the number of monthly smartphone pageviews grew by 66.5% year over year to 29.90 billion. As the company is increasing content across its properties, we believe that the company will be able to leverage its dominant position in the Japanese Internet landscape to drive mobile revenue growth in the coming future. Transaction Value Across E-commerce Properties Grows as Listings Rise While the search and listings ads division contributes 17% of Yahoo! Japan’s total value, the online shopping and auction division contributes 15%, according to our estimates. The company removed listing and tenant fees for its websites in Q2 FY14 (Q3 CY13), to stimulate growth and increase the number of listed sellers. The number of listed sellers is important for Yahoo! Japan’s shopping division because as listings grow, more users are likely to find and buy products on its site, which will increase the transaction value across Yahoo! Japan’s shopping websites. As a result of this new strategy, the company added over 193,000 store ids for its shopping portal in the last twelve months. 60, 000 of new ids were added in Q2. With this increase in store ids, the number of products listed across its shopping website increased by 50% year over year to nearly 120 million. The transactions value, across shopping, auction and listing divisions, grew by 11.9% year-over-year to ¥281.1 billion. However, the company reported 8.3% year-over-year decline in revenue to ¥23.6 billion ($220 million) as it had to forgo listing fees and cut down its take rate for transaction across its shopping sites. We expect that as this strategy gains traction, Yahoo! Japan’s revenues will increase due to higher transaction value across its sites. Currently, we estimate that by 2020, the transaction value from shopping and auction divisions will grow to ¥400 billion and ¥780 billion respectively. We are in the process of updating our Yahoo! Japan model. At present, we have a  $14.86 price estimate for Yahoo! Japan . Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    HMC Logo
    Honda's 2015 Accord Can Help The Company Overcome Difficulties In Its Other Businesses
  • By , 10/30/14
  • tags: HMC GM TM
  • Honda Motors (NYSE:HMC) had seen its share of the U.S. auto market drop from 9.7% to 9.1% through the first seven months of 2014. In the mean time, competitors managed to capitalize on a recovering auto market by offering incentives such as discounts and no-interest deals in order to attract buyers. However, the recent surge in the sales of the Honda Accord might help Honda arrest the decline. In the month of August, Accord sales grew by nearly a third as the company sold over 51,000 units of the vehicle. For the month, the company’s total vehicle sales exceeded 151,000 units. Honda repeated its performance in September by selling nearly 33,000 units of the Accord, implying a near 33% increase compared to last year’s 25,171 units sold in September. The Accord is a very significant model for the Japanese car manufacturer, having accounted for nearly a fourth of the company’s sales in the U.S. in 2013. The model accounted for 26% of the company’s overall sales through the month of September, this year. The recent spike in sales of the Honda Accord is likely a result of the shift in focus from retail sales to individuals by the company. Additionally, Honda offered attractive discounts on the model, making it attractive to owners who own an older model vehicle. The success of this model is highly important to Honda’s prospects in the U.S., its biggest market, especially as other divisions are stagnating. Below, we take a closer look at both these aspects. The Accord is extremely important for the company and the launch of the 2015 Accord is highly important to the company for the same reason. The new model will face competition from the 2015 version of Toyota’s Camry. The new Accord, which comes with better fuel efficiency and operational features such as the Homelink Wireless Control, will go on the market at cheaper price than the new Camry. If the lower price can persuade consumers to buy the Accord instead of the Camry, it will go a long way to improving the company’s profitability. We have a $43 price estimate for Honda Motors, which is slightly more than the current market price. Motorcycles Division Struggling The global demand for motorcycles has been declining. However, this issue is cyclical rather than structural. A company like Honda relies on improving economic conditions in emerging markets like Brazil, India and Thailand for sales growth. As the disposable incomes of consumers in these economies rise and as they get easier access to cheap financing, it is easier for Honda to be able to sell more motorcycles. However, demand in recent times has been flat due to uncertain economic conditions in these markets. There are bigger issues in Brazil and Thailand, where financing for motorcycle has been made difficult to procure, thus impacting volumes even though the company has knocked several price points off its models to lure back customers. It is estimated that about half of the consumers use debt to finance their motorcycle purchases, making tighter loan requirement a significant drag on motorcycle sales. Additionally, as interest rates are raised, consumers are likely to prefer paying down their debts instead of taking on loans. To combat this difficult environment, Honda has responded by increasing incentives and discounts, which has resulted in increased competition for prices among the manufacturers of original equipments, which is another factor putting pressure on the company’s finances. Loss of Market Share in China Japanese automakers have lost a quite a bit off market share in China over the last five years. In 2008, Toyota, Honda and Nissan boasted a combined market share of 25% but the figure dropped to 15% by 2012. Following the global market crash in 2008, Japanese autos held off their expansion plans in the country and focused on cost cutting instead. The global recession however, never really affected the Chinese automotive market. In the last few years, Chinese automotive market has more than doubled to 20 million units. Western auto companies, which continued to pour in investments into China, gained market share at the expense of Japanese automakers. The situation was exacerbated by the unfortunate natural disasters in 2011, which constrained the production of Japanese companies. Things were only normalizing before tensions flared up between China and Japan and negatively impacted the sales of Japanese companies. With the situation now stabilizing and Japanese automakers once again generating solid profits, Honda is looking to start afresh in the world’s most populous nation. The automaker feels that if it is able to offer cars tailored to the needs of the Chinese customers, it can grow its sales significantly. China is one of the biggest markets for Honda, accounting for about a sixth of its total sales. Honda’s sales were down 5.5% in August from a year earlier, even as the industry wide sales grew by 6.7%. The August decline followed a 22.7% year-on-year fall in July. Honda’s sales in 2011-2012 were abysmally low, following the tensions that sparked off between China and Japan on claims over the disputed islands. The islands are known as Senkaku in Japan and Diaoyu in China. Overall, Honda’s sales in China are up 5.2% for the first eight months of the year. See our full analysis for CME Group View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    ANR Logo
    Alpha Natural Resources Will Have To Solve More Than Simply Liquidity Issues In The Long Term
  • By , 10/30/14
  • tags: ANR KMP CHK DUK
  • As a result of lower natural gas prices, stricter enforcement of environmental regulations and weak economic conditions in important global markets, the coal industry has been experiencing a downturn. Both the thermal and met coal markets remain weak. As a result, Alpha Natural Resources (NYSE:ANR), the leading met coal exporter in the U.S., has been taking measures to address balance sheet and liquidity concerns. The company has been trying to reduce operational costs and capital expenditures in order to improve its cash position. Additionally, ANR has been amending its credit facility to make itself more flexible financially. However, these measures will only help the company survive the downtrend in the coal industry in the short term; to ensure long term profitability, the company will need to address some concerns in the weak coal market. Thermal Coal In international markets, reduced demand for coal from China and an oversupply of coal from Indonesia and Australia based companies have resulted in low thermal coal prices. American companies, like Alpha Natural Resources, can not compete at these low prices. Domestically, the situation is expected to improve. The domestic demand for thermal coal depends primarily on weather and the prices of natural gas. If the prices of natural gas is high, many buyers of fuel sources tend to raise the demand for coal. For example, it becomes profitable for railroad companies to carry out their transportation operations from the Powder River Basin and the Illinois Basis when the price of natural gas is above $4 per Million British Thermal Units(MBtu). However, it is only profitable to switch from North Appalachia and South Appalachia when the price of natural gas rises above $6-$7/Mbtu. Additionally, the demand for thermal coal has been affected by pile ups in the railway sector, which has been overwhelmed by the increased demand for the transportation of oil. However, the thermal coal market is expected to improve in the coming quarters, as rail issues are resolved and the prices of natural gas rise. The net result is likely to be an increase in demand for coal-fired electricity. The U.S. Energy Administration Information(EIA) predicted that the contribution of coal-fired electricity to the total electricity production in the U.S. to rise from 39% in 2013 to 40.1% in 2014. All these trends bode well for the coal market. Metallurgical Coal The met coal market is expected to remain weak in the near term as it is suffering from oversupply and weak demand. Chinese coal imports have dropped by nearly a sixth so far this year, thereby adversely affecting met coal prices. In addition, the weakening of the Australian dollar forced Australian coal producers to keep supply high in order to maintain competitiveness, even as prices are low and supply is high. ANR’s met coal division faces some other challenges as well in the near term. While the firm produces higher quality met coal than what is available in China and some emerging markets, it still trails some other manufacturers such as Canada’s Teck Resources and Australia’s BHP, which are well positioned in the premium hard coking coal market. ANR’s variety is largely composed of “hi-volatility B” coal, which is more volatile than premium hard coking coal and produces a lower quantity of coke.  ANR and other American producers face a disadvantage on the cost front as well, compared to Australian producers. Things could get worse as some Australian companies like BHP have recently brought new mines online and are expected to ramp up their exports further, increasing supply in the seaborne coal market. According to the world steel association, global steel demand is projected to grow by around 3.1% in 2014, down from around 3.6% growth seen in 2013, and then further expand to around 3.3% in 2015. While Chinese steel consumption is expected to grow by around 3% this year, it may not help overall met coal demand much since China has also been boosting its met coal production. India, which was ANR’s largest export market last year, could see met coal demand grow further since steel production in the country is expected to grow by around 3.3% in 2014 and by around 4.5% in 2015, on the back of  structural reform which will support infrastructure investment. Europe, one of the key markets for Alpha’s metallurgical coal, is expected to increase its steel demand by around 3.1% this year. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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