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How's Sirius XM Winning Over Pandora With Content
  • By , 9/30/16
  • tags: SIRI
  • Sirius XM  has invested heavily in acquiring unique and diverse content including several programs across verticals such as news, sports, music etc. This has allowed the company to acquire a large subscriber base over the years, without relying on ad supported free content as an incentive for users. At present, the company has over 30 million subscriber and it easily earns in excess of $125 per year from each one of them. On the other hand, Pandora, which has always had a content crunch, is leagues behind its satellite radio counterpart. Pandora has traditionally offered music channels on its apps that were tailored to suit the listening habits of users. Realizing that the content on offer wasn’t extensive enough to convince users to pay for ad-free services, the Internet radio company has heavily relied on improving its monetization from advertisement, rather than trying to bolster its content to get more subscribers. In this analysis, we take a look at metrics that clearly reflect Sirius XM’s supremacy over Pandora, and the major portion of this can be attributed to the former’s vast and the latter’s limited content library. Sirius XM has almost 8 times as many subscribers as Pandora does, and even the growth in subscribers for Sirius XM has been faster than its counterpart. Additionally, for its unique and diverse content, Sirius XM has been able to command higher pricing, which is almost twice as that of Pandora’s Have more questions about Sirius XM? See the links below: What’s Sirius XM’s Revenue & Earnings Breakdown In Terms Of Revenue Sources? What’s Sirius XM Fundamental Value Based On Expected 2016 Results? How Has Sirius XM’s Revenue Composition Changed In The Last Five Years? By What Percentage Can Sirius XM’s Revenues Grow Over The Next Three Years? By How Much Can Sirius XM’s Subscription Gross Margins Expand By 2020? How Much Revenues Can New Sirius XM Subscribers Add By 2020? Notes: Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap | More Trefis Research
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    Here’s How L’Oreal Can Benefit From Working With Influencers
  • By , 9/30/16
  • tags: LRLCY REV EL
  • Recently, L’Oreal  (OTC:LRLCY) signed up five British beauty bloggers as influencers to create online content for its products on an ongoing basis. These bloggers, who are termed as its “beauty squad” by the company, have a combined reach of 5.5 million viewers and will be revealing the brands latest products, creating engaging content and attending key beauty events. As consumers continue to remain highly engaged in social media, they are looking for content on new products, “how to” guides and related information online. Through influencers, L’Oreal  is looking  to provide this information to its consumers and better engage them. The company looks to build a direct relationship with its consumers, actively pursuing digital initiatives and engaging its users on social media.  Given these factors, we believe this strategy should prove to be an effective marketing tool, one that does not get impacted by ad blockers. As consumers get information about the company’s products from beauty bloggers, they will be able to identify the right product for themselves, leading to a more personalized experience. This strategy can also help the company generate better insights and feedback on their products both from the influencers and the consumers, driving product improvement in the long term. Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap
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    How Much Is Pandora Making From Its Subscribers And Users?
  • By , 9/30/16
  • tags: P
  • Pandora  earns revenues through advertisement and subscription fees, but its business model is heavily reliant on the former because it has been easy for the company to attract users owing to the availability of free content. However, a higher user count hasn’t helped Pandora because it doesn’t make much money per user. On the other hand, the company earns a hefty amount per subscriber, but that business hasn’t taken off because the content on offer isn’t attractive enough to provide many free users an incentive to pay for ad-free services. As a result of the aforementioned factors, the company hasn’t been profitable. While the difference between subscription revenues per subscriber and revenue per user has historically been high, this gap has actually increased over the past few years. This trend is likely to go on in the future, which indicates that the company hasn’t been moving fast enough on the subscription side. Its strategy to launch on-demand music for a subscription fee is a step in the right direction, but it won’t overturn Pandora’s fortune. Subscribers not only provide more revenues but they clearly hold higher growth potential as well. Unfortunately, 77 million people use the service for free while just 4 million pay for it. The company would have to narrow down this gap and that cannot happen until the content and the service get significantly better, in terms of diversity and features. Have more questions about Pandora? See the links below: By How Much Have Pandora’s Revenue & EBITDA Increased In The Last Five Years? How Has Pandora’s Revenue Composition Changed In The Last Five Years? What’s Pandora’s Fundamental Value Based On Expected 2016 Results? Notes: Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
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    Accenture Earnings: Consulting Boosts Revenues, Currency Headwinds Impacts New Signings
  • By , 9/30/16
  • tags: ACN
  • Accenture  (NYSE:ACN) reported its Q4 FY 2016 results on Septmber 29th.   (Fiscal years end with August.) Due to the recent acquistions, the company posted year-over-year growth in revenues  of 8% (9% in constant currency) to $8.5 billion. This was at the high end of the company’s guided range of $8.3 billion to $8.5 billion. In our  pre-earnings note published earlier, we stated that we expected consulting revenues to outpace the industry in the first quarter, while outsourcing revenue to remain fairly weak. The company did report inline with our expectation: Consulting net revenues for the quarter were $4.61 billion, an increase of 11% in (13% in constant currency), compared with the fourth quarter of fiscal 2015. Outsourcing net revenues were $3.88 billion, an increase of 4% (6% in constant currency) over the fourth quarter of fiscal 2015. During the quarter, the company reported new orders of $9 billion, reflecting a negative 2% foreign currency impact compared with new bookings in the first quarter last year. In this note, we will review and analyze Accenture’s earnings. See our full analysis for Accenture Guidance For FY17 and FYQ1 Accenture expects net revenue in local currency to be in the range of $8.40 billion to $8.65 billion in FYQ1. For fiscal 2017, the company expects net revenue growth to be in the range of 5% to 8% in constant currencies. The company continues to expect diluted EPS to be in the range of $5.75 to $5.98. Accenture expects operating margin for the full fiscal year to be in the range of 14.7 percent to 14.9 percent, an expansion of 10 to 30 basis points from fiscal 2016. Orderbook Signings Still Questionable As Appreciating Dollar Plays Spoil Sport Accenture reported new signings worth $9 billion during Q4, which bought the total order backlog to $35.4 billion for the year. Even though the level of new bookings follows typical pattern of higher new bookings in fourth quarter, the new order signings are tepid compared to those of Q4 2015 and were flat. After adjusting for dollar appreciation against the local currencies, level of new bookings represents 2% decline in local currency over last year’s quarter one, with a significant portion expected to convert to revenue in fiscal ’17. Consulting Revenues Post Growth Management and technology consulting are important drivers for Accenture’s value and account for around 56.8% of our price estimate combined. Consulting revenues for the quarter were $4.61 billion, up 11% in USD and 13% in local currencies. Furthermore, the company’s momentum for new orders grew as it booked orders of $4.8 billion or 53% of total new bookings during the quarter. The book-to-bill ratio, the key metric that ascertains the growth in new contracts, stabilized at 1.04x. The company expects low double-digit positive growth for consulting in 2017, driven by strong double-digit growth in strategy and consulting services for digital related services. Additionally, the recent acquisitions will help the company to post growth in the next fiscal year (i.e., FY17). Outsourcing Revenues Decline Due To Currency Headwinds According to our estimates, the outsourcing division contributes approximately 43.2% to Accenture’s value. While this division continued to outpace the outsourcing industry, net revenues as reported grew by 4% to $3.88 billion, up 6% in constant currencies compared with the fourth quarter of fiscal 2015. However, Accenture reported soft demand for its outsourcing services, with new bookings at $4.2 billion or 47% of new bookings. The book-to-bill ratio, which indicates the dollar amount of new order received for every dollar amount of revenue billed, declined to 1.08x compared to 1.27x last year. While the company expects mid single-digit growth for its outsourcing services, considering the orders recorded in FY16, which declined by 8% in USD, we believe that the company will struggle to deliver results in event its order signings do not improve over the remainder of FY2017. We are in the process of updating our model. At present, we have a  $115.85 price estimate  for Accenture, which is 5% below its current market price. Global Large Cap   |  U.S. Mid & Small Cap   |  European Large & Mid Cap More Trefis Research
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    Is It Time For Crude Oil Prices To Recover?
  • By , 9/30/16
  • The commodity downturn that began in 2014 has entered into its third year of devastation. The commodity markets went into a slump in the second half of 2014 due to the oversupply of oil in the global markets, caused by the Organization of Petroleum Exporting Countries’, also known as  the OPEC, decision to maintain high production levels to defend their market share against the booming tight oil production in the US. The result was that the world witnessed its worst ever commodity trough. However, having pushed several US shale producers out of business for over two years, the OPEC members have now started feeling the pinch on their economies that are highly dependent on oil exports. Consequently, the market expected the organization to reach a consensus on the freezing or reducing of their record oil production when it last met in June of this year. But, the members of the cartel were unable to find a common ground due to Iran’s resistance to abide to a production quota as it emerged from years of international sanctions in January this year. This caused uncertainty in the commodity markets and prevented crude oil prices from recovering over the last few months. Source: Bloomberg The prolonged weakness in crude oil prices has led to a drastic decline in the revenues of the OPEC countries and put a strain on their fiscal position, hindering their economic growth. As a result, the members of the world’s largest cartel held a special meeting on 28th September 2016 in Algeria, ahead of its scheduled bi-annual meet in November, to reconsider its stance of “market share first” strategy in the oil markets. While Iran’s unwillingness to cap its production had resulted in a 3% drop in oil prices earlier this week, the oil cartel finally agreed on a ceiling for its oil production at the meeting. With an objective to stabilize oil prices, the OPEC countries has reached an understanding to restrict their combined oil output between 32.5 and 33 million barrels per day. This implies a potential reduction of 200 to 700 MBPD (thousand barrels per day) compared to the record high output in August, provided all the member countries adhere to this limit. While no definitive agreement was signed this week, a formal deal, detailing out the production quota for each member and other details, is likely to be reached in the OPEC’s next meeting, which is scheduled for the 30th of November. The understanding that was arrived at the Algeria meet is OPEC’s first planned output cut in eight years and is likely to create a dent on the global crude glut. However, the intensity of the dent could vary depending upon the seriousness of the member countries towards the arrangement. The market is skeptical about the successful implementation of the production cap as the OPEC countries have a track record of breaching such agreements. Nonetheless, assuming that all the OPEC members would produce oil within the agreed limits, crude oil prices could rebound by $5-$7 per barrel compared to its current price over the next few quarters. However, an increase in oil prices beyond this limit could reinstate the US shale producers to grow their production at a faster rate, as it would become economically viable for them to do so. This could dilute the impact of OPEC’s move to cut output to improve oil prices. Thus, the terms of the agreement, and the intent of the OPEC countries to abide by these terms, will play a crucial role in the quantum of recovery in crude oil prices over the next few quarters. Stay tuned for our next analysis – Is $45-$55 Per Barrel The Goldilocks Range For Crude Oil Prices? – where we will explain why we believe that crude oil prices will remain in this range over the next few quarters. See Our Complete Analysis For Petrobras Here   Editor’s Note: We care deeply about your inputs, and want to ensure that our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses that you may want to read. Send us your suggestions/comments at . Have more questions about Petrobras (NYSE:PBR)? See the links below: Petrobras’ 2Q’16 Earnings Plunge On The Back Of Lower Commodity Prices Here’s Why We Revised Petrobras’ Price Estimate To $11 Per Share Petrobras Q1 Earnings: Revenues And Earnings Suffer Due To Low Oil Price Environment, Company Cuts Capex How Are Petrobras’ Revenue & EBITDA Composition Expected To Change By 2020? What’s Petrobras’ Revenue & Earnings Breakdown In Terms of Different Products? What’s Petrobras’ Fundamental Value Based On Expected 2016 Results? How Is Petrobras’ Revenue & EBITDA Composition Expected To Change in 2016? By What Percentage Can Petrobras’ Revenues Grow Over the Next Five Years? View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    Qualcomm-NXP Semiconductors Could Create A Behemoth In The Automotive Semiconductor Space
  • By , 9/30/16
  • tags: QCOM
  • According to a report by Wall Street Journal, leading chipset maker,  Qualcomm  (NYSE:QCOM) is reportedly in talks to acquire NXP semiconductors, in a deal likely be valued at  more than $30 billion. This could be potentially the largest acquisition in Qualcomm’s history. Though there is no official press release from either of the company, stock price of both Qualcom and NXP surged following the acquisition report, by 6% and 17%, respectively. In this analysis, we investigate the reasons as to why it makes sense for Qualcomm to acquire NXP Semiconductors. Qualcomm To Gain An Edge In The Automotive Semiconductor Market NXP Semiconductors is  a leading provider of High Performance Mixed Signal (HPMS) and Standard Product (SP) semiconductor solutions, which respectively account for 85% and 13% of the business. Mixed signal devices are so called because they comprise both analog and digital circuits, typically engineered together to achieve a specific application. NXP focuses on designing high performance devices used in automotive (36% of revenues), secure identity (9%), secure connectivity (22%), secure interface and infrastructure (18%) applications. Standard Products (13% of revenues) comprise and range of basic circuits, including diodes, thyristors, rectifiers and transistors.  The company manufactures  the bulk of its products and possesses a range of CMOS, radio-frequency, mixed-signal and analog process capabilities.  The possible acquisition of the company would significantly diversify Qualcomm’s offering and provide it an entry into multiple markets outside its core mobile chipset business. Further, it must be noted that NXP Semiconductors acquired  Freescale Semiconductor for over $10 billion in 2015, as a result of which, it became the largest semiconductor supplier to the automotive industry. The companies were originally the captive semiconductor businesses of Philips and Motorola, respectively. Given that Qualcomm is also targeting the automotive infotainment market with its family of advanced processors, a potential acquisition of NXP semiconductor should help the company become the largest supplier of chips used in cars. Qualcomm’s existing automotive solutions equips the cars with features that include:  1) advanced smartphone quality connectivity; 2) 3D connected navigation support: 3) facial and voice recognition features that personalize car settings; 4) wireless device charging;  and, 5) parking assistance features. As more and more customers look for improved digital experience in the car, in addition to other parameters, car companies are banking on technological advancements in their interiors to compete with each other. This has led to an exponential increase in the semiconductor content per vehicle. The growth in the semiconductor content in automotives is likely to further increase with the rise in autonomous car market. According to a research by Boston Consulting Group, the autonomous car market could be a $42 billion market by 2025, which could be around 12-13% of the total auto market. The Semiconductor Industry Is Undergoing A Wave Of Consolidations Demand for cheaper chips and a surge of new products – from PCs to smartphones to the Internet-of-Things (IoT) – has intensified competition in the semiconductor market, which in turn has put downward pressure on chipmakers’ bottom line. As a result, the semiconductor space has seen a number of consolidations recently and is likely to see some more in the near future. The acquisition of NXP semiconductors could be one of the largest acquisitions in the semiconductor space happening in recent years. Further, the acquisition should help Qualcomm improve its bargaining position with customers. Tax Advantage For Qualcomm Qualcomm has cash worth $31 billion on its balance sheet, almost all of which is outside the U.S.,  according to Wall Street Journal. Though the U.S has  third highest general top marginal corporate income tax rate in the world at 39.1 percent, its corporate tax law allows U.S. companies not to pay taxes on foreign profits, if the income was to remain outside the U.S. forever. This provides another incentive for Qualcomm to acquire NXP Semiconductors. This comes from the fact that NXP semiconductors is a Dutch company, and Qualcomm can use its cash stashed outside the U.S. to fund the acquisition. Editor’s Note: Please let us know what/why you liked or disliked in this article, and importantly alternative analyses you want to see. We encourage you to comment and ask questions on the comment section of our website , alternatively you can email at  / 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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    Doubling Lexus Sales Can Result In A 10% Upside For Toyota
  • By , 9/30/16
  • tags: TM HMC GM F
  • We have written in the past about how important it is for an auto company to maintain a successful luxury car brand. Toyota Motors (NYSE:TM) operates an extremely successful one in Lexus. It is one of the best selling brands in the biggest luxury car market—the U.S. Currently, according to our estimates, the brand makes up around 12.5% of the company’s valuation. This is despite the fact it makes up only 6.5% of the company’s overall vehicle sales. Moreover, vehicle sales have been growing fast over the last five year period. They’ve grown from just over 400 million to over 650 million, implying a growth of close to 62.5% over the period. According to our estimates, if the brand can double its sales over the next five year period, i.e. increase from 650 million in 2015 to over 1300 million by the end of 2020, at the current price trends, it can result in an over 10% upside for the company, increasing Lexus’ contribution of the overall value from 12.5% currently to close to 21% by the end of the period.   Have more questions about auto companies? Click on the links below: How Do Automotive Luxury Brands Compare In Their Performance In China? How Does GM’s performance vary across geographies? How Do Auto Luxury Brands Compare In The US? What Is Driving Changes In Ford’s Annual Unit Sales? How Much Money Does Ford Make Per Car Sold? How Much Has GM Been Investing In Growth Opportunities? How Ford’s Unit Pricing Differs Across Geographies? How Much Has Ford Been Investing In Growth Opportunities Ford’s Overwhelming Dependence On North America How Much Profit Does Ford Make Per Unit Sold In Each Geography? How Different China Growth Projections Impact Ford’s Bottomline How Ford’s Poor Russia Performance Is Obscuring Gains Made In Rest of Europe How Careful Targeting of F-Series Sales Helped Ford Boost Its Profits How Honda’s Automotive Business Is Faring In Japan The Most Significant Trends For Honda Motor Company Honda’s Brand Image Is Changing In The U.S. How Honda’s Automotive Performance Differs Across Geographies How Much Has Honda Been Investing In Growth Opportunities How Differing Japan Growth Projections Impact Honda Motor Company Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis for Toyota Motor See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    What Are Some Of The Key Trends Driving The Prestige Beauty Market?
  • By , 9/30/16
  • tags: EL REV AVP LRLCY
  • The size of the U.S. prestige beauty market is estimated to have reached around $16 billion in 2015, reflecting a 7% year-on-year growth . Estee Lauder is the only big company that is solely focused on this segment and with this market consistently outperforming the mass beauty market, we can expect expect Estee Lauder’s growth to be further boosted by the rising demand in this segment. The growth of the prestige beauty market is driven by trends such as: Emerging markets’ greater propensity to buy prestige beauty along with greater purchasing powers in the hands of consumers in these markets. Over the next decade, emerging markets are expected to contribute to around one-fourth of the total prestige beauty retail sales. The demographic change in the U.S. with half of the population being over the age of 50 by 2017 will also help premium beauty growth as these aged consumers will have a greater disposable income. Along with the aged populations, millennials have also started taking an interest in premium beauty products especially with a greater awareness towards skincare regimens. The masstige products, or the prestige beauty products which are comparatively more affordable, seem to be a big hit among the millennials. Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at Have more questions about Estee Lauder ? See the links below. What Is Estee Lauder’s Revenue And EBITDA Breakdown? What Is Estee Lauder’s Fundamental Value On The Basis Of Its Forecasted 2015 Results? How Has Estee Lauder’s Revenue And EBITDA Composition Changed Over 2012-2016E? What Is Estee Lauder’s Fundamental Value Based On 2016 Estimated Numbers? What Drove Estee Lauder’s Revenue And EBITDA Growth Over The Last Five Years? Where Can Estee Lauder’s Growth Come From In The Next 5 Years? Estee Lauder Q3 FY16 Pre-Earnings Report How Did The Top Two Beauty Companies Perform In The Hair Care Segment Over The Last Five Years? How Does Estee Lauder’s Financial State Currently Look? Who Relies More On Debt: L’Oreal Or Estee Lauder? What Are Some Of The Trends Expected To Drive The Future Of The Beauty Market? Estee Lauder Braved Numerous Challenges To Deliver Growth Above That Of The Prestige Beauty Market Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Can Office 365 Boost Microsoft's Topline In The Future?
  • By , 9/30/16
  • tags: MSFT
  • Microsoft Corporation  (NASDAQ:MSFT) is the leader in the productivity software segment with its flagship Microsoft Office productivity suite. With the launch of Office 365 in 2011, Microsoft ensured that is would remain relevant in the cloud productivity market. The Office productivity suite is Microsoft’s biggest revenue driver and makes up 37.9% of its estimated value. This segment generated approximately $25 billion in revenue in 2015, and we expect this to grow to $30 billion by 2023. At 48%, this division has the highest operating margins for Microsoft, primarily due to a dominant 84% market share in the productivity suite market. However, the competition in the productivity software is heating up with Alphabet (NASDAQ: GOOG, GOOGL) making a concerted effort to improve its foothold in the cloud productivity software industry. Alphabet has recently formed an alliance with Box to integrate their productivity offerings for cloud productivity suite. Despite the competition, Microsoft Office 365 continues to be the favored productivity application for the enterprise clients. According to Gartner research, 8.5% of public companies use Office 365 while 4.7% use Google’s cloud-based productivity offering. The remaining 86.8% use an on-premise application.  We will also look into how Office 365 will impact Microsoft’s top-line going forward. See our complete analysis of Microsoft here Office 365 Vs Google Apps According to reports last year, Office 365 was a leader in the cloud productivity suite with 25.5% market share in the industry. Microsoft Office 365 has the advantage over the competition as most of the enterprise users use the on-premise Office software. Therefore, it has been easier for Microsoft to switch these users over to Office 365. Office 365 has a broader appeal as it offers bespoke solutions at varied price points compared to the competition, especially Google. The Office 365 website offers seven different packages, with varying pricing structures. While the basic subscription starts at $5 per user/month for an annual commitment to the Business Essentials package, the full enterprise E4 subscription costs up to $22 per user/month. Google, on the other hand, has two plans available. The base package will cost $5 per user/month, or $50 per user/year. The premium package will cost $10 per user/month or $120 per user/year, and adds unlimited storage with more than five users. Nevertheless, the price structure of cloud productivity suite has been one of the factors for small and medium businesses (SMB) as these businesses tend to be price sensitive. For small businesses, Google’s pricing could be seen as a more attractive prospect as Google undercuts Microsoft by $1 per user/month. Due to the difference in price structure, Google has seen multifold growth in its subscription among SMBs. According to Google’s website, nearly five million businesses deploy Google apps. However, Microsoft continues to maintain its stronghold in the enterprise with one in four of Microsoft’s enterprise clients using Office 365 and over 50 million business Office 365 users. In FY 2016, Office 365 Commercial seats grew 74%, and Office 365 was deployed in four out of five Fortune 500 enterprises, with more than half of that installed base using premium. Additionally, Office 365 has 23.1 Million retail consumers, and Office has been downloaded 340 million times on iPhone, iPads and Android devices . Office 365 Will Boost Revenues In The Future In Q4 FY2016 (fiscal years end with June), Microsoft’s Office division reported 5% year-over-year growth in revenues to $6.97 billion. One of the primary reasons for growth was the sales momentum in Office 365, which reported a revenue growth of over 54% for the commercial segment. Considering the adoption of Office among enterprise clients, we expect this trend will continue going forward and the revenue run rate from Office 365 will increase further. With the current perpetual license fee structure, Microsoft realizes revenue from a one-time sale of license. However, most of Microsoft’s clients continue to favor a hybrid model for its productivity needs, wherein these clients want to deploy both a cloud and on-premise productivity suite. However, in the last few quarters, Microsoft’s clients are favoring the subscription-based Cloud SaaS service. With the subscription fee structure, Microsoft will have recurring revenue over the period of the software’s use. Although this tends to negatively impact revenues over the short term, Microsoft will be able to monetize Office 365 over this extended period of usage, as users tend to use a software over a longer period of time. We currently project revenue to increase from $25.0 billion in 2015 to $30.5 billion by the end of our forecast period. If revenue were to increase to $35.0 billion by the end of forecast period, our price estimate will increase by 5%. Opportunity To Cross Sell Other Products Through Bundling With Office 365, Microsoft has a unique option of providing collaboration software that encompasses most of its products. Office 365 currently bundles SkyDrive storage and Skype services. Some other variants of Office 365 bundle LYNC and Exchange at higher price points. We believe that Office 365 can further leverage Microsoft’s ecosystem of products to sell other products (such as mobile devices) by bundling more value added services with it. We think that Microsoft will maintain its market share in the office software division due to evolving technology, changing business needs and seamless integration of its products across platforms. We currently have  $56.10 price estimate for Microsoft, which is in line with the current market price. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research    
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    PepsiCo Raises Its EPS Guidance For The Second Straight Quarter
  • By , 9/30/16
  • tags: PEP DPS KO BUD
  • PepsiCo (NYSE:PEP) increased its full-year guidance on adjusted EPS for the second consecutive quarter, following the Q3 results announcement on September 29, and now expects the figure to grow 10% instead of 9%, as a cost-cutting push also helped boost profitability. Macroeconomic headwinds continue to plague PepsiCo, which derived ~44% of its top line from markets outside the U.S. last year.  However, the company derived 8% organic revenue growth in developing and emerging markets in the third quarter. This growth included 11% growth in China and Mexico, and a pleasant surprise was the 7% revenue growth in Russia, where the consumer is starting to rebound. Have more questions on PepsiCo? See the links below. PepsiCo Raises Profit Guidance For The Third Consecutive Year PepsiCo Earnings Review: Macroeconomic Headwinds Bring Down An Otherwise Strong Core Performance PepsiCo: The Year 2015 In Review What’s PepsiCo’s Revenue And EBITDA Breakdown? What’s PepsiCo’s Fundamental Value Based On Expected 2016 Results? By What Percentage Have PepsiCo’s Revenues And EBITDA Grown Over The Last Five Years? Where Will PepsiCo’s Revenue And EBITDA Growth Come From Over The Next Three Years? How Has PepsiCo’s Revenue And EBITDA Composition Changed Over 2012-2016E? Why Snacks Are More Valuable Than Carbonated Drinks For PepsiCo Why Carbonated Soft Drinks Will Contribute Relatively Lower To PepsiCo’s Drinks Business Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    How Is Johnson Controls' Power Solutions Business Expected To Grow In The Next Five Years?
  • By , 9/30/16
  • tags: JCI LEA
  • Johnson Controls ‘ (NYSE:JCI) Power Solutions business is the largest manufacturer of automotive batteries in the world, supplying ~146 million every year to OEMs (Original Equipment Manufacturers) and aftermarket retailers. The segment provides a wide range of lead acid and Lithium-ion battery technology which can power every type of vehicle — conventional, start-stop, micro hybrid, hybrid, and electric. About one-third of all new cars sold are fitted with a JCI battery and 74% of all aftermarket automotive batteries are made by the company. Click here to see our complete analysis of Johnson Controls The segment has managed to grow substantially in recent years, driven by a demand for their AGM (Absorbent Glass Mat) batteries, which are used in vehicles with the start-stop technology. Approximately 24% of all batteries sold are paired with this start-stop system. With growing urbanization and increasing regulation driving a technology shift in the automotive industry, the prospects for this segment look bright. The company expects the batteries with the start-stop technology to increase from 24% today to over 60% in 2020. A number of factors work in the favor of this technology. As stated by Lisa Bahash, group vice president and general manager Original Equipment of Johnson Controls, strong growth is expected from this technology as it requires minimal changes to the vehicles, and costs considerably less than battery systems in hybrid or electric cars. It is also the best solution to aid automotive manufacturers to meet environmental regulations. These AGM batteries are also able to handle the higher usage that comes along with the new technical features being added to cars. The electrical vehicle boom, and the opportunities provided by the Chinese market, make this business poised for substantial growth in the future. According to Ray Shemanski, a vice president of Johnson Controls, about 40% of new vehicles in China will be fitted with the ‘start-stop’ technology by 2020, the same year when the Chinese government requires automakers to further lower the average fuel consumption, from the current 6.9 liters per 100 kilometers to 5 liters per 100 km. In order to accomplish this, carmakers have taken to developing electric vehicles or by adding the start-stop system. Currently, such a system, which reduces fuel use by as much as 8%, is present in only about 5% of vehicles. Start-stop technology automatically shuts off the engine when the vehicle is idle and restarts it when the driver’s foot leaves the brake pedal. During this time, the car’s electrical systems use energy from an advanced lead-acid battery (AGM) rather than the gas-powered engine, which results in fuel savings. Have more questions on Johnson Controls? See the links below: How Is Adient Expected To Perform In The Next Year? Why Has Johnson Controls’ Stock Price Appreciated 29% This Year? What Drivers Will Ensure Growth For Adient In The Future? What Is Adient’s Position In The Global Automotive Seating Market? How Has Adient Performed For Johnson Controls? How Can Increasing Interest In Energy Efficiency Help Johnson Controls? How Did Johnson Controls Fare In Q3 2016? How Will Johnson Controls Perform In Q3 2016? Why Is Johnson Controls Banking On China For Its Absorbent Glass Mat Batteries? Why Is Johnson Controls Increasing The Production Of Its Absorbent Glass Mat (AGM) Batteries? What Are The Prospects For Johnson Controls’ Power Solutions Business? What Will Be The Effect On The Segment Operating Margin As A Result Of The Johnson Controls-Tyco Merger? What Are The Benefits Johnson Controls Will Attain From The Tyco Merger? Will The U.S. Treasury Department Rules, That Killed The Pfizer-Allergan Deal, Affect Johnson Controls-Tyco Merger? Johnson Controls’ Earnings Beats Expectations Will Johnson Controls Miss Estimates Again? How Has Johnson Controls’ Net Sales Changed By Geographic Areas? How Does The Adient Spin-Off And Tyco Merger Create Value For Johnson Controls’ and Tyco’s Shareholders? Notes:
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    Will The Alaska Air-Virgin America Deal Get Delayed?
  • By , 9/30/16
  • Alaska Air faced yet another hurdle in its acquisition of Virgin America, in a deal worth $2.6 billion. The deal has been under the lens of the Department of Justice for a while now, to assess for any anti-trust issues. Earlier in May, the two carriers had received a “second request” for more information. Although the request was termed customary, it delayed the closing of the deal by at least 30 days. Since then, another extension has been asked for by the DoJ, in order to complete the review. This, in turn, has made investors wary, causing Alaska’s stock to dip. Fall in Alaska’s Stock Price- An Over-reaction However, according to our analysis, the deal should pass the anti-competition review quite smoothly, as its share of the U.S. market, even after the combination, would remain really small as compared to the legacy carriers, who together dominate over 60% of the market. On a related note, Virgin America’s flight attendants, recently, rejected the salary contract negotiated by its union, creating confusion on the way forward for the two airlines. The contract would have provided an immediate 7.5% pay hike, in addition to a signing bonus. Further, Virgin’s employees could have expected pay hikes after the completion of the merger. The affect of the rejection of the contract is two-fold. On one hand, Virgin’s employees, who are paid a considerably lower salary, will see no instant improvement in their pay, missing out on raises until integration completes. Apart from that, 8% of the work-force at Virgin is expected to be laid-off. On the other hand, this dismissal will deter the two airlines from achieving operational efficiency at the get-go. This comes as a blow to Alaska’s management, which hoped to quickly integrate the two airlines, their employees, and reservation systems, in order to realize the operational synergies. The market’s reaction to the two snippets of news can be read as mostly an over-reaction. Trefis believes that the deal between Alaska Air and Virgin America will be successfully completed before the end of the year, without any litigation issues. Consequently, the stock should bounce back to levels seen earlier in the year. Have more questions about  Alaska Air  (NYSE:ALK)? See the following links: Why Are The Air Fares Offered By The U.S. Airlines Falling? What Is The Role Of Passenger Airlines In The Air Cargo Industry? How Did Alaska Air Perform Operationally In August? Why Have We Revised Alaska Air’s Price Estimate To $69 Per Share? Alaska Air Reports Another Strong Quarter Backed By Rapid Capacity Growth And Lower Fuel Costs Alaska Air Q2’16 Earnings Preview: Capacity Growth, Fiscal Discipline To Support Earnings How Will The Virgin America Deal Impact Alaska Air’s Share Repurchase Program? Will Alaska Air-Virgin America Face Antitrust Issues? How Will The Virgin America Merger Impact Alaska Air’s Cost Of Capital? How Will Alaska Air’s Market Share Change Post The Virgin America Deal? Why Is Alaska Air Acquiring Virgin America? How Will Alaska Air Benefit From The Virgin America Deal Operationally? How Will The Expected Return On The Alaska Air-Virgin America Merger Compare With The Previous Deals In The Sector? How Will The Virgin America Deal Alter Alaska Air’s Capital Structure? Has Alaska Air Paid A Fair Price For Acquiring Virgin America? Alaska Air’s Earnings Rise On The Back Of Rapid Capacity Growth And Lower Fuel Costs Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis for Alaska Air Group 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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    Abercrombie & Fitch's Direct Business Is Its Only Beacon Of Hope
  • By , 9/30/16
  • tags: ANF GPS AEO URBN
  • Abercrombie & Fitch  (NYSE:ANF) posted its 14th consecutive quarter of declining sales in the second quarter, while at the same time saying the comparable sales will remain challenging for the remainder of the year as well. This is a swift about-face from the forecast the company issued in May, when it expected results to improve in the second half of the year. Lower traffic, particularly from tourists, can be primarily blamed for this. Moreover, the company has struggled to compete with fast-fashion brands, such as Zara and H&M. While Abercrombie has attempted to convert Hollister into a fast-fashion house, by hiring designers to keep up with the trends, and shifting away from the logo-centric designs, the comparable sales for the brand fell in the quarter, after a flat performance in the first quarter. The only source of revenue growth for the company in recent times has been its DTC (Direct-To-Consumer) segment. The revenues from this segment have grown to contribute 23% of the total sales in the second quarter, as compared to 21% in the previous year. See our complete analysis for Abercrombie & Fitch Amid a dismal second quarter, the apparel manufacturer’s only promising trend was its direct business, which includes web transactions and sales placed online within a store. While overall sales fell 4.2% in the second quarter, its DTC sales increased 4.9%. ANF is focusing on its mobile and omni-channel capabilities, which saw strong growth, both in the domestic and the international markets. Sales through mobile orders jumped nearly 60%, and their recent initiative of ‘buy online, pickup in store,’ accounted for 7% of all online orders. The retailer already offers this option in the US and the UK, and plans to roll it out in Canada in the third quarter. In order to further bolster growth in this segment, Abercrombie & Fitch also recently announced a wholesale agreement with Zalando, Europe’s largest online platform for fashion. The German-based online retailer carries over 150,000 styles from more than 1,500 brands, and serves 15 European markets. The products of Abercrombie & Fitch, Hollister, and abercrombie kids will be available for sale on the platform, and will get the advantage of Zalando’s 18 million active customer base. According to’s top 500 e-tailers of Europe, the German company ranks 7th, with estimated web sales of $3.31 billion in 2015. It is considered to be one of the best internet retailers in Europe, supplying products from a number of major US brands, such as Nike, Ralph Lauren, Kate Spade, and Under Armour, along with European designers, including Armani Jeans, Hugo Boss, and Versace. For Abercrombie to be able to get an access to Zalando’s almost 19 million active users, who are regularly engaged through Zalando’s email marketing, will be immense. Furthermore, since every sale through this website will be additional revenue, without any fixed costs associated, it may have a positive impact on the margins. The company is also not that heavily present in the continent, and hence, a presence on the website will not result in cannibalization. In the past as well, wholesale arrangements with online retailers such as Next plc and Asos Plc in the United Kingdom have resulted in increased revenue, with $10 million additional sales in the year 2015. Have more questions about Abercrombie & Fitch? See the links below: Abercrombie & Fitch Looks To The Middle East For Growth How Will Abercrombie & Fitch Perform In 2016? Why Has Abercrombie’s Stock Price Fallen 25% In The Last Week? Bleak Outlook Causes Abercrombie & Fitch’s Stock To Plummet 20% How Will Abercrombie & Fitch Perform In Q2 2016? What Does Abercrombie’s Deal With Online Retailer Zalando Mean? How Has Abercrombie & Fitch’s Revenue By Geography Changed Over The Last Three Years? Abercrombie & Fitch Plans Changes To Turn Their Business Around Who Relies On Debt More; Gap Inc or Abercrombie & Fitch? What Is Abercrombie & Fitch’s Revenue & Earnings Breakdown In Terms of Different Operating Segments? What Is Abercrombie & Fitch’s Fundamental Value Based On Expected 2015 Results? How Has Abercrombie & Fitch’s Revenue Composition Changed In The Last Five Years? By How Much have Abercrombie & Fitch’s Revenues & Earnings Grown In The Last Five Years? Notes: Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
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    Key Takeaways From Costco's Q4 Earnings
  • By , 9/30/16
  • tags: COST WMT
  • Costco (NASDAQ:COST) reported mixed Q4 fiscal 2016 earnings on Thursday, September 29. The company’s retail revenue increased 2.1% year-over-year (y-o-y) to $35.7 billion during the quarter, which missed the Reuters consensus estimate by more than $1 billion. The retailer’s overall revenues increased 2.2% to $36.5 billion, driven by incremental revenues from new stores and growth in membership fees. Although Costco’s comparable sales growth for the fourth quarter was flat, it should be noted that a fall in gasoline prices and the strengthening dollar had a significant negative impact on the company’s growth. Excluding this impact, Costco’s comparable sales growth stood at 3%. The company’s selling general and administrative expenses increased 5.6% y-o-y to $3.69 billion due to increased payroll expenses. Costco reported net earnings of $1.77 per share, a 2% y-o-y increase which beat the consensus estimates by 4 cents. Costco’s growth was once again driven by a consistent rise in its member base. Membership revenue grew 6% on a year-over-year basis to $832 million. The company boasts of strong renewal rates over fourth quarter at 90% in the U.S. and Canada and 88% worldwide, including increasing penetration of executive memberships as well. The flat comparable sales, including sales of gasoline during the quarter, were due to a 1% decline in the U.S., 2% growth in Canada and a 2% decline in the rest of the world. Excluding gasoline sales and currency translation effects, the combined comparable sales increased by 3% driven by 2% growth in U.S., a 5% rise in Canada and a 1% increase in other international sales. For the full year combined, comparable sales growth was also flat and sales excluding currency translation effects and gasoline were up by 4%. In fiscal 2016, Costco added 29 new locations, which represented around 4.5% y-o-y increase in square footage. The company ended its fiscal year with 715 warehouses. The company also announced its plans to open nine more warehouses before the end of the calendar year. Updates On Citi Visa Anywhere Card Costco stopped accepting American Express at all U.S. and Puerto Rico Costcos and on, and began accepting Visa cards, including the new Citi Visa Anywhere card. Citi and Costco faced range of problems from delays in getting new cards to issues with automatic payments and long hold times for calls to customer service desks during the first few week after the cut over of American Express at the stores. Costco is beating its initial expectations in terms of conversion, usage and new sign-ups to the card. Almost 11.4 million American Express cards were transferred over to Citi during the conversion process. According to the company, 85% of these cards have already been used in past 60 days. Also, 1.1 million members have applied for the new card and over 730,000 new accounts have been activated with a little over 1 million additional Citi Visa cards are in circulation. Future Outlook Costco did not publish any guidance for the upcoming earnings, but consensus estimates for the company’s first quarter of fiscal 2017 expects earnings of $1.21 per share and revenues of $28.68 billion. For the full year fiscal 2017, reuters’ compiled analyst estimates forecast revenues of $128.52 billion and earnings of $5.96 per share, implying growth of about 8% and 12%, respectively. Have more questions about Costco? Please refer to  our complete analysis for Costco Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
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    Facebook's New Travel Product Might Help OTAs With More Exposure
  • By , 9/30/16
  • Now online travel agencies can push their products further to their potential clientele with the help of  Facebook’s new Dynamic Ads for Travel . This feature has been launched in June on both Facebook and Instagram to help travel companies influence their users with new travel plans and ideas. It has been found that in the U.S., travelers spend almost 20% of their time on their phones and especially on apps such as Facebook and Instagram, hence this is an innovative way to target more customers. Since May, companies such as InterContinental Hotel Group, Marriott, and Trivago have been beta testing the ads. OTAs can take advantage of this feature to display images of the destinations for their ads. For example, if a traveler is researching a travel site for trips to Abu Dhabi, the site can retarget that person with ads containing images of Sheikh Zayed Mosque or Ferrari World instead of just showing the accommodations available in the destination. The feature can be used by airlines and hotels as well to show ads of the destinations instead of just showing an image of the aircraft or the property. OTAs are always on the lookout for means to expand their customer base, due to the aggressive competition in the field. The recent advent of Google Trips into the travel booking arena though not yet threatening to Priceline or Expedia, might cause a dent in TripAdvisor’s tourism business . There are also emerging competitors such as Airbnb posing threats to the existing OTA leaders. Under these circumstances, capitalizing on the travelers’ increased usage of apps such as Facebook and Instagram, to gain more customers, does seem like a good idea for the OTAs. Have more questions on Priceline? See the links below. What Is Priceline’s Fundamental Value On The Basis Of Its Forecasted 2015 Results? How Has Priceline’s Revenue And EBITDA Composition Changed Over 2012-2016E? What Is Priceline’s Revenue And EBITDA Breakdown? Top 3 U.S. OTAs: A Comparison Of Operating Margins How Has Priceline’s Stock Performed In The Last Five Years? What Drove Priceline’s Revenue And EBITDA Growth Over The Last Five Years? Where Can Priceline’s Growth Come From In The Next 5 Years? What Is Priceline’s Fundamental Value Based On 2016 Estimated Numbers? Top 3 U.S. OTAs: A Comparison Of Operating Margins Why Might TripAdvisor Be An Attractive Acquisition Target For Priceline? What Has Been The Immediate Impact Of The Brexit Decision On The Online Travel Companies? Which Will Be The Most Important Segment To Fuel Priceline’s Future Growth? How Fast Are Priceline’s Advertising Revenues Growing? Priceline’s Q2 2016 Earnings Preview Priceline’s Robust Q2 2016 Suggests That The Company’s Growth Story Is Expected To Continue How Is Priceline’s Hotels Division Expected To Trend? How Is Priceline’s Revenue Growth Trending? Why Did Priceline Discontinue Its ‘Name Your Own Price’ Option For Flight Bookings? How Is The U.S. Travel Industry Faring Currently? How Might Further Help In Priceline’s Growth In The Vacation Rental Segment? Why Did Priceline Sell Off Its Stake In Brazil Based Hotel Urbano? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Which Carrier Stands To Gain The Most From iPhone 7 Promos?
  • By , 9/30/16
  • tags: S tmus s TMUS VZ
  • Apple ‘s (NASDAQ:AAPL) fall iPhone launch cycles generally sees a flurry of activity in the U.S. wireless industry, as carriers rely on promotions of the handset to win over high-spending wireless customers. This year’s promos on the iPhone 7 appear to be the most aggressive we have seen over the device’s 9 year history, with nationwide carriers offering the iPhone for free with trade-in offers. Although we believe the offers are a net negative for the industry, with costs largely rising for major players, Sprint could see the lowest financial impact while T-Mobile could see the strongest customer gains. Below we size up the impact of the new wireless plans on the industry. See our complete analysis for   AT&T   |  Verizon   |  Sprint T-Mobile Will Gain Subscribers, Reduce Churn At Expense Of Lower Revenues, Margins Limited-time promotions from AT&T, Verizon and T-Mobile (most of which have ended) essentially allow customers with a good credit history to trade in an old iPhone (6/6S/Plus) and get a $650 credit towards a new iPhone 7 after then sign up for a device payment plan. This could effectively translate into a net subsidy cost of as much as $450 per device, depending on the phone they trade in. Although we have seen subsidies of this magnitude in the past (mostly prior to 2015), customers typically compensated for this via higher monthly service billings. However, the industry has largely shifted towards the EIP model, where they pay a lower service fee, while equipment related charges are paid separately. Now, with the new iPhone offers, customers are effectively enjoying lower service billings, without having to pay the device component of billings. This should put pressure on average billings per account and equipment revenues of carriers, while compressing wireless EBITDA margins. That said, there could be some benefits as well, particularly in terms of lower churn figures, as customers are locked into 24-month device payment agreements. Overall, we expect T-Mobile to win over the most postpaid customers with its offers, posting positive porting ratios versus Verizon and AT&T. The carrier noted that pre-orders for iPhone 7 were 4x that of the iPhone 6. Sprint Could Emerge The Biggest Winner However, Sprint – the smallest of the four carriers – stands to gain the most from these promos, on account of its decision to offer the trade-in deal under its leasing scheme, rather than via equipment installment plans (EIP). This essentially means that customers will trade in an iPhone 6/6S/Plus (valued at $200 or more) in return for an iPhone 7, while eventually handing their iPhone 7 back to Sprint at the end of the 18-month lease period. This would allow Sprint to capture the residual value of the iPhone 7 as well (potentially $200+), effectively cutting its subsidy outflow by close to half compared to the other carriers, who allow customers to keep the device at the end of the EIP period. Sprint’s relationship with Brightstar – the world’s largest vendor of used and refurbished phones, and also part of the Softbank group – should ensure that it captures greater value from its used devices. The fact that the carrier is losing less money per iPhone 7 sign-on could explain why it is continuing to run the promotion while its larger rivals AT&T and T-Mobile have already ended their offers. The carrier has noted that iPhone 7 pre-orders were 5x higher compared to the 6S and it’s possible that the uptake could continue going forward. See More at Trefis   |   View Interactive Institutional Research   (Powered by Trefis) Get Trefis Technology
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    Why We Think First Solar Is Significantly Undervalued
  • By , 9/30/16
  • tags: FSLR SPWR
  • First Solar  (NASDAQ:FSLR), the largest U.S. solar equipment manufacturer, has seen its stock price decline by roughly 40% this year, amid weaker contracting activity in the U.S. utility solar market as well as falling panel pricing and demand.  While the concerns are legitimate, we believe that the stock remains oversold, given First Solar’s solid technological advantage, sound financials and relatively conservative valuation multiples. Below we explain why. 
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    Cisco & HPE Face Stiff Competition From Small Vendors In The WLAN Market
  • By , 9/30/16
  • tags: CSCO JNPR HPE
  • Networking giant Cisco (NASDAQ:CSCO) is most widely known for manufacturing network routers and switches. In addition, the company also operates in other market segments including converged systems, wireless LAN (or WLAN) hardware equipment, video conferencing and business messaging software suites, network security software suites and cable access hardware infrastructure. According to our estimates, the Network Security, Data Center and WLAN segments combined make up roughly 13% of our $150 billion valuation for Cisco. Out of this, the WLAN segment alone is worth approximately $9 billion, or 6% of our $30 price estimate for Cisco . Below we take a look at the WLAN market and Cisco’s growth prospects in the space.
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    How Do Stricter Capital Requirements For Banks' Physical Commodities Businesses Affect Goldman Sachs?
  • By , 9/30/16
  • tags: GS
  • The Federal Reserve recently proposed stricter rules for banks that trade in physical commodities in an attempt to “reduce the catastrophic, legal, reputational, and financial risks” presented by these activities on the banks’ overall business model. While the financial regulator lists several restrictions on all banks over their physical commodities trading activities, the most notable change proposed is additional capital surcharges on these assets. As it stands now, the new rule is particularly stringent towards  Goldman Sachs and Morgan Stanley – the two bank holding companies that have more leeway in the commodities industry due to grandfathering rules. These two banks are expected to calculate the size of their risk-weight assets (RWAs) using a risk weight of 1,250% for physical commodities instead of the 100% figure currently used.
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    Key Takeaways From Paychex's Earnings
  • By , 9/30/16
  • tags: PAYX ADP
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    Why Deutsche Bank Is Trading At All-Time Lows
  • By , 9/30/16
  • tags: DB JPM BAC CS C HSBC
  • Deutsche Bank (NYSE:DB) saw its share price fall to an all-time low of below $12 earlier this week – a 50% reduction in value since the beginning of the year. Plagued by poor operating performances in recent quarters, the German banking giant has been under considerable pressure from investors and regulators for lagging its peers in terms of meeting regulatory capital requirements. However, the most recent sell-off in the bank’s shares was triggered by news that the U.S. Department of Justice is seeking $14 billion in fines related to the German bank’s misrepresentations of mortgage-backed securities (MBS) prior to the economic downturn. Deutsche Bank released a statement claiming that it has “no intent to settle these potential civil claims anywhere near the number cited,” but the possibility of a larger-than-expected fine amount clearly spooked investors.
    Beyond the Stars, Elon Musk Aims for Mars
  • By , 9/30/16
  • tags: SCTY TSLA
  • Submitted by Wall St. Daily as part of our contributors program Beyond the Stars, Elon Musk Aims for Mars Elon Musk sees sustainable cities on Mars within the next 50 years. And he expects to travel even farther into the solar system. The fine folks at Zero Hedge cast their reliably cynical gaze toward the 67th annual International Astronautical Congress in Guadalajara, Mexico, yesterday, with Elon Musk’s presentation on the colonization of Mars squarely in the cross hairs. “Musk has been successful is in the way he characterizes huge problems,” writes nom de site Tyler Durden, “and the ability to address them. Need an atmosphere? Yes, we can adjust that. Need it warmer? We can warm the planet, just like we have Earth. “And so on.” Musk, a man of rare ambition and considerable ego, is an easy target for even the idealistic among us, given the recent struggles of his Earth-bound enterprises. His deal to combine electric car maker Tesla Motors Inc. (TSLA) with rooftop solar panel maker SolarCity Corp. — (SCTY) – two money-losing companies — has not been received well in the financial world. Tesla stock is down 12.2% since terms of the $2.6 billion deal were agreed on August 1, 2016, 2016, while SolarCity is off 24.6%. Tesla’s production goals are highly questionable, and SolarCity’s most recent maneuvers include layoffs and other cost-cutting steps. Musk, a man of rare ambition and considerable ego, is an easy target for even the idealistic among us, given the recent struggles of his Earth-bound enterprises. And Musk’s Space Exploration Technologies Corp. (SpaceX) just saw its Falcon 9 two-stage rocket blow up on the launch pad at Cape Canaveral four weeks ago. So sneering seems not a cynical but a realistic view on this self-styled “super villain,” particularly as he explains SpaceX’s plan to colonize Mars, powered by his new “Big Falcon Rocket.” Here’s a video depicting SpaceX’s “Interplanetary Transport System.” As Zero Hedge points out — and as also stands to astrophysical reason — when the dying sun consumes Earth, it will also devour Mars. So colonizing the Red Planet is no panacea when it comes to extending humanity’s existence beyond the life of the Blue Marble. But even after characterizing Musk’s “Earth-based inventions and investments” as “somewhat constricting” and “cash-burning,” Zero Hedge does “salute Musk’s vision.” And his ultimate goal is to “make Mars seem possible.” As otherworldly as it must seem, building a “self-sustaining city” in a world 33.9 million miles away at its closest point is simply a jumping-off point: The Interplanetary Transport System “is not just for Mars.” And his ultimate goal is to “make Mars seem possible.” As an image tweeted by SpaceX reveals, Jupiter is on the itinerary too. Indeed, as Sean O’Kane writes in The Verge: “Elon Musk wants to build a transit system that lets humans tour the entire Solar System.” SpaceX continues to make real, tangible progress. The company “just achieved first firing of the Raptor interplanetary transport engine” three days ago, on Monday, September 26. The proper way to understand Elon Musk is not as a CEO, a financier or even an entrepreneur. As SpaceX founding team member Jim Cantrell explained for Forbes, he’s an engineer. “The one major important distinction that sets him apart,” Cantrell noted, “is his inability to consider failure.” It may be time to consider picking up stock in Tesla and SolarCity as deep-value plays after their respective drubbings. SpaceX is not a publicly traded entity, so there’s no way for us to own it. We can, however, get a piece of the New Space Race via Aerojet Rocketdyne Holdings Inc. (GY), a small cap whose Aerojet Rocketdyne subsidiary is the prime contractor for the RS-25 rocket. As much wonderful vision as Musk has provided, NASA continues to do some halfway-decent things as far as space exploration is concerned. Its deep-space rocket is actually ahead of Musk’s. NASA fired its Space Launch System (SLS), which incorporates four RS-25 rockets in its core stage, for 500 seconds back on March 10, 2016. SLS too will take astronauts to deep-space destinations, including asteroids, Mars and other planetary systems. According to NASA: “The next time rocket engine No. 2059 fires for that length of time, it will be carrying humans on their first deep-space mission in more than 45 years.” Aerojet Rocketdyne, formerly known as GenCorp Inc., is a $1.34 billion company with long-standing ties to NASA. It’s been in the aerospace industry since 1945, when predecessor General Tire & Rubber Co. acquired Aerojet Engineering Corp. The company reported second-quarter net sales of $408.4 million and net income of $5.9 million, or $0.09 per share. It enjoys a funded backlog of $2.3 billion. Aerojet was in on the action when NASA launched Apollo 11 and landed men on the moon for the first time in 1969. And it’s going to be there when we take the interplanetary leap. Will we live on Mars by the 2060s? Who knows? But without visionaries, there’s no innovation. Money Quote “If you want to build a ship, don’t drum up the men to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.” Antoine de Saint-Exupéry Smart Investing, David Dittman Editorial Director, Wall Street Daily The post Beyond the Stars, Elon Musk Aims for Mars appeared first on Wall Street Daily . By David Dittman
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    Here’s How McDonald’s Can Benefit From Its Web Series?
  • By , 9/29/16
  • tags: MCD CMG SBUX
  • Editor’s Note:  Do you have an analysis request? Feel free to email Recently, McDonald’s  (NYSE:MCD) launched a web series on YouTube called “Whats Cooking?” which will showcase the preparation behind some of its most popular food items.  Through this series, the company is focusing on its food and the culinary process, an approach different from competitors who have not focused much on their brand in similar series. McDonalds also plans to highlight the changes it is making to its food items in the coming months, in line with the changing consumer expectations. We believe that as the company works on its turnaround strategy, focusing on “healthier” menu items, the right marketing strategy is critical to change consumer perception about its brand. The web series could become an interesting way to engage consumers and clear common misconceptions about its products, driving revenues in the long term. See Our Complete Analysis For McDonald’s Corporation 15% Upside To Our Price Estimate If Average Spending Increases Due To “Healthier” Menu McDonald’s is looking to use its web series to show customers where its food comes from and how it is prepared in the company’s kitchen. According to the company’s spokesperson, it plans to showcase McDonald’s commitment to its food philosophy, Simpler is Better, through the series. The company is making several changes to its food menu to make it healthier, in line with preferences of the millennial consumer. Initiatives such as shifting from margarine to butter, piloting fresh patties, transitioning to cage free eggs, and removing preservatives from some of its food items are aimed towards this “healthier” shift. We believe that, through these initiatives, McDonald’s is positioning its food as “nutritious”. Hence, it is important to ensure that consumers perceive it that way. The video series can help change this perception by showcasing both the origin and preparation of its food and the healthier changes made in its menu in recent months. Healthier menu items can be priced higher than its regular menu and this can increase the average spend by a customer as a McDonald’s restaurant. According to our estimates, the average spend per customer visit at a McDonald’s franchised restaurant will remain fairly steady around $3.50 over our forecast period. There can be a nearly 15% upside to our price estimate if this number increases at a rapid pace and reaches $4.00 by the end of our forecast period. We believe that, as increasing numbers of consumers prefer healthier menu options, changes in McDonald’s food items to appeal to this consumer base will drive growth in the long term. This bold video series which details the process of making popular food items at the company’s restaurants can work as an important marketing strategy for the company.  A web series that engages consumers and showcases these changes should amplify positive trends in consumer perception about McDonald’s food products. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    How Is Revlon Strengthening Its Travel Retail Business?
  • By , 9/29/16
  • tags: REV EL LRLCY AVP
  • After its acquisition of Elizabeth Arden, Revlon is now a bigger and stronger entity expanding its presence through different channels, travel retail being one of those. Revlon is trying to strengthen its presence in the travel retail segment by expanding its portfolio of offerings. The company will unveil a host of new products  to be exclusively sold through the travel retail channel in the upcoming TFWA World Exhibition. According to Jerusa Moura, Revlon’s Director of Global Travel Retail, these offerings aim to provide traveling customer’s with a complete beauty regimen solution. He also mentioned that travel retail is one of the most important channels for Revlon to grow and attract more customers. Revlon is expanding its offerings for the travel retail segment with three new makeup sets, to be exhibited at the TFWA World Exhibition in Cannes. The products are Revlon Ultra HD Gel Lipcolor Bonus Pack, Revlon Romantic Nudes and Berry in Love Gift Sets, and Revlon Beauty On The Go Makeup Kit. It is noteworthy to mention that Revlon’s much anticipated acquisition of Elizabeth Arden has been completed in September. The combined entity makes Revlon one of the top 20 beauty companies in the world. Have more questions on Revlon? See the links below. What Is Revlon’s Fundamental Value On The Basis Of Its Forecasted 2015 Results? How Has Revlon’s Revenue And EBITDA Composition Changed Over 2012-2016E? What Is Revlon’s Revenue And EBITDA Breakdown? Revlon: 2015 Year In Review What Is Revlon’s Fundamental Value Based On 2016 Estimated Numbers? How Has The TCG Acquisition Boosted Revlon’s Growth? How Did Revlon’s Different Segments Perform Over The Last 5 Years? Revlon’s Q1 2016 Earnings Results What Are The Implications Of Revlon’s Acquisition Of Cutex International Business? Revlon’s Expected Revenue And EBITDA For 2016: Trefis Estimate How Might The Acquisition Of Elizabeth Arden Help Revlon? How Is Revlon’s Revenue Composition Expected To Trend? How Is Revlon Expecting To Benefit From The Elizabeth Arden Deal? How Might Revlon’s Valuation Change Post The Elizabeth Arden Deal? How Do Revlon’s Preliminary Q2 2016 Results Look? Revlon Is Gearing Up For A Bigger Presence In The Beauty Arena With The Elizabeth Arden Deal How Do We Expect Revlon’s Hair Color Division To Trend? How Is Revlon’s Color Cosmetics Division Expected To Trend? How Is Revlon’s Antiperspirants, Deodorants, And Fragrances Division Expected To Trend? Notes:
    JBLU Logo
    How Has JetBlue's Financial Position Improved Over The Last Few Years?
  • By , 9/29/16
  • The U.S. airline industry, plagued by a host of problems, is considered a laggard by most investors. From 1977 to 2009, the sector suffered combined losses of over $52 billion. The economic slowdown in 2009-2010 further worsened matters for the airlines, forcing carriers to cut their capacity to match the lower demand for air travel. Although a slight improvement began to be seen in air travel demand in 2010, carriers remained cautious with heavy losses on their balance sheet to cope with. The continued capacity discipline, despite enabling the airlines to raise their air fares and reduce losses, were hardly sufficient to pull the industry out of losses. The massive debt build-up during the period was too much for the industry, causing many to go bankrupt, and ultimately be acquired. However, the crash of oil prices in 2014 flipped the picture, leading to a windfall of profits for most airlines, which had been under immense pressure to generate revenues under a slowing world economy. Taking advantage of this, airlines, specifically JetBlue, started upgrading their existing fleet, deleveraging the debt built-up on their balance sheets, and providing returns to their shareholders. In this note, we talk about JetBlue’s efforts at deleveraging the debt built-up on its balance sheet, and the consequent change in the company’s financial condition since the start of the oil slump in 2014. We start with the debt-to-capital ratio, which indicates a company’s debt proportion in its total capital structure. Historically, JetBlue has had a debt-to-total capital ratio of close to 50%, which implies that roughly one-half of its capital structure constituted of long-term debt. However, with the onset of the decline in crude oil prices, the company’s cash flows began to increase significantly, allowing it to repay some of the debt it had built up over the years. The pay-down of debt is a positive for investors who have seen their equity diluted year over year, as JetBlue issued a greater number of shares to fuel growth. In its latest earnings call, the company’s management stated that it will continue paying for new aircraft in all-cash transactions to avoid further dilution of equity, at least in the near future. Furthermore, it seems more than likely that the low-cost carrier will soon be able to achieve its intended debt to capital ratio target.  Secondly, we analyze JetBlue’s Net Debt-to-EBITDA ratio. This metric shows the number of years that a company would require to repay its long-term debt (excluding cash and cash equivalents) at the current rate of profits. Since 2013, JetBlue’s Net Debt-to-EBITDA ratio has been seen decreasing, implying that the company’s ability to meet its long-term debt obligations has improved significantly over time. Finally, we discuss the company’s interest coverage ratio, which shows a company’s ability to fulfill its interest obligations. As discussed above, JetBlue’s long-term debt obligations have decreased notably over the last few years, as oil prices crashed in 2014. Correspondingly, the carrier’s interest obligations also came down consequently. With higher operating profits and lower interest expense, JetBlue saw its interest coverage ratio declining. This indicates an improvement in its ability to meet its interest requirements. The company’s efforts are expected to help it execute the share-buyback its board of directors approved in September 2015. Further, while some recovery is being seen in oil prices, they are still much lower than the highs of $100 per barrel touched in 2012. This should enable the low-cost carrier to keep ahead, by returning a significant part of its profits to shareholders from the increased cash flows from its operations. Have more questions about  JetBlue Corporation (NYSE:JBLU)? See the links below: How Did JetBlue Perform Operationally In August? Is Renewable Diesel The Way Forward For The U.S. Aviation Industry? Can Passenger Airlines Revive The Growth In The Air Cargo Industry? How Are The U.S. Carriers Taking Advantage Of The Restoration Of Diplomatic Ties Between U.S. And Mexico/Cuba? Why Has Trefis Revised Its Price Estimate For JetBlue To $18 Per Share? Capacity Growth Fuels JetBlue’s Q2’16 Revenues, Slightly Offset By Declining PRASM JetBlue’s Q2’16 Earnings Preview: Capacity Expansion And Mint Services To Drive Results What Impact Will Crude Oil Prices Have On JetBlue’s Enterprise Value? How Are US Air Fares Correlated To Crude Oil Prices? Rapid Capacity Growth And Lower Fuel Costs Drive JetBlue’s 1Q’16 Results How Has JetBlue Utilized Its Cash Flows Over The Last Three Years? How Has JetBlue’s Revenue And EBITDA Grown Over The Last Five Years? What Will Drive JetBlue’s Revenue And EBITDA In The Next Five Years? How Would JetBlue’s Equity Value Be Impacted If Crude Oil Prices Reach $100 Per Barrel By 2018? How Much Value Will JetBlue’s International Operations Contribute To Its Revenue By 2020? How Will JetBlue’s Equity Value Be Impacted If Crude Oil Prices Average At $50 Per Barrel In 2018? Capacity Expansions And Fuel Cost Savings Drive JetBlue’s Earnings in 2015 How Did The Oil Slump Impact JetBlue’s Operating Margins In 2015? What Is JetBlue’s Fundamental Value Based On 2016 Expected Numbers? How Has JetBlue’s Revenue And EBITDA Composition Changed Over The Last Five Years? What Is JetBlue’s Revenue And EBITDA Breakdown? Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis for JetBlue Corporation View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research