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COH Logo
Could Coach Inc. Be A Takeover Target?
  • By , 3/24/17
  • tags: COH RL KORS
  • The latest takeover speculation in the highly competitive handbag industry is of  Coach  (NYSE:COH) as an acquisition target. A news alert from Benzinga Lightning Feed, an aggregated feed used by a number of traders, reported that French luxury company Kering had made a takeover bid for Coach on March 15, 2017. Shortly following this, the stock price of the company rose 2%, even rising 2.6% to $39.97 during the course of the day, before closing slightly lower at $38.86. A spokesperson for the company refused to comment on the rumors, and there has been no filing with the Securities and Exchange Commission confirming any official offer. Speculative Luxury Industry This news comes on the back of rumors that Michael Kors and Coach are among the companies that have made it to the second round of bidding for Kate Spade, although they face competition from other bidders, including a non-US party. Handbag and accessories retailer Kate Space recently confirmed speculation that it is exploring strategic alternatives for its business, and is reported to be working with a bank to contact possible buyers, including other retailers, CNBC reported, citing Dow Jones. The company was said to be under pressure from an activist shareholder, Caerus Investors, that had pushed the company to find an acquirer in order to improve its profit margins. The time of the sale would be opportune, with many companies, such as Coach, Michael Kors, PVH Corp., and VF Corp., all looking for acquisitions. This isn’t the first time Coach has been a part of such deal speculations. Even in 2014 and 2015 there were rumors that Kering may be involved with a takeover bid for the company. Tiffany and LVMH Moet Hennessy Louis Vuitton have also been part of the rumor mill with regards to Coach. As recently as last year, a merger between Burberry and Coach was also making the rounds. At that time, while representatives at both the companies declined to comment, the Financial Times had reported earlier in the year 2016 that Burberry had asked its advisers at Robey Warshaw to help prepare a defense for a possible bid . It was reported at that time that a mystery investor had built up a stake of close to 5%, prompting the company to attempt, albeit unsuccessfully, to ask HSBC, which is listed as the custodian for the position, to disclose its client or clients. According to Luca Solca, analyst at Exane BNP Paribas, historically, mergers and acquisitions in the luxury sector have not particularly helped in regaining brand traction and desirability . The reasons for the possible merger with Burberry were also being questioned, with many speculating it could be for cost-cutting. This, however, has been the downfall for numerous mergers, as many fail when the companies underestimate the complications associated with integration, while overestimating the benefits that can be derived from synergy. Coach’s Improved Performance Coach posted its second quarter earnings on January 31, 2016. Amid a challenging and volatile global retail environment, the company was able to deliver top line growth in each of its segments, highlighted by positive comparable sales in North America, and overall gross margin expansion. Despite the department store pullback, the retailer witnessed double digit growth in the earnings. While the revenue was in line with the consensus expectations, the company beat the earnings per share estimates by a penny. Furthermore, a breakdown by Market Watch of the S&P 500 companies noted that  only two retailers, namely Coach Inc. and O’Reilly Automotive, reported positive comparable sales in the December quarter, a gross margin of at least 50%, and a net income of at least 10% of sales . Coach has been working hard to transform its brand in recent years, in the wake of market share loss to Michael Kors and other rivals, who also employed Coach’s strategy of selling luxury products at affordable prices. The company hired a new designer, Stuart Vevers, who introduced higher end products and undertook to remodel the stores. The retailer has also recruited Selena Gomez to be their new face, in order to appeal to the younger shoppers. During its fourth quarter and financial year 2016 (ended June), Coach announced its decision to pull the company’s handbags and leather goods out of 25% of department stores, or by over 250 locations, a move which is specifically designed to move away from the discounting that has hurt its luxury brand image. Furthermore, the company intends to reduce the markdown allowances to the channel, citing a highly promotional environment embraced by such stores. Have more questions on Coach? See the links below: Coach: A Lone Ranger In The Retail Space Coach And Michael Kors Still In The Hunt For Kate Spade See our complete analysis for Coach
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    Can Guaranteed Three-Day Delivery Drive Sales For eBay ?
  • By , 3/24/17
  • tags: EBAY AMZN BABA
  • As eBay  (NASDAQ:EBAY) looks to compete better with established e-commerce players such as Amazon, it is now ensuring that its shipping policies match up with these players. eBay recently  announced a three-day guaranteed delivery program in the U.S., in a move to compete with Amazon’s popular Prime service. While most sellers on eBay’s platform already offer fast delivery, the company has now introduced a tool for sellers which will allow them to highlight the three-day guaranteed delivery . If products are not delivered by the guaranteed time, eBay – along with the seller – will either refund the shipping charges or provide an eBay voucher to the buyer. Fast and reliable delivery is of paramount importance in the current e-commerce environment, as evidenced by the popularity of Amazon Prime (though Amazon’s video streaming service contributes to the popularity as well).  eBay’s new program will allow buyers to sort products based on their delivery dates and give sellers an option to market their products by providing guaranteed delivery. Depending on the success of the feature’s rollout, it could help eBay expand its user base, which is a key valuation driver for the company. As the e-commerce battle shifts to faster and guaranteed delivery times, with cheap prices no longer being the only thing customers look for, eBay’s efforts in this direction should attract customers. In the long term, this should make eBay more competitive and drive sales. View Interactive Institutional Research (Powered by Trefis):
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    Here’s How Twitter Can Benefit From Launching A Premium Product
  • By , 3/24/17
  • tags: TWTR FB GOOG
  • As it struggles to grow its user base, and in turn ad revenues,  Twitter  (NYSE:TWTR) is exploring another steady source of revenues. The company is reportedly considering a premium version of TweetDeck, which will offer additional features and an ad-free experience to its users at a subscription cost. TweetDeck is offered by the company to professionals who actively use the platform and manage several Twitter accounts. The company is currently conducting a survey to assess interest in a paid version of TweetDeck with enhanced features. Professionals using TweetDeck are generally the most active users on Twitter, and by charging a subscription fee to these users, the company could generate steady revenues and hedge ad revenue uncertainty. Though it remains to be seen whether Twitter actually pursues such an offering, we believe that many active users would be willing to pay a subscription fee for additional features through which they can effectively manage multiple Twitter accounts.
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    Card Charge-Off Rates For The Largest U.S. Issuers Rising Faster Than The Industry
  • By , 3/24/17
  • Among the largest U.S. card lenders, Capital One reported the highest card charge-off rate of 4.1% for full year 2016 – a figure much higher than the average of 3.17% for the industry. Individual charge-off figures above are taken from the latest annual SEC filings for these card issuers. The weighted average charge-off rate represents the average card charge-off rate for these card issuers as weighed by their outstanding card balances. The average figure for the U.S. card industry is taken from data compiled by the Federal Reserve Bank of St. Louis here . The table below details the trend in card charge-off rates for these card issuers over the last five years. The red-to-green shading across a row should help identify trends in card charge-off rates for a particular lender over this period. The charge-off rate is widely used as a parameter to gauge the quality of a lender’s loan portfolio, as it represents the proportion of loans which the lender is forced to write off for a given period. A lender with a higher charge-off rate historically is likely to see a larger hit in profitability in the event of weak economic conditions, as it usually indicates more relaxed lending standards. On the other hand, lenders that follow strict lending guidelines are expected to see lower loan charge-offs compared to their peers. Historically, American Express has enjoyed the lowest card charge-off rates among all card lenders in the U.S. thanks to its policy of focusing on affluent clients. This in itself acts as a protection against loan losses. Discover also has lower-than-average charge-off rates, also largely due to a selective card lending policy. Notably, Bank of America has seen the most improvement in card charge-off rates among the lenders listed here, as this figure fell from almost 5% in 2012 to 2.51% in 2016. This change can be attributed to the bank’s decision to divest its international card business and to improve its U.S. card portfolio in 2012. On the other hand, Capital One has been reporting significantly elevated card charge-off rates over recent quarters. It should be noted that Capital One saw its charge-off rates jump in 2013 as a result of its acquisition of HSBC’s card business in the U.S., and the banking group did well to improve loan loss figures over 2014-15 by running off and also selling chunks of its non-core card balances. But the recent trend of rapidly increasing loan losses is likely indicative of more lenient card lending criteria by the company. While this has allowed the card-focused bank to benefit from higher interest revenues and other card-related fees from new customers, the quality of the loan book has definitely deteriorated. This can trigger over-sized losses if economic conditions weaken in the near future. The impact of a sharp increase in card charge-offs on our estimate for Capital One’s share price can be understood by making changes to the chart below, which captures the bank’s card loan provisions as a percentage of its total outstanding loan portfolio. See the links below for more information about the U.S. card industry: Chase Credit Cards Account For Almost 18% Of All Credit Card Purchases In The U.S. The Four Largest U.S. Card Issuers Now Hold 60% of All Credit Card Debt In The Country Purchase Volumes For U.S. General Purpose Cards Crossed $3 Trillion In 2016 See full Trefis analysis for  U.S. Bancorp  |  Wells Fargo  |  JPMorgan Chase |  Bank of America | Citigroup | Capital One |  American Express | Discover 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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    Here's How L'Oreal Is Upping Its Digital Game By Partnering With Domo
  • By , 3/24/17
  • tags: LRLCY EL REV AVP
  • L’Oreal is currently the third largest advertiser in the world and it spends over $1 billion on its digital initiatives, annually. Hence, it was only logical for the company to rope in someone to help measure the results from its numerous digital initiatives and to aid in the integration of data across its several digital platforms. Towards this end, L’Oreal has chosen Domo, the computer software company that specializes in data optimization and business intelligence, to aid in the optimization of the performance of its numerous digital campaigns, social networks, and online retailers. L’Oreal currently boasts a portfolio of  32 brands across 70 countries, so it made business sense when its global chief performance officer, Vincent Stuhlen, mentioned that the company needed a ‘global digital cockpit: a product that would allow us to automate reporting, measure and analyze our complex data feeds, and benchmark against our competitors.’ Domo will help L’Oreal compare the results for digital advertisements across all its brands and thus help in the optimal allocation of resources that, in turn, will help L’Oreal improve its digital marketing, e-commerce, and customer service strategies. The digital cockpit created with the help of Domo will help L’Oreal’s executives in the marketing and sales departments to understand how each brand is performing across different markets and distribution channels and these indicators will help the company in adapting to the ongoing changes in the market in a more rapid manner. We believe that L’Oreal’s partnership with Domo will prove to be a fruitful one as it will help the company in further optimizing its digital initiatives, pick up market cues faster, and hence better serve its clientele.  This, in turn, will further cement L’Oreal’s position as the number one player in the global beauty industry along with helping the growth of its revenues and profitability. 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  content@trefis.com Notes:
    F Logo
    Three Reasons For Ford's Lower Profit Guidance For 2017
  • By , 3/24/17
  • tags: F GM TM HMC
  • Ford Motor Company (NYSE: F) has issued guidance that earnings per share for the first quarter of 2017 could drop from 68 cents (excluding one-time items) in 2016 to somewhere between 30 and 35 cents. For the full year, the company expects operating profit to drop from $ 10.4 billion in 2016 to around $ 9 billion. This is likely to happen for the following three reasons: The major reason for this are the costs associated with the launch of Ford’s new Superduty truck. The 2017 version of Ford’s truck was developed in factories that were retooled for the production of trucks with an aluminum body instead of the usual steel body. According to U.S. GAAP rules, costs associated with manufacturing can only be expensed when the sales are made. This means that since new tooling and machinery was developed, Ford will capitalize the costs related to building those items, i.e. they add them to their assets. The cost of building these assets will slowly be expensed over the life time of the product as depreciation and amortization. Since these costs were already paid off for the outgoing older model, sales were more profitable. However, the costs of building the new tooling and machinery for the Super Duty truck will be expensed in small installments from the transaction price Ford can command for the new version of these trucks. The company has pointed out that it expects an increase in price of some commodities such as steel to impact its bottom line. Given the impending expectation of a new infrastructure bill, prices for steel are expected to rise since demand will also rise. Ford also expects negative currency fluctuations to impact its bottom line. Ford has a sizeable business in Europe. Unlike GM, Ford intends to continue operating in the region, including in troubled regions such as Russia. However, the impact of Brexit and general weakness of the economic situation in the region means that the company could lose money again in the region. Have more questions about auto companies? Click on the links below: How Do Automotive Luxury Brands Compare In Their Performance In China? For our valuation and model, please refer to  our complete analysis for Ford Motor See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    RBS's Decision To Shutter 158 Branches Will Help Its Retail Banking Profits
  • By , 3/24/17
  • tags: RBS BCS HSBC C
  • Earlier this week,  The Royal Bank of Scotland Group (NYSE:RBS) announced that it will close as many as 158 branches across the U.K. – making it the latest bank to pare down on redundant branches as customers switch to mobile and internet banking services for many banking needs. The banking giant, which is owned 72% by the British government, has been struggling to return to profitability since the economic downturn of 2008, and has reported nine straight annual losses as it continues to work on streamlining its business model. The branch closures, coupled with an expected reduction in headcount by about 362 over the next six months, will materially reduce the bank’s recurring operating costs from 2018.
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    Why Gold Jewelry Demand Will Recover This Year
  • By , 3/24/17
  • tags: ABX NEM SLW FCX
  • The jewelry demand for gold, which is the largest component of the overall demand for the commodity, witnessed a considerable decline in 2016. As per the World Gold Council’s Gold Demand Trends report for the year 2016, the jewelry demand for gold declined roughly 15% year-over-year to 2,042 metric tons in 2016. Most of the dip in the jewelry demand was due to a fall in demand in China and India, the world’s two largest consumers of the metal. In this article, we will look at the reasons for this decline and the trajectory of the jewelry demand going forward. High Gold Prices Gold is closely associated with several social customs in both China and India, with festivals and marriages driving the demand for gold jewelry in these countries. In addition, fast-rising incomes have increased the capacity for discretionary expenditure such as the purchase of gold jewelry in these countries in recent years. However, sharp increases in gold prices usually discourage spending on gold jewelry. Gold prices averaged roughly 8% higher year-over-year in 2016 as the uncertainty created by the unexpected outcome of the UK’s EU referendum sharply drove up prices in the months following the referendum. The increase in gold prices depressed gold jewelry demand in both China and India. In addition, there were additional reasons for the decline in gold jewelry demand, specific to each country. Chinese Jewelry Demand Besides higher gold prices, changing consumer preferences impacted jewelry demand in China, the world’s largest consumer of gold jewelry. Changing preferences among younger Chinese consumers have shifted discretionary spending towards experiences such as travel at the expense of purchases of gold jewelry, which was accentuated by elevated prices in 2016. In addition, the tightening of capital controls by the Chinese government negatively impacted gold imports into China last year, constraining gold supply and the sale of gold jewelry. As a result of these developments, Chinese gold jewelry demand fell nearly 15% in 2016 to 629 metric tons. Indian Jewelry Demand Besides higher gold prices, Indian jewelry demand in 2016 was adversely impacted by regulatory changes impacting gold purchases as well as the government’s clampdown on citizens’ black money. The Indian government introduced regulatory changes in Q1 requiring purchases of gold jewelry above a certain amount to be linked to citizens’ PAN cards. By making these transactions traceable, the government aimed at curbing black market gold transactions. The decline in demand as a result of this move and a jewelers’ strike in response to this change in regulation drove down gold jewelry purchases. Furthermore, the demonetization of high denomination currency notes towards the end of the year, aimed at discouraging illegal black money transactions in the economy, created a cash crunch that impacted legitimate gold purchases. As a cumulative impact of these measures, legitimate gold purchases fell nearly 22% to 514 metric tons in 2016. Improved Demand Conditions in 2017 As a result of strengthening economic conditions in the U.S. and additional rate hikes by the Fed expected this year, we are likely to witness a decline in the investment demand for gold in 2017, which should translate into lower prices, as illustrated by our forecast shown below. The decline in gold prices should boost gold jewelry demand globally, including in both India and China. In addition, the easing of the cash crunch in India in the wake of the demonetization of last year, should see pent-up demand translate into higher gold jewelry purchases in 2017. An 82% year-over-year surge in Indian gold imports in February corroborates this notion. Further, whereas changing consumer preferences and slowing economic growth are likely to negatively impact Chinese jewelry demand in the longer term, lower prices should see a recovery in demand from last year’s levels in 2017. Thus, in contrast to the dip in gold jewelry demand seen in 2016, this year is likely to witness a recovery. However, the decline in investment demand is likely to be more significant than the increase in jewelry demand, translating into lower gold prices. Have more questions about Barrick Gold? See the links below. Why Barrick’s Gold Production Declined In 2016 Gold Prices To Average Lower This Year As Fed Maintains Interest Rate Hike Outlook Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    What Does An eBay-Flipkart Merger Mean For Amazon?
  • By , 3/24/17
  • Reports in the media suggest that eBay  (NASDAQ:EBAY) India is in talks with Indian e-commerce major Flipkart to merge their e-commerce operations, as part of the latter’s new plan to raise $2 billion. While eBay entered the Indian market long before Flipkart, Amazon  (NASDAQ:AMZN) and Alibaba (NASDAQ:BABA), the company could not establish itself as a strong player – and this could be a way for eBay’s Indian operations to make further inroads in the competitive Indian e-commerce space. (Read more here ) Last week, Flipkart also reportedly finalized a fresh $1 billion round of funding led by  Microsoft, eBay and Chinese Internet giant Tencent, and has reportedly had talks with Wal-Mart to raise funding as well. In any event, it is clear that the long-anticipated consolidation among the top players in the Indian e-commerce space is starting to take shape. The top three e-commerce companies currently in India– Amazon, Flipkart and Snapdeal – command a nearly 75% share in the market, leaving little room for smaller competitors. If Flipkart acquires eBay India, it is likely to become a three-way fight between Flipkart, Amazon and Alibaba-backed Paytm, considering the current third-largest player Snapdeal is itself rumored to be looking for a buyer. Consistent discount-deals are putting pressure on e-commerce players, and a fresh round of capital for Flipkart is likely aimed at fighting off competition from competitors Amazon and Paytm. eBay’s Stake In Snapdeal And Flipkart Interestingly, Alibaba has a 40% stake in Paytm’s e-commerce business, and both eBay and Alibaba have considerable stakes in Snapdeal. eBay’s investment in Flipkart could signal an alliance between the biggest Indian e-commerce players against behemoth Amazon. Things could get difficult for Amazon going forward if the other players collectively move away from a discount-based selling model to a services-based model focusing on customer stickiness and loyalty. This could cause a longer battle for supremacy in the Indian e-commerce market than earlier anticipated, leading to a longer break-even timeline for Amazon’s e-commerce business in India, as well as international markets in general. Impact On Amazon In 2016, Amazon’s International segment reported an 86% year-over-year increase in revenues and an 84% rise in operational losses. The division’s contribution to Amazon’s overall top line was 32% compared to its [-31%] contribution to operating profits. The consolidation among other e-commerce players in India could lead to this trend continuing over the next 2-3 years. Have more questions about Amazon? Please refer to  our complete analysis for Amazon   See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Key Takeaways From GameStop's Q4 Earnings
  • By , 3/24/17
  • tags: GME
  • GameStop  (NYSE:GME) reported mixed fourth quarter and full year results that were hampered by weak hardware and software sales during the holiday season. The company posted Q4 EPS of $2.38, 9 cents higher than market expectations, as well as net revenues of $3.05 billion, which were down 14% year-over-year (y-o-y). For the full year, the company posted revenue of $8.61 billion, a decline of 8% from the prior year and EPS of $3.77, down 3%. Comparable store sales declined 16.3% for the fourth quarter and 11% for the full year. In the fourth quarter, GameStop’s hardware sales dipped more than 29% and software sales were down 19%, primarily due to declining demand for games and lower average revenue per piece. The video game market remained soft due to declining demand of previous generation consoles and a relative lack of fresh game titles. These appear to be the primary reasons behind the company’s lackluster performance during the quarter. However, GameStop’s non-gaming business continues to perform well, with technology brands and collectibles registering 44% and 28% growth in revenues, respectively. In January, GameStop reported a 16.4% decline in global sales during the holiday season (November and December). This trend continued in January as well, impacting Q4 revenues. Total comparable store sales declined almost 16% in the same period. The company attributed the weaker-than-expected comps to weak sales of  Call of Duty: Infinite Warfare  and  Titanfall 2.  The holiday season also witnessed declines in hardware and software sales. New hardware sales decreased 29% over the prior year period, primarily due to weak sales of PlayStation 4 and Xbox One. In the same period, software sales declined 19% due to a reduced number of game launches and lower average selling prices during the holiday season. Going forward, GameStop expects to stem the decline in revenues and expects to post a marginal increase in revenues in 2017. However, the company expects comps to remain negative, ranging from -5% to 0%, in the current year as well. For the full year, the company expects to generate EPS in the range of $3.10 to $3.40, primarily due to growth in Tech Brands and collectibles along with higher expected sales of Nintendo Switch. See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    Petrobras Posts A Sharp Improvement In Its 2016 Profits But Misses Consensus Expectations
  • By , 3/24/17
  • Petroleo Brasileiro Petrobras ‘ (NYSE:PBR) stock price rallied more than 3% earlier this week, when the Brazilian integrated energy company posted a strong set of financial results for the December quarter and full year 2016. While the company missed the consensus expectations on both revenue and earnings fronts, it displayed an impressive improvement in its profitability driven by the recovery in commodity prices in the second half of 2016. Given the enhanced outlook of the commodity markets, the oil and gas company expects its domestic liquids production to increase to 2.77 MBOED by 2021, growing at a compounded annual growth rate of roughly 7.5% per year. Further, in order to augment its production growth targets, the company has marginally increased its capital spending budget for the next 3-4 years, with continued focus on exploration and production activities. Operational Highlights With the bounce back in commodity prices in the fourth quarter, Petrobras witnessed an improvement in its average price realization for the quarter. However, this was not complemented by a similar rise in its total production, causing its 4Q’16 revenues to remain marginally lower compared to the previous quarter. For the full year, too, the oil and gas producers’ production remained almost flat, and the persistently low commodity prices during the year resulted in a notable decline in its top-line compared to the last year. That said, Petrobras made significant progress to bring down its operating costs to boost is dwindling profitability. During the year, the Rio de Janeiro-based company managed to reduce its SG&A expenses, and manageable operating costs by 6% each. Further, the company’s lifting cost, associated with its oil and gas production, fell around 11% during the year and averaged at $10.30 per barrel of oil equivalent (boe) for the year. In fact, these costs stood at under $8 per boe in its pre-salt plays, making them highly profitable for the company. As a result of these cost control initiatives, Petrobras posted an operating profit of $4.3 billion for the full year 2016, as opposed to an operating loss of $1.1 billion in the last year. Financial Highlights With the improvement in the company’s profitability, Petrobras has also seen a solid recovery in its declining financial position. The company, which is believed to be the world’s most indebted publicly listed energy company, has finally managed to bring down its total debt (long term plus short term) to $118 billion, versus $126 billion a year ago. The company utilized its improved cash flows and proceeds of its divestment program to repay its debt and boost its capital structure. As a result of this decline in the company’s debt obligations, its Net Debt to EBITDA ratio has dropped from 5.11 at the end of 2015 to 3.54 at the end of 2016. While this means that the company is advancing well towards a more lean capital structure, it has a herculean task ahead of it before it achieves the target of a Net Debt to EBITDA ratio of 2.5 times by 2018. Going Forward As the outlook for the commodity markets has improved, many of the oil and gas majors, including Petrobras, have increased their exploration and production budget for the coming years, in order to leverage the rebound in the commodity markets. Thus, Petrobras, which had previously revised its capital spending budget for the next four years from $98.4 billion to $74.1 billion, has revised its capital expenditure target upwards to $74.5 billion for the period 2017-2021. That said, more than 80% of this capital budget will continue to be spent on its upstream operations. Petrobras’ Capital Spending Budget 2017-2021 ($ Billion) In addition to this, Petrobras has raised its goal for asset divestment and partnerships for 2017-2018 from $19.5 billion to $21 billion. While this is partially because the company was unable to meet its asset sale targets last year, it is somewhat indicative of the company’s willingness to streamline its portfolio and expand its operations by entering into partnership with its peers. Conclusion As Petrobras has laid down a clear strategy to improve its operational as well as financial performance in the coming years, we believe that the recovery path of the commodity markets, coupled with the execution skills of the company, will play a crucial role in deciding the future of the company. However, the company’s reputation of being involved in scandals and unfair practices could work against it, if the company does not take corrective measures to improve its image. 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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    Key Takeaways From China Mobile's 2016 Results
  • By , 3/24/17
  • tags: CHL CHA CHU
  • China Mobile (NYSE:CHL), the largest Chinese wireless carrier and fastest-growing broadband provider, published its Q4 and full year 2016 results on Thursday, meeting market expectations on earnings. While revenues for the year grew by about 6% in RMB terms, driven by an expanding wireless data and wireline broadband business, net profits (excluding one-time gains) rose by about 10.5%. However, the carrier’s growth in dollar terms was impacted by a ~5% depreciation in the RMB versus the U.S. dollar over the last year. Below we provide some of the key takeaways from the China Mobile’s earnings release.
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    Accenture Earnings: Growth In Outsourcing Revenue Boosts Top Line
  • By , 3/24/17
  • tags: ACN
  • Accenture  (NYSE:ACN) reported  its Q2 2017 results on March 23, posting 5% year-over-year growth (6% in constant currency) in revenues to $8.32 billion. In our  pre-earnings note published  earlier, we stated that we expected Consulting revenues to outpace the industry in the second quarter, while Outsourcing revenue would grow at a tepid rate. However, the Outsourcing division delivered a positive surprise even as growth in Consulting revenues slowed down. Consulting net revenues for the quarter were $4.41 billion, an increase of 3% year-over-year in U.S. dollars and 5% in constant currency. Outsourcing net revenues were $3.91 billion, an increase of 7% in U.S. dollars and 8% in constant currency. During the quarter, the company reported new orders of $9.2 billion, reflecting a negative 2% foreign-currency impact compared with new bookings in the second quarter last year. The details of earnings are below. 
    V Logo
    Purchase Volumes For U.S. General Purpose Cards Crossed $3 Trillion In 2016
  • By , 3/23/17
  • tags: AXP DFS MA V MC
  • Purchase volumes for general purpose credit cards issued in the U.S. reached an all-time high of $3.06 trillion for 2016 – an 8% increase from the figure in 2015. Visa continues to dominate the industry with a market share of almost 51%. The figures above are based on data compiled by the Nilson Report in issue #1103 (February 2017). Notably, Visa’s credit card purchase volume for 2016 grew by more than 15% compared to 2015 – well above the 8% growth figure for the overall industry. This helped the payments giant increase its market share for the seventh consecutive year. On the other hand, American Express witnessed a 3% reduction in purchase volumes year-on-year. Costco’s decision to switch its partnership from American Express to Visa in mid-2016 was the single biggest reason behind this discrepancy in growth rates for the companies. The chart below captures Visa’s GDV per transaction over the years as well as our forecast for it. You can see how changes to this metric affects our estimate for the company’s stock price by modifying this chart. 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/ ask questions on the comment section 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to the full Trefis analysis for  Visa  | MasterCard  |  American Express | Discover 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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    Two Key Initiatives Which Can Drive Sales For Starbucks
  • By , 3/23/17
  • tags: SBUX MCD DNKN
  • Starbucks ‘ (NYSE:SBUX) Mobile Order & Pay app has been immensely successful, leading to higher volumes through the convenient app. However, this success has been causing some congestion at its stores, and long lines of customers waiting to pick up their orders (placed via the app) have actually been driving some customers away. The company partially attributed its slower comparable sales in Q1 2017 to this issue. (Read Here’s How The Success Of Mobile Order and Pay Is Negatively Impacting Starbucks )  However, Starbucks is working aggressively to resolve this issue, and it appears that the company has found a solution: it has started sending text notifications to customers when their orders are ready in order to reduce the congestion at the pick-up point. While this adds a step to the order process on the app, it is likely to reduce store congestion to an extent. The company is also considering other measures, such as adding more employees to its stores and redesigning the store layout to resolve the congestion issue. As Starbucks looks to address this issue swiftly, the mobile app can become a key driver of sales for the company. Through the convenience of the app and shorter wait times, Starbucks can serve more customers in its stores, thereby driving revenue growth going forward.
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    Why GM's Early Sales in China In 2017 Are Worrying
  • By , 3/23/17
  • tags: GM F TM HMC
  • General Motors (NYSE:GM) saw its new vehicle sales drop by 15% in the first two months of 2017 in China . 2016 was a strong year for the company, with annual sales growth of 7.1% as full year sales reached 3.87 million units. A major driver of that growth was a reduction in the sales tax on vehicles with engine displacement of less than 1.6 liters, from 10% to 5%. This sales tax reprieve expired in December, and likely had a strong effect on GM’s sales in the January-February period as consumers opted to make car purchases in November and December to save on their purchases. Here are GM’s year-over-year sales comparisons for the last four months in China: China is GM’s biggest market, and we estimate that its China business is the most valuable division for the company, given the enormous potential for growth in the region. One way GM can capture this growth is by capitalizing on the boom in SUV sales in the region. Somewhat surprisingly, GM has been slow to catch onto the SUV sales boom in China. However, when the company introduced models in this segment — Buick’s Envision, Cadillac’s XT5, and Baojun 560 — they have all been big hits. Now the company is planning to add to its SUV lineup in China, with the 2018 version of the Chevy Equinox and potentially Chevy Traverse and Buick Enclave. The addition of these vehicles can help reverse the trend in GM’s China sales and boost profits as well, since these models are generally more profitable than passenger vehicles. Both of these factors provide significant upside for GM’s results in China. 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? 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 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 content@trefis.com 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 General Motors See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    Chief Scientist's Departure Is A Setback For Baidu
  • By , 3/23/17
  • tags: BIDU BABA GOOG
  • Baidu  (NASDAQ:BIDU) has been increasing its focus on its artificial intelligence (AI) initiatives of late. The company has been experimenting with this technology in several business lines such as “smart restaurants” and autonomous cars. However, Andrew Ng, Baidu’s Chief Scientist leading its AI group, recently announced t hat he will be leaving the company. This will be a setback for the company’s AI initiatives, which were being led by Mr. Ng for the past three years. The company is looking at AI as a key revenue driver in the long term, and losing an established leader in the business could impact the segment’s fortunes in the short term. According to our estimates, search services account for more than 70% of Baidu’s valuation, but the company is now focusing on other segments to diversify its revenue streams and drive growth. AI is one of the pillars of Baidu’s future growth, and the company is taking several initiatives to drive revenues from this segment. Recently it introduced new AI and Big Data offerings for business customers who use Baidu Open Cloud in China. The company is positioning its expertise in AI as the key differentiator in its Big Data offerings.  Baidu is also working on AI-based home voice assistants – developing a product similar to Amazon’s Echo. To further this initiative, it recently acquired Raven Technologies, a startup developing a voice-assisted hardware device for homes. Andrew Ng was driving many of these initiatives. Baidu is also working on AI projects which will support its existing search, advertising and maps business, giving it a competitive edge in these segments. Mr. Ng is a renowned data scientist, recognized as one of the key authorities on AI. Losing a key leader of its AI team, who is also a known expert in the field, will impact Baidu’s efforts in the segment. The company’s AI initiatives could slow down markedly in the short term, until it is able to find an appropriate replacement. 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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    The Outlook For Merck's Diabetes Drug Business
  • By , 3/23/17
  • tags: MRK PFE RHHBY
  • Diabetes drugs are important to  Merck  (NYSE:MRK) and constitute nearly 15% of its value, according to our estimates. Most of this value can be attributed to Januvia and Janumet, with the rest coming from the phase 3 pipeline. Our analysis indicates that Merck’s diabetes franchise will remain strong through 2022, at which point competitive pressure will likely outweigh the incremental growth from new drugs expected to be launched in the coming years. So does this put Merck at a significant disadvantage? We don’t believe so, considering that its main rival J&J will see its patent on Invokana expire by 2024, and some of the other big firms such as Pfizer, Roche and Bristol-Myers Squibb are not particularly strong in the diabetes market. Additionally, the potential advancement of drugs from phase 1 and phase 2 could offset the value loss from the patent expirations of Januvia and Janumet. Below we take a look at what will drive the sales trajectory of Merck’s diabetes franchise in the next five years. Our price estimate  of $67 for Merck is slightly above the market. Januvia & Janumet Are Growing, But May Top Out Soon Global sales of Januvia, Merck’s inhibitor for the treatment of type 2 diabetes, increased from $2.39 billion in 2010 to $3.91 billion in 2016. The growth was visible across the U.S., Europe and Japan. While we believe that the Januvia franchise will remain strong, the recent weakness is a cause of concern. Januvia’s growth has flattened in recent years, largely due to competition from J&J’s Invokana in the U.S. and currency movements. Overall we believe that incremental growth will become difficult, but the drug should manage to sustain its annual sales in the coming years. Worldwide sales of Janumet stood at nearly $2.21 billion in 2016 compared to $954 million in 2010. We expect the drug’s annual sales to peak at around $2.37 billion. The incidence of diabetes has been growing globally. According to the International Diabetes Foundation, there were over 400 million people living with diabetes in 2015. This figure is expected to reach 640 million by 2040. Phase 3 Pipeline Could Help Drive Growth Merck currently has two new compounds in its phase 3 pipeline as far as its alimentary and metabolism business is concerned –  Ertugliflozin and MK-1293. Ertugliflozin is an SGLT2 inhibitor being evaluated for the treatment of type 2 diabetes. This is the same class of drugs to which J&J’s Invokana belongs. It is being developed in collaboration with Pfizer. MK-1293 has already been filed for EU review, and is aimed at treating type 1 and type 2 diabetes. We estimate combined peak sales of these drugs at around $2.7 billion, with nearly 65% of it achievable by the end of our forecast period. Competitive Concerns We expect generic versions of Januvia and Janumet to hit the market by 2022, thus affecting their sales for that year and beyond. Also, Januvia and Janumet belong to a class of drugs called DPP-4 inhibitors, and face competition from a new class of drugs called SGLT2 inhibitors. One such example is J&J’s Invokana, which put pressure on Januvia’s growth and took away some market share. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    What Is Harley-Davidson’s Fundamental Value Based On Expected 2017 Results?
  • By , 3/23/17
  • tags: HOG
  • Have more questions on Harley-Davidson? See the links below. Harley-Davidson Wraps Up A Slow 2016 With Weaker-Than-Expected Financials Reliance On The Slow Domestic Market Is Weighing Down Harley-Davidson’s Performance Harley-Davidson Reports Q3 Results In Line With Estimates; Plans For Reorganization International Sales-Lift Could Offset Harley’s Anticipated Drop In Domestic Sales In Q3 Harley-Davidson Earnings Review: Market Share Gain In The U.S. Overshadows Retail Sales Decline What Is Harley-Davidson’s Revenue And Gross Profit Breakdown? By What Percentage Have Harley-Davidson’s Revenues And Gross Profit Grown Over The Last Five Years? How Has Harley-Davidson’s Revenue And Gross Profit Composition Changed Over 2012-2016E? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Decline? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Accelerate? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    How Has Harley-Davidson’s Revenue And Gross Profit Composition Changed Over 2013-2017E?
  • By , 3/23/17
  • tags: HOG HMC PII TM
  • There hasn’t been a huge shift in  Harley-Davidson ‘s (NYSE:HOG) revenue and gross profit composition in the last five years, but the trend is telling. The U.S. alone forms approximately two-thirds of the motorcycle shipments for the company, and the decline in demand in the country’s heavyweight motorcycle market (601+cc) last year was detrimental to Harley’s overall performance. Harley’s retail sales declined 1.6% year-over-year in 2016, despite a 2.3% growth in international sales, due to a 3.9% decline in U.S. retail sales. Harley has looked for growth in international markets, whose contribution to Harley’s overall revenue is ostensibly rising. The U.S. heavyweight motorcycle market hasn’t filled up to the peak levels of 2005-2006, and it might not in the near future as well. This is primarily as the millennials are typically more price-conscious, especially after the recession, and are looking to hold off on making discretionary expenditures, which includes luxury heavyweight motorcycles. Customer spending also took a hit due to the growing uncertainty regarding the political scenario in the country. The company aims to add 150-200 international dealerships by the end of this decade, with 40 added during last year. This increase in reach and availability could help Harley replace the decline in the home market with more international sales. Have more questions on Harley-Davidson? See the links below. Harley-Davidson Wraps Up A Slow 2016 With Weaker-Than-Expected Financials Reliance On The Slow Domestic Market Is Weighing Down Harley-Davidson’s Performance Harley-Davidson Reports Q3 Results In Line With Estimates; Plans For Reorganization International Sales-Lift Could Offset Harley’s Anticipated Drop In Domestic Sales In Q3 Harley-Davidson Earnings Review: Market Share Gain In The U.S. Overshadows Retail Sales Decline What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Decline? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Accelerate? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Chase Credit Cards Account For Almost 18% Of All Credit Card Purchases In The U.S.
  • By , 3/23/17
  • JPMorgan Chase reported total purchase volumes of $545 billion across all credit cards issued by it in the U.S. over 2016 – representing a nearly 18% share of the industry. This is largely because the banking giant is also the largest issuer of credit cards in the country . Notably, the six largest card issuers accounted for just over 60% of the total credit card purchases for the year. The credit card purchase volume for individual issuers is taken from their respective quarterly earnings releases. Figures for American Express and Discover represent purchase volumes only for cards issued by them, with purchases made on AmEx or Discover-branded cards issued by other banks included in the total figure for the issuing bank. The total U.S. card purchase volume is as detailed by us in our previous article . You can see how changes to JPMorgan’s total card purchase volumes affects our price estimate for the bank by modifying the chart below. See full Trefis analysis for  JPMorgan Chase |  Bank of America | Citigroup | Capital One |  American Express | Discover 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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    Why Apple Is Going Downmarket With Its New iPad
  • By , 3/23/17
  • tags: AAPL aapl GOOG SSNLF AMZN
  • Apple  (NASDAQ:AAPL) has introduced a new low-cost iPad to replace the aging iPad Air 2 tablet, which was launched in 2014.  The new device will have a starting price of $329, down from $399 for the Air 2, marking Apple’s lowest price point for an iPad with a 9.7-inch display. The device – which is aimed squarely at casual users – sports an improved processor compared to its predecessor, although Apple appears to be cutting costs by using an older design borrowed from the original iPad Air, along with less advanced display technology.  Below we take a look at how the new device fits into Apple’s iPad product line and its potential impact on the company’s financials.
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    Silver Wheaton's Q4 2016 Earnings Review: Elevated Precious Metal Prices Drive Earnings Improvement
  • By , 3/23/17
  • Silver Wheaton reported a significant improvement in its fourth quarter earnings, driven by elevated levels of precious metal prices in Q4 2016, as compared to the corresponding period of the previous year. In addition, the signing of an additional streaming deal earlier on in 2016 translated into a sharp increase in shipments in Q4. Macroeconomic uncertainty created by the surprise outcome of the UK’s June 23 EU referendum drove investors towards safe-haven assets such as gold and silver, translating into a rise in the prices of these commodities. Though precious metal prices declined in Q4 in anticipation of a rate hike by the Federal Reserve, they still averaged higher as compared to the corresponding period of the previous year, translating into higher realized prices for Silver Wheaton. Furthermore, a streaming deal for an additional 25% of the gold produced at Vale’s Salobo mine signed in Q3 2016, added to Silver Wheaton’s shipments from its existing deal with Vale. This resulted in a sharp increase in gold shipment volumes for the company. Despite the positive earnings result, the company management did not give any additional information pertaining to its ongoing tax-related dispute with the Canada Revenue Agency (CRA) during the earnings conference call. The ongoing tax-related dispute raises questions about the company’s high-margin business model, which relies upon operations subject to tax haven jurisdictions such as the Cayman Islands. A swift resolution of the tax dispute with CRA will certainly be in the company’s best interests. Have more questions about Silver Wheaton? See the links below. What Are The Factors Driving Gold Prices This Year? Gold Prices To Remain Under Pressure Despite Latest Fed Reprieve Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Why Fred's Is A Key Player In The Walgreens – Rite Aid Deal
  • By , 3/23/17
  • tags: WBA RAD
  • Walgreens Boots Alliance  (NASDAQ:WBA) is still awaiting regulatory approval for its proposed acquisition of  Rite Aid  (NYSE:RAD). The merger couldn’t be completed by January 27, 2017, the earlier proposed deadline, so the merger deadline was extended to July 31, 2017, albeit with revised conditions with an aim to meet FTC requirements. Per the revised terms, Walgreens will pay $6.50 to $7 per share, compared to the $9 it proposed earlier. Under the new proposal, Walgreens will divest between 1,000 and 1,200 stores, as the earlier plan of divesting 865 stores and certain assets (to Fred’s) for $950 million attracted regulatory scrutiny. The final price per share of the deal will depend on the number of stores Walgreens divests. Per recent reports, Walgreens is actively pursuing the deal and is planning a host of measures to expedite the process. The company is planning to declare “ certified compliance ” for its pending merger, which would ensure that regulatory authorities decide on the merger within 30 days from the date of issuance. The company is in talks with Fred’s for a sale of an increased number of stores and assets, which should meet regulatory requirements. The addition of 1,000 to 1,200 new stores would significantly boost Fred’s presence in the country and help it establish itself as a national chain competitive with CVS and Walgreens. What Would Fred’s Gain? Per its third quarter SEC filing, Fred’s operates 648 discount general merchandise stores and 3 specialty pharmacy locations in the Southeastern U.S. The addition of at least 1,000 stores would significantly increase Fred’s store count, giving Fred’s a significant presence across the country, especially on the west coast, and make it the third largest pharmacy retailer in the country. In order to prepare itself for the challenges it will face in integrating more than 1,000 new stores, Fred’s is undertaking a slew of measures including hiring experienced professionals from the retail sector. Going forward, Fred’s expects healthcare to drive growth for the company. If Fred’s manages to get the divested Rite Aid stores under its umbrella, it can expect to benefit from the high prescription business from existing stores since it would be able to use the Rite Aid brand name for an extended period.. At the same time, additional pharmacy revenues could help the company stem its  decline in comparable sales . The delay in completion of the merger has severely impacted Rite Aid’s stock price, which is currently trading almost 40% lower than the levels seen at the beginning of 2017. Moreover, Walgreens has stated that it doesn’t have a Plan B in place in case the transaction fails to go through. Accordingly, a swift conclusion to the ongoing negotiations is likely to benefit all parties involved. 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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    By What Percentage Have Harley-Davidson’s Revenues And Gross Profit Grown Over The Last Five Years?
  • By , 3/22/17
  • tags: HOG HMC TM PII
  • Have more questions on Harley-Davidson? See the links below. Harley-Davidson Wraps Up A Slow 2016 With Weaker-Than-Expected Financials Reliance On The Slow Domestic Market Is Weighing Down Harley-Davidson’s Performance Harley-Davidson Reports Q3 Results In Line With Estimates; Plans For Reorganization International Sales-Lift Could Offset Harley’s Anticipated Drop In Domestic Sales In Q3 Harley-Davidson Earnings Review: Market Share Gain In The U.S. Overshadows Retail Sales Decline What’s Harley-Davidson’s Fundamental Value Based On Expected 2017 Results? What Is Harley-Davidson’s Revenue And Gross Profit Breakdown? How Has Harley-Davidson’s Revenue And Gross Profit Composition Changed Over 2012-2016E? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Decline? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Accelerate? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology