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JNJ Logo
What To Watch For In Johnson & Johnson's Q4
  • By , 1/17/19
  • tags: JNJ BMY RHHBY PFE MRK
  • Johnson & Johnson  (NYSE:JNJ) is set to report its Q4 2018 earnings on January 22, and we expect the company to post low single digit revenue growth, led by a ramp up in its oncology drugs sales. J&J’s key oncology drugs – Imbruvica, Darzalex, and Zytiga – have been on a strong run of late, and we expect this trend to continue, and drive the earnings growth for the company. We expect the company’s Consumer Healthcare business to see modest revenue gains, as growth in Beauty products will mostly be offset by continued decline in Baby Care products, similar to the trend seen in the recent past. Similarly, we don’t expect any significant growth in the company’s Medical Devices segment, as Vision Care and Surgery revenue growth will partly be offset by an expected double digit decline in Diabetes Care products. We have created an interactive dashboard analysis  ~  What Is The Q4 Outlook For Johnson & Johnson . You can adjust the various drivers to see the impact on the company’s adjusted  earnings. Below we discuss the forecasts in detail. Expect Revenues To Grow In Low Single Digits We expect J&J’s Pharmaceuticals’ revenue to grow in  low single digits in Q4, primarily led by a double digit growth in oncology, which will likely see continued ramp up in sales of Imbruvica, Zytiga, and Darzalex. Zytiga could face competitive pressure in 2019, as its patent exclusivity has ended in the past quarter. The drug has  gained market share  in metastatic high risk castration sensitive prostate cancer. Looking at Immunology, Remicade sales have been on a decline amid generic competition, and this trend will likely continue in Q4 as well. However, the company’s new drug Tremfya, along with Simponi and Stelara, will likely offset the decline from Remicade, and aid the overall segment revenue growth. Among other therapeutic areas, Neuroscience and Cardiovascular/Metabolism will likely see mid-to-high single digit decline in revenue, due to increased competition. In Consumer Healthcare, we expect only a modest uptick in revenues, as growth in Beauty products will mostly be offset by an expected decline in Baby products. The company has been facing the heat over its talc products over the last month or so. J&J already has been facing thousands of lawsuits against its talc products. The stock price dropped over 10% since mid December, following the article stating that the company was aware of its baby powder products being tainted by asbestos. J&J also announced a $5 billion share buyback program after the fall in its share price. While the company maintains that its talc products are asbestos free, the lawsuits and related media coverage over the issue could have a negative impact on talc products sales. Medical Devices & Diagnostics segment revenues will likely see low single digit growth, primarily led by Vision Care, and the Surgery business. However, Diabetes could see a sharp decline, as it  continues to see competitive pressure and price erosion for its  product range.  Expect Earnings To Be $2.10 Per Share In Q4 The company’s adjusted net income margin has averaged around 27.5% over the past few quarters, and we forecast it to remain around the same levels in Q4 as well. This will translate into adjusted earnings of $2.10 per share in Q4 or $8.30 for the full year. Our price estimate of $154 for Johnson & Johnson is based on a 19x price to earnings multiple, and is at a premium of over 15% to the current market price. We will update our model and forward earnings estimates post Q4 results.   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    WPM Logo
    What Can Move Wheaton Precious Metals’ Stock By 30% In 2019?
  • By , 1/17/19
  • tags: WPM AA CLF ABX
  • After a subdued performance in 2017 and the first nine months of 2018 being relatively flat, we expect Wheaton Precious Metals (NYSE: WPM) to end 2018 with 3.5% lower revenues compared to 2017. Lower silver revenue is expected to be a major drag on gross revenue. Silver accounts for almost 45% of WPM’s revenue. In such a case, after a volatile year for the players in the precious metals business, it would be interesting to know what could impact WPM’s stock by over 30% in 2019. Our analysis shows that a 5% reduction in silver production (in case no purchases are made under the New San Dimas PMPA), assuming a stable international price level, would lead to a 30% drop in WPM’s stock price in 2019. You can view our interactive dashboard – The Factor That Can Significantly Affect Wheaton Precious Metals’ Stock In 2019 – and make changes to the assumptions to arrive at your own price estimate. Lower Silver output and New San Dimas PMPA WPM saw a reduction in silver ounces sold in 2018 due to expiry of the streaming agreement related to the Lagunas Norte, Veladero, and Pierina mines in March 2018, which was further exacerbated by the termination of its San Dimas silver stream. In May 2018, following the acquisition of all common shares of Primero by First Majestic, WPM decided to terminate the San Dimas silver purchase agreement with Primero and enter into the new San Dimas Precious Metals Purchase Agreement (PMPA), also called First Majestic PMPA. Under the terms of the new agreement, for which WPM paid a total upfront cash consideration of $220 million, the company is entitled to an amount equal to 25% of the payable gold production, plus an additional amount of gold equal to 25% of the payable silver production converted to gold at a fixed gold to silver exchange ratio of 70:1. The biggest risk that WPM faces in the future is not being able to purchase any further gold or silver under the PMPA. Even in such a situation, there is no assurance that Wheaton would be successful in enforcing its rights under the security interest granted by First Majestic or its other remedies under the San Dimas PMPA. If the company is unable to purchase any gold or silver under San Dimas PMPA, its reserves and resources would be significantly reduced, and the Company’s average five-year forecast silver equivalent production would be lowered by 5%, leading to a corresponding reduction to its revenue, net earnings, and cash flows. We forecast WPM to sell about 23.0 million ounces of silver in 2018. In the above scenario, a 5% drop in silver output would take silver volume to 21.9 million ounces in 2019. Additionally, silver prices were headed south in the second half of 2018, mainly due to a strong dollar which reduced investors’ interest in precious metals. Thus, at a price of $16.10 per ounce of silver sold, the total silver revenues would see a decline of 11.3% to $353.5 million in 2019. Though the price of gold also took a hit towards the end of 2018, higher production and volumes would likely offset the price decline and the segment is expected to post higher revenue in 2018 and 2019. Increase in gold revenue would offset lower silver sales helping WPM post revenue of $825.6 million and EPS of $0.45 in 2019. Though EPS seems to be flat when compared to 2018 expected EPS ($0.46), it signifies a sharp drop from the trailing twelve-month EPS (ended September 30, 2018) which is $0.64. A projected EPS of $0.45 and P/E ratio of 29.7 would give us a fundamental stock value of $13.37, which is 30% lower than the current market price of ~$19.00. Conclusion Thus, our valuation and analysis point out that the way WPM is able to take advantage of the new San Dimas PMPA could be of great significance in determining the movement of its stock price. In case of the desired level of production not being achieved, WPM’s stock could decline by as much as 30% this year.   What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    MCD Logo
    Will Delivery Sales Constitute A New Source Of Revenue For McDonald's By 2021?
  • By , 1/17/19
  • tags: MCD QSR CMG DNKN SBUX
  • McDonald’s  (NYSE:MCD) reported a strong quarter Q3 beating consensus expectations, with revenues at $5.37 billion and earnings at $2.10 per share. Global comparable sales increased by 4.2%. The company’s long-term goal is for 95% of McDonald’s restaurants to be owned by franchisees and this is expected to be completed by the year 2021. This strategy has helped the company cut costs and thus improve margins, and consequently, their earnings. The company is expected to continue its strong performance for the 4 th Quarter and finish the year strongly. Delivery is touted to have a huge potential in increasing revenue in the medium and long term for McDonald’s. As of now the company has approximately 11,500 (out of 37,800+) restaurants which are capable of Delivery. This number stands at about 30% of Total restaurants. The Delivery sales revenue from these restaurants is 10% of its Total revenue. Thus, Delivery Sales revenue to Total Revenue is a mere 3%. We have created an interactive Dashboard, What Are Sources Of Revenue For McDonald’s Over The Next 3 Years? Is Delivery A New Source Of Revenue? where we estimate the overall revenue for McDonald’s and how much of the same can be contributed by Delivery Sales. You can modify our assumptions to see the impact any changes would have on the Total Revenue, segment-wise revenue and Delivery Revenue.   We estimate Delivery Sales to reach about 8.6% of Total Revenue as of 2021. This is on the back of the assumption that Delivery will be available in about 50% of the Total stores and it will contribute nearly 17% of the Revenue from that store. Thus, according to our estimates, Delivery Sales would be contributing approximately 9% of overall revenue by 2021.   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    FFIV Logo
    What To Expect From F5 Networks' Q1 Results
  • By , 1/17/19
  • tags: FFIV CSCO JNPR HPE IBM AMZN BABA
  • F5 Networks (NYSE:FFIV) reports its Q1 results on January 23. While the legacy decline in the Application Delivery Controllers market is acknowledged by the company, F5 leaning towards software will likely be the key highlight of the company’s performance. The markets will also be watching out for new customer acquisition across the company’s portfolio. We currently have a price estimate of $168 per share for F5, which is about in line with the current market price. Our interactive dashboard on F5’s Price Estimate  outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.   F5 had reported slowing software revenue growth (24% y-o-y in Q3 an and 19% y-o-y in Q4) last quarter due to lumpiness in sales. The company’s management had also indicated that ELAs were driving consumption. The uptake of Cloud Edition along with better sales follow through and clients releasing pent-up demand (deferred revenue had been weak due to deferrals in Q4 to Q1) is also likely to start showing a ramp in software revenue towards management’s targeted growth of 30-35%. What could also help software is the adoption of multi-cloud (and potentially edge) use cases, and management commentary around traction in the Cloud Edition is likely to be an important indicator. On the hardware side, management has been open that it expects the ADC market to decline. However, the company also has been categorical in noting that the decline in the company’s ADC revenue will be slower than the overall market decline. In view of the fact that F5 moved its production out of China to Mexico in 2018, we will be keenly listening in for the company’s perspective of what could happen should President Trump’s envisioned Mexico wall see the light of the day. Lastly, we will also be looking out for indicators around traction in F5-as-a-service (F5aaS), something the company’s management had mentioned as potentially becoming an important driver in 2019. Do not agree with our forecast? Create your own price forecast for F5 by changing the base inputs (blue dots) on our interactive dashboard .
    ERIC Logo
    Key Trends To Watch As Ericsson Publishes Q4 Earnings
  • By , 1/17/19
  • tags: ERICSSON ERIC NOK
  • Ericsson  (NASDAQ:ERIC) is expected to publish its Q4 2018 results on January 25, reporting on a quarter that could see the company continue the turnaround of its bread-and-butter Networks business. Below we take a look at some of the key trends that we will be watching when the company publishes results. View our interactive dashboard analysis on  what to expect from Ericsson over 2018 and 2019 . You can modify any of our key drivers and forecasts to gauge the impact of changes on the company’s results and valuation. Networks Business: Updates On 5G The turnaround of Ericsson’s Networks segment has been gathering pace, with revenue growth accelerating to 12.5% year-over-year during Q3 2018, up from a growth rate of about 2% in Q2. The business has benefitted from higher sales to the North American market, where carriers have started to deploy 5G commercially, and also by some expansion in Europe and Latin America. 5G is expected to drive the next big wave of growth for networking companies, and Ericsson has been scoring early contract wins in key markets. For instance, the company won a contract with Verizon to supply equipment for its 5G launch. Ericsson has also been bolstering its R&D spending, despite cutting back on broader operating expenses, as it looks to gain an edge in 5G technology. We will be looking for updates on how its 5G business is faring when the company publishes results. Margins In Focus  The company’s gross margins have also been expanding, rising by 670 bps to 41.5% in Q3. While the company has been benefiting from its recent cost-cutting program – it achieved a SEK 10 billion (~$1.1 billion) reduction in run-rate expenses at the end of Q2 – it also been benefiting from a more favorable sales mix. For instance, the Ericsson Radio System – an end-to-end radio modular and scalable network portfolio – accounted for 86% of the company’s radio sales over the first nine months of 2018. The company has set a target of achieving 10% operating margins by 2020, up from about 6% in Q3, and we will be watching the company’s progress on this front. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
    MO Logo
    Should Cronos Group Scale Up Its U.S. Business?
  • By , 1/17/19
  • tags: MO
  • Cronos Group (NASDAQ:CRON) had a relatively solid 2018, driven by the legalization of recreational marijuana in its home market, Canada, and a $1.8 billion investment from tobacco major Altria group. While Cronos has been focusing its retail efforts on Canada as well as international markets such as Germany, Israel, and Australia, where its medical marijuana products are gaining traction, the U.S. could potentially be a significantly larger market for the company in the long run. In this note, we take a look at what’s driving the cannabis market in the U.S. and how Cronos could potentially scale up its U.S. operations in the long run, subject to regulations. We have created an interactive dashboard analysis on  what’s driving Cronos Group’s valuation,  which allows users to modify any of our forecasts and drivers to arrive at their own valuation estimates for the company. The U.S. Marijuana Market As of November 2018, 32 U.S. States had laws allowing the use of medical marijuana, while  10 states  (namely Washington, Oregon, Nevada, California, Alaska, Colorado, Michigan, Vermont, Maine, and Massachusetts) allowed the use of the marijuana for recreational purposes. Other states including New Jersey have been closely considering the legalization of recreational marijuana. Sales of medical and recreational marijuana in the U.S. are projected to climb to roughly $22 billion by the year 2022, per the  2018 edition of the Marijuana Business Factbook, up from levels of between $5.8 billion and $6.6 billion in 2017. While much of the growth in the market will hinge on regulatory developments, the increasing interest from major corporates in the tobacco and alcoholic beverage space could also drive the industry. Overall, it’s safe to assume that the U.S. market for cannabis will be significantly larger than the Canadian market in the long term. The U.S. also took some steps towards the legalization of hemp – a variety of cannabis that does not produce the psychoactive component of pot – after it was removed from the controlled substance list post the passage of the 2018 farm bill. Hemp-derived cannabidiols were also legalized. Cannabidiol, or CBD, is a popular extract used in beverages and health products. Per New Frontier Data, the hemp-derived CBD market will grow from a $390 million in 2018 to a $1.3 billion market by 2022. Cronos Could Leverage Altria Deal While Cronos is still in the process of scaling up its overall business (total revenues stood at just $3.8 million in Q3’18), the company will likely wait until marijuana is legalized at a Federal level in the U.S. before it moves into the mainstream market. However, it’s possible that the company could make a play in the hemp space, like its Canadian rival Canopy, which was recently granted a license by New York to process and produce hemp. Cronos’ partnership with tobacco major Altria, which is the producer of Marlboro cigarettes, could also help the company if it decides to scale up in the U.S. Altria has an extensive distribution reach, as well as significant experience on the regulatory front. Cronos could also use the sizable cash infusion from the Altria deal to double down on the construction of greenhouses and processing facilities.  While annualized capacity stood at just about 6,650 kilograms as of Q3, the company is in the process of adding about 110,000 kilograms of capacity in the near term.   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    RIG Logo
    What's The Outlook Like For Transocean In 2019?
  • By , 1/17/19
  • tags: RIG HAL SLB
  • The last few years have proved challenging for offshore drilling major  Transocean  (NYSE:RIG), which saw its day rates and contracting activity post significant declines. While things are likely to look up for the company over 2019, driven by a large number of planned offshore projects, the recent decline in oil prices and a continued oversupply of deepwater rigs could still prove a challenge. In this note, we take a brief look at what lies ahead for Transocean and the broader deepwater market in 2019. We have also created an interactive dashboard analysis on t he expected outlook for Transocean, which you can use to arrive at your own revenue and EPS estimates for Transocean. Offshore Activity Is Expected To Pick Up This Year Big oil companies are likely to approve about 110 offshore projects this year, up from 96 projects in 2018 and 43 projects in 2016, according to Rystad Energy . While this is likely to increase demand for drilling rigs and drillships over the year, the market is still meaningfully oversupplied, with Wood Mackenzie analysts estimating that about 30% of deepwater rigs could remain idled this year. That said, Transocean should be well-poised to take advantage of the growing activity, as it has been upgrading its fleet, by scrapping older, less sophisticated rigs while taking advantage of the depressed market to acquire newer rigs. In September 2018, the company announced an agreement to acquire Ocean Rig in a cash-and-stock deal valued at about $2.7 billion. Ocean Rig has a fleet of 11 high-spec ultra-deepwater drillships (two of which are currently under construction) and two harsh environment semi-submersibles, which are currently much sought-after. Ocean Rig’s modern fleet, and its presence in important offshore markets including Brazil, West Africa, and Norway, could allow Transocean to better take advantage of an upturn in the market. Transocean’s Dayrates And Utilization Could Improve While Transocean’s day rates have taken a beating in recent years (Q3 ultra-deepwater rates declined to $341k from $449k in the year-ago period) the company noted that rates for ultra-deepwater drillships were likely to increase  through 2019 and 2020 . Contracting activity has also been picking up. In December, the company contracted a newbuild drillship to Chevron for five years in the Gulf of Mexico starting in the second half of 2021, adding a contract backlog of about $830 million. Current Decline In Crude Oil Prices Crude oil prices have declined by close to 40% over Q4 2018, driven by stronger supply and concerns of an economic downturn. However, it’s possible that prices could recover in the medium term amid potential production cuts by OPEC, Russia and several other producers early this year as well as weaker-than-expected production from existing shale wells in the United States. Moreover, as offshore and deepwater projects have long lifecycles, operators could push forward with investments to bolster their capacity over the long run after multiple years of subdued investments. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    SCHW Logo
    Key Takeaways From Charles Schwab's Q4
  • By , 1/17/19
  • tags: SCHW
  • In line with its robust performance over the first three quarters of 2018, Charles Schwab  (NYSE:SCHW) reported another impressive quarter to end the year on a high note. The brokerage reported an impressive 19% and 59% jump in its revenue and earnings, respectively, driven by the Fed’s rate hikes, a higher interest earning asset balance, new brokerage accounts and increased trading activity. Interest earning assets continued to be the primary growth driver, aided by the Fed’s interest rate hikes, while record trading activity helped boost trading revenues. Schwab’s asset management revenues declined by nearly 5% as a result of below-par money market funds and lower fees, partially offset by robust performance from its digital advisory arm. Operating expenses grew by just over 13% in comparison to the prior year comparable period, due to higher compensation, advertising, infrastructure spending and additional client-facing employees to cater to the expanding customer base. However, the 19% revenue growth outpaced the growth in expenses, leading to an improvement in operating margins. Our price estimate for Charles Schwab’s stock stands at $55, which is significantly above the market price. We are in the process of updating our model to reflect the new guidance provided by the company. We have also created an interactive dashboard –   which outlines what to expect from SCHW in 2019 . You can modify the key value drivers to see how they impact the company’s revenues and bottom line. Below we discuss some of the key factors that are likely to impact the brokerage’s earnings. Interest Earning Revenues Continue To Boost Top Line  Net Interest revenues account for just under 57% of Charles Schwab’s revenue, and grew by nearly 36% y-o-y to just over $5.8 billion in 2018. The robust growth was largely due to multiple rate hikes, which resulted in a 16% y-0-y increase in interest-earning assets, coupled with a 32 basis point increase in yield. With the expectation of further rate hikes in the year ahead – though the magnitude and frequency are in some doubt of late – we expect the growth momentum to sustain through 2019, albeit at a slower pace. As a result of the continued momentum, we expect Schwab’s revenues from interest-earning assets to grow by nearly 20% to slightly over $6.9 billion in 2019. Growth In Trading Volumes Drove Trading Commissions Trading revenue contributes to just over 7% of Schwab’s overall revenue and saw its revenue grow to $763 million (+ 17% y-o-y) in 2018. Despite Schwab slashing its commissions per trade by nearly 40% to just under $5, owing to intense competition from discount and traditional brokerages, record growth in trading volumes in 2018 (+20% y-o-y) more than offset the losses from the price cut. In addition, enhanced stock market volatility, coupled with improvement in U.S. GDP, should result in increased near-term trading volumes – driven by enhanced client activity. As a result of this, we expect the trading commissions to improve by nearly 12% to about $850 million in 2019. Digital Advisory Key To Future Growth Assets under management generate around 32% of brokerage’s revenue, and the segment saw its revenue decline by around 5%. This decline was largely due to fee reductions and client asset allocation choices – including lower-than-expected money market funds. However, robust growth in its advised solutions helped marginally offset that loss. In addition, the company’s robo-advisory services have helped attract more investors, given the low fees as well as enhanced customer support for portfolio management. The company has focused on its client engagement and advisory services, and consequently expanded its customer base, which bodes well for its future growth.
    TXN Logo
    Texas Instruments Q4 Preview: Cooling Semiconductor Demand Could Impact Results
  • By , 1/17/19
  • tags: TXN
  • Texas Instruments  (NYSE: TXN) is expected to publish its Q4 results on January 23, reporting on a quarter that is likely to see some slowdown in demand hurting the company’s revenue growth. Below, we take a look at some key trends to watch when the company reports earnings. We have also summarized our expectations for TI in our interactive dashboard, which outlines  what to expect from TI’s full-year results   . Growth Will Slow Over The Quarter Texas Instruments has guided for EPS of between $1.14 and $1.34 per share for the quarter, with revenues projected to come in at $3.6 billion to $3.9 billion, implying that they would be almost flat year-over-year (at the mid-point), ending a string of about ten quarters of year-over-year revenue growth. While the company didn’t provide much color on the exact reasons for the slowing growth rates, it noted that it was being impacted by a slowdown in most end markets . Moreover, the ongoing trade war between the United States and China could also be impacting demand, as customers could be hesitant to stock up on components that they may not be able to deploy due to any potential disruptions. While the company has indicated that it would be more circumspect about its operating expenses to manage a downturn, it indicated that it wouldn’t scale back on its long-term R&D plans. Focus On Industrial And Automotive Sectors We will be focusing on the performance of the company in the Industrial and Automotive segments, which are likely to be the biggest drivers of its long-term growth, due to the increasing semiconductor content in these industries. These sectors could be lucrative to TI, considering their longer product life cycles, diverse sales, and less capital-intensive manufacturing. During the third quarter, the company noted that automotive revenues grew by double-digits from a year ago, while Industrial demand slowed to upper-single-digit growth levels.  
    REV Logo
    What Is the Fundamental Value of Revlon Based On Expected 2019 Results?
  • By , 1/16/19
  • tags: REV
  • Revlon  (NYSE: REV), one of the world’s biggest cosmetics companies, has been modest in the recent quarterly earnings where net sales were slightly positive y-o-y  on a constant currency basis driven by strong growth in the Revlon segment in North America and growth in the Elizabeth Arden segment. Revlon’s recent performance has been a reflection of their continuous effort toward strengthening their business strategy and putting forth efforts to stabilize their business operations. We are seeing strong growth prospects in their strategic focus areas as they continue to work toward building momentum across their businesses. Revlon has also announced their 2018 Optimization Program, which is expected to deliver in the range of approximately $125 million to $150 million of annualized cost reductions by the end of 2019. Revlon’s Elizabeth Arden segment brand has performed well recently driven by new launches and a strong digital presence. Its net sales rose 16.5% to $122.1 Mn, primarily driven by higher net sales of Elizabeth Arden skin care products, including Ceramide and Prevage, principally in international markets. Revlon is on track to attain integration synergies of $190 million by 2020 in restructuring and related charges in connection with implementing actions under the Elizabeth Arden Integration Program in 2019. We have summarized our forecasts in an interactive dashboard Revlon’s Fundamental Value Based On Expected FY ’19 Results . You can modify assumptions such as changes in expected segment revenue or EBITDA margins to see how they impact the company’s value. The image below shows one of the key steps in identifying Revlon’s valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which then impacts value (assuming a constant PE multiple). With the initiatives adopted by Revlon’s top management for a brand makeover, the company is positive that the new changes will now steer Revlon toward higher growth in 2019 and beyond. We believe that Revlon has the key advantages in terms of innovation, brand power, digital prowess, and the quality of its teams all over the world to continue to drive growth and hold on to its position in the Beauty market . If you have a different view, you can modify various inputs to see how changing inputs impacts the company’s valuation. You can share the links to scenarios created on our platform.   What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    What Would Happen To Nike's Stock IF Footwear Sales Were To Stagnate?
  • By , 1/16/19
  • tags: NKE LULU UA
  • For Nike  (NYSE :NKE) over the past couple of years, footwear sales have been a key component of driving their revenue. In the first quarter Nike’s revenue rose by 15% yoy, and revenue TTM came in at $36 billion, we expect that this revenue will increase to $40 billion in 2019. Nike’s Air Max shoes, and in the basketball category KD’s (named after Kevin Durant), and Lebron 16 (named after Lebron James), were a key factor in driving 2018 sales for Nike. But with concerns for slowing growth, Nike’s footwear sales, which make up 62% of total revenue, coming in at $22 billion in 2018, and North American footwear revenue coming in at $9 billion, should the sales of these footwear products decline, the stock may be driven lower. However, should footwear sales remain the same y-o-y, we believe the company will still continue to see an increase in revenue from its other segments; which may be less sensitive to slowdowns. We currently have a price estimate of $80 per share, which is 3% higher than the market price. You can use our interactive dashboard Nike Downside If Footwear Stagnates  to modify key drivers and visualize the impact on Nike’s price estimate.   The key risks to sales come from its two biggest markets: the North American market, and the Greater China market where sales came in at $3.2 billion in 2018. The US market has already shown signs of a slowdown, with various economic indicators pointing to as much. This combined with the recent market sell-off, and the yield curve inversion, casts doubt on 2019, leading to Nike’s stock being dragged down with broader market sentiment. Regardless, it is important to note, that consumer confidence and wage growth continue to rise. This should provide continued momentum to Nike’s sales, as consumers may open up their wallets. A lot more serious headwind is present in China, where the economy is believed to be slowing. Many industries have seen a decline, including premium phone sales and car sales. While the latest numbers don’t point to any major fallout to Nike, should the slowdown in China speed up, there very well could be a fallout resulting from slowing revenues.   Our base case, should Nike see the same yoy footwear sales, shows the stock may have a downside of 16% . We expect therefore the EPS to come in at $1.35 in Q1 for Nike. Currently Nike stock trades at ~77 dollars. Overall, we believe risks remain on the horizon, but the stock is well positioned to still move on the upside.     What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    RDSA Logo
    Can Royal Dutch Shell's Cash Flows Remain Consistent?
  • By , 1/16/19
  • tags: RDSA XOM CVX
  • Royal Dutch Shel l (NYSE: RDS.A), saw profits surge in the last quarter, as improvements to  capital efficiency has meant the company reported a strong quarter. With oil prices falling into the twenty’s a couple of years ago, Shell decided to re-focus its strategy. Previously it had focused on acquiring assets, and paid little attention to quality. When the oil prices fell, it had to quickly re-strategize to keep profitability up, and the strategy has paid off. Gas and exploration income almost doubled from the previous year, and the upstream segment of the company saw significant increases.  Along with the increase in income, profits almost tripled from the previous year . We have a price estimate of $67 per share for Royal Dutch Shell, which is 10% higher than its current market price. View our interactive dashboard – Royal Dutch Shell In 2019  and modify the key drivers to visualize their impact on its valuation. Shell has significantly tightened how it allocated capital in 2018. Capital Expenditure (capex), has remained steady through 2018, and is at similar levels from 2017. Capex is expected to continue into 2019. This means Shell will weather any major prices changes in oil, far better than previous years, where it wasn’t prepared for an oil collapse. The volatility in oil could be a reason why the stock remains muted, as investors look for consistent quarterly results before investing in the stock. But with capital expenditure tightening, we expect free cash flow to come in at $20 billion in 2019, up from ~$16 billion in 2018.  The company’s average realized price for 2018 has been $65, and we are currently expecting a similar average realized price in 2019. Currently the stock trades at a price of $60, and our price estimate is at $67, should cash flows come in strong as expected, we could see the price of the stock achieve much higher levels, with the stock reaching as high as $73 which is illustrated in in our chart labeled (share price), and our dashboard. But for the stock’s price to rise to $73, the company would have to show 2-3 quarters of consistent results. With OPEC expected to keep a tight lid on supply, we expect oil prices to remain steady. Overall, Royal Dutch Shell’s stock is well placed to go higher in 2019.   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    IBM Logo
    What To Expect From IBM’s Q4 Earnings
  • By , 1/16/19
  • tags: IBM HPE MSFT AMZN ORCL SAP ACN
  • Since IBM (NYSE:IBM) reported its Q3 earnings in October, the company has been in the news for both investments and divestitures. The company reports its Q4 on January 22, and we expect its operational results to show the impact of these portfolio readjustments – at least those which occurred early enough in the year to impact Q4 – with investors also focusing on the company’s long-term strategic direction and management’s view of technology evolution across cloud, edge, IoT, AI, blockchain and other emerging areas. We currently have a price estimate of $146 per share for IBM, which is around 20% higher than the current market price. Our interactive dashboard on IBM’s Price Estimate  outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation. While IBM’s Q3 may not have excited the markets, the company’s move to buy Red Hat for $34 billion took many by surprise. IBM believes that the leadership position of the combined entity in the massive and growing hybrid cloud market can help offset issues of weak growth as well as concerns around the funding of the pricey Red Hat deal. In December, IBM again made headlines for its divestiture of certain software products to HCL for $1.8 billion. While many questioned the valuation that HCL was paying for technologies with a reported total addressable market of $50 billion, offloading IP where IBM and HCL already had partnerships could make sense for IBM’s longer-term evolution towards a cloud-centric play. We will be watching out for any commentary on progress with the Red Hat deal closure, management color surrounding incremental business from the proposed combination, commentary around productizing Watson AI solutions in the combined hybrid cloud offerings, as well as the impact from incremental edge adoption and views on the evolution of the broader technology landscape. Do not agree with our forecast? Create your own price forecast for IBM by changing the base inputs (blue dots) on our interactive dashboard .
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    VMware: What Has Changed?
  • By , 1/16/19
  • tags: VMW MSFT CSCO HPE IBM SAP ORCL CRM
  • Now that Dell is once again a publicly traded company, much of the uncertainty associated with VMware ‘s (NYSE:VMW) stock seems to have subsided. Accordingly, despite likely relative weakness in the broader IT spending atmosphere, we have updated our price estimate for the company’s stock. We have revised our price estimate upward to $150 per share, which is slightly ahead of the current market price. Our interactive dashboard on VMware’s Price Estimate  outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.   On December 28, 2018, VMware announced a special $13 billion one-time dividend relating to the Dell tracking stock buyout deal. With the Dell deal out of the way, VMware’s operational performance can go back to being the primary focus for investors. VMware is a leader in the cloud computing and virtualization market with deep integrations with AWS and IBM cloud. The need for digital transformation, the move towards a multi-cloud setup and complexity in dealing with heterogeneous IT infrastructure environments is likely to help VMware sustain growth over the long term. The largest likely headwind could be from expected weakness in IT spending. However, due to the increasingly non-discretionary nature of VMware’s core offerings, the company may continue to register decent growth. In addition, the association with Dell (with the uncertainties related to the tracking stock deal out of the way) could not only provide a boost to VMware’s revenues, but could also help VMware command a higher valuation multiple. Do not agree with our forecast? Create your own price forecast for VMware by changing the base inputs (blue dots) on our interactive dashboard .
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    What Is Costco's Revenue and Cash Profit Breakdown?
  • By , 1/16/19
  • tags: COST WMT AMZN
  • Costco  (NASDAQ:COST) saw its stock price increase by nearly 10% over the course of 2018. Much of that increase was due to the company’s strong comparable sales growth in the U.S., as well as international markets. We have a  $238 price estimate for Costco, which is almost 15% ahead of the current market price. We have created an interactive dashboard on Costco’s Revenue and Cash Profits breakdown , which details our forecasts for the company’s revenue and cash profits in the calendar year (CY) 2019. You can modify our assumptions to see the impact any changes would have on the company’s earnings and valuation. We expect Costco to generate around $149 billion in revenues in CY 2019. Of the total expected revenues in CY 2019, we estimate $85 billion in the Costco U.S. business, almost $35 billion for the Costco International business, nearly $26 billion for the Ancillary businesses, and close to $3.3 billion in Membership income. Breakdown By Division Costco’s domestic business constitutes 45% of the Trefis price estimate for Costco’s stock. It is the most valuable segment for the company, contributing more than half of total sales. The retailer continues to benefit from the positive momentum of its comparable sales in the U.S. In its recent earnings, the company posted a 9% increase in comparable sales. In addition, Costco’s organic performance has been keeping pace with the U.S. retail industry. This is primarily due to its business model. The company relies heavily on its membership fees, despite the fact that these fees account for only 3% of total revenues. The company’s membership fees contribute around 17% of its value, per our estimates, given the low costs associated with this revenue stream. Like other large retailers, Costco makes small margins on most of its items in its stores, while membership fees help offset these low margins. Paid memberships at Costco have grown at a CAGR (compounded annual growth rate) of 4% over the past two years to 51.6 million in fiscal 2018. Going forward, we forecast the company’s revenue from membership fees to reach $3.3 billion in CY 2019. Costco operates in ten international markets. The retailer boasts more than 10 million members in Canada with a renewal rate of 90%, which helps the company earn significantly through its membership fees alone. Costco operates 100 stores in Canada (as of Sept. 2018), which is the greatest number of stores in any market outside the U.S., with impressive  5% comparable sales growth. We expect the sales from the Canadian market to boost the company’s international revenues in 2019 as well. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    HAL Logo
    How Will The U.S. Fracking Slowdown Impact Halliburton's Q4 Earnings?
  • By , 1/16/19
  • tags: HAL SLB
  • Halliburton  (NYSE:HAL), the second-largest oilfield services company, is expected to publish its Q4  results on January 22, reporting on a quarter that saw a slowdown in fracking activity in the U.S, the company’s bread-and-butter market. In this note, we take a look at some key trends to watch as the company publishes earnings. We have created an interactive dashboard analysis which outlines  our expectations of Halliburton over 2018 . You can modify the drivers to arrive at your own price estimate for the company. Headwinds In The U.S. Markets The North American oilfield services market is likely to see a soft performance over the fourth quarter, driven by multiple factors. Firstly, the market for pressure pumping services has been weak, due to declining demand and a relatively strong supply of pressure pumping equipment, which has been hurting pricing. Separately, operators have slowed down activity in the Permian, which is one of the largest oil and gas basins in the U.S., due to a lack of pipeline capacity to transport crude from the region. Halliburton also previously indicated that many of its customers had exhausted their budgets, hurting activity. While Halliburton didn’t provide any mid-quarter updates following its Q3 earnings, rival Schlumberger noted that revenues from its North American business could  fall 15% sequentially over the quarter, citing similar trends. How Will Oil Price Declines Impact The Company In 2019?  Oil prices declined meaningfully over the last quarter, with WTI prices currently trading at under $50 per barrel, which is almost 35% below their October 2018 highs. While this isn’t likely to have meaningfully impacted global activity over the fourth quarter, it could cause customers to take a more conservative approach with their E&P budgets over 2019, hurting drilling activity and broader services pricing. We will be looking for more color from Halliburton on this front during its earnings call.
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    What To Expect From E-Trade In Q4
  • By , 1/16/19
  • tags: ETFC AMTD SCHW
  • E*Trade Financial  (NASDAQ:ETFC) has had a solid year so far. With three quarters reported, the brokerage’s revenue growth year to date has been nearly 24%, and we expect this trend to continue when the company reports its fourth quarter earnings on January 24. We believe this growth will be primarily driven by revenues from interest earning assets. This revenue stream has continued its strong performance throughout the year, in large part due to the rate hikes over recent months and the expectation of further interest rate hikes in the year ahead. In addition, despite cuts to trading commissions, we expect the acquisitions of OptionsHouse, TCA, and 1 million brokerage accounts from Capital One to further boost trading volumes and new brokerage accounts and provide for a decent near-term opportunity. Our price estimate for E-Trade’s stock stands at $62, which is around 30% above the market price. We have also created an interactive dashboard   which outlines what to expect from ETFC’s full-year results . You can modify the key value drivers to see how they impact the company’s revenues and bottom line. Below we discuss some of the key factors that are likely to impact the brokerage’s earnings. Rate Hikes To Boost Interest Earning Revenues Interest earning assets, which generate about 65% of E-Trade’s revenues, have been the key driver of growth for the company so far, and we expect this trend to continue into Q4. The revenues from this segment grew by nearly 28% in the first nine months of 2018, driven by the Fed’s interest rate hikes. Additionally, the company has the highest yield on assets (around 3.1%) relative to its primary competitors, which has contributed to impressive growth in revenue. Further, robust growth continued into the first two months of Q4, with 18% and 17% year-over-year growth in assets for November and October, respectively. This growth momentum likely continued in December as well and should significantly propel revenues from this segment. Multiple Acquisitions To Drive Commissions Revenue Trading volumes sustained its steady growth in 2018 thus far, as a result of the OptionsHouse acquisition. Further, the brokerage saw nearly 11% and 40% year-over-year growth in trading volumes for November and October, respectively. A part of this is attributed to the recent acquisition of TCA. Despite E-Trade’s decision to slash its commission per trade, we expect a notable jump in trading volumes and brokerage accounts in the near term owing to the TCA acquisition. As trading commissions generate a comparatively small percentage of the company’s overall revenue, we do not expect the price cut to have a significant impact on revenue and EPS growth in the near term.
    AMTD Logo
    What To Expect From Ameritrade's Q1
  • By , 1/16/19
  • tags: AMTD ETFC SCHW
  • TD Ameritrade  (NASDAQ: AMTD) had solid fiscal 2018. The company’s revenue grew by just under 50%, while its bottom line improved by nearly 58% for the fiscal year ended September. The robust growth was largely due to the Scottrade acquisition, in addition to better-than-anticipated results across core metrics, coupled with three interest rate hikes and the corporate tax cut. Interest earning assets, which generate about 50% of the company’s revenues, grew nearly 7% in October and November, and we expect this trend to continue when the company reports its fiscal first-quarter earnings on January 23. We expect over 15% growth in revenues for this segment in 2019, and believe that the fiscal first quarter growth will be along similar lines. Our price estimate for Ameritrade’s stock stands at $59, which is nearly 15% above the market price. We have also created an interactive dashboard which outlines what to expect from AMTD’s FY2019 Q1 results . You can modify the key value drivers to see how they impact the company’s revenues and bottom line. Below we discuss some of the key factors that are likely to impact the brokerage’s earnings. Factors Driving Near Term Growth Interest earning assets remain a vital part of Ameritrade’s business, generating over 50% of the brokerage’s revenue in FY 2018. The multiple Fed rate hikes, coupled with the Scottrade acquisition, drove nearly 57% growth in the segment’s revenue through fiscal 2018. This trend is likely to continue, as we expect more planned hikes in the near term. In addition, the net yield on these assets for the company, at 1.9%, remains relatively lower compared to peers like E-Trade (2.9%) and Charles Schwab (2.1%). We expect it to increase in the future driven by further rate hikes. As a result, we expect the interest earning assets to drive near-term growth, due to its high asset base and the moderate current yield on these assets in comparison to competitors. In the wake of increased competition from discount and traditional brokerages, Ameritrade decided to cut its commissions per trade by nearly 30% to just under $7. Despite this, solid growth in trading volumes (+59% y-o-y) in FY 2018 more than offset this impact and propelled growth in trading commissions, largely driven by the Scottrade acquisition. Further, improvement in U.S. GDP, reduced trading commissions, increased volatility in the stock market, and its strategic investment in ErisX – a cryptocurrency exchange platform – should not only establish a solid position in the crypto market, but also further boost its trading segment. These factors should continue to offset the negative impact of the reduced commission rate.
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    Can Walmart's Stock Cross $120 In Fiscal 2020?
  • By , 1/16/19
  • tags: WMT TGT AMZN
  • Walmart  (NYSE: WMT) has had a solid fiscal 2019 so far. In the first nine months of the fiscal year, the company’s revenues increased 3% year over year (y-o-y) to $376 billion, driven by growth in the domestic market due to its marketplace offerings. Walmart U.S. also delivered a strong top-line performance, with comparable sales of 3.5%, driven by customer traffic and growth in ticket size. However, the retailer’s stock fluctuated between $82 to $108 over the course of 2018, despite strong financial results.  This was largely due to a relative slowdown in the company’s e-commerce growth in fiscal 2019 (ranging from 33% to 43% per quarter), from 50%+ levels in the first three quarters of fiscal 2018 ending January 2018. Walmart’s shareholders also seem to be concerned about the company’s shrinking margins and increased costs.  We currently have a $103 price estimate for Walmart, which is about 10% ahead of the current market price. In this note, we analyze the factors that could result in further upside to our price estimate toward $120 levels in fiscal 2020 (year ending Jan 2020). We have created an interactive dashboard on How Can Walmart Reach $120 In Fiscal 2020? which details steps to arrive at our estimates. You can adjust the drivers to see the impact any changes would have on the company’s share price estimate. Detailing Forecasts For Walmart We expect Walmart to generate around $526 billion in revenues in fiscal 2020. Of the total expected revenues in fiscal 2020, we estimate $343 billion in the Walmart U.S. business, almost $119 billion for the Walmart International business, and nearly $60 billion for the Sam’s Club business. Further, we have calculated the retailer’s divisional revenues by estimating the number of stores, square footage per store and revenue per square foot in fiscal 2020. We expect Walmart ‘s fiscal 2020 store count in the U.S. to be over 4920, with average square footage per store of 146k and revenue per square foot of $477, translating into $343 billion (+3% y-o-y) in domestic revenues for fiscal 2020. In addition, we also expect close to 6390 stores in international markets, with an average square footage per store of 58k and revenue per square foot of $321, translating into $119 billion (flat y-o-y) in international revenues in the same period. In order for the company’s valuation to see an upside of 20%, we estimate that the company’s revenues would have to increase slightly from our base case forecasts and grow to around $532 billion in fiscal 2020. Further, we also forecast the retailer’s net income margins to grow 20 basis points in our upside scenario, translating into net income of $17 billion. We assign a P/E multiple of around 18x for Walmart and forecast its earnings to be nearly $5.70 per share in fiscal 2020 to arrive at our price estimate of $103. If Walmart is able to reach our upside case EPS of $6.10, a higher P/E multiple would be appropriate given the stronger growth prospects. An earnings multiple of 20x, coupled with the upside EPS would allow the company to cross the $120 mark in fiscal 2020. This all can be feasible if the company successfully increases its digital sales and expands its private label success further. E-commerce has been on the rise in the last several years, thanks in large part to internet retailers. Consequently, it is necessary for brick-and-mortar retailers to pick up their digital initiatives to grow further. The retailer plans to expand its omnichannel capabilities by leveraging its strong supply chain and store network in the international markets as well. By fiscal 2020, we expect Walmart’s e-commerce sales to contribute about 4% of its total sales. While this figure is unlikely to be massive, it should help the company offset secular pressure on brick-and-mortar retail locations. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    What Is the Fundamental Value of Guess Based On Expected 2019 Results?
  • By , 1/15/19
  • tags: GES
  • Guess  (NYSE: GES) has seen decent growth in its top-line and steady profits the past several years. During the latest quarter, net sales of the company rose by 10% to $605 Million and Increased 13% in Constant Currency. Guess’s performance was boosted by its rising comparable store sales and e-commerce sales in both Europe and Asia (especially China), growth through digital initiatives, its well-positioned customer-centric strategies, and the building of its omni-channel capabilities. Guess’s profitability in the wholesale business has been on a upward trend in Europe and Asia. In Q3 the European wholesale segment grew by 20.2% in U.S. dollars and 16.9% in constant currency, and the trend is expected to carry on in the coming quarters as well. This growth was propelled by a rise in comparable store sales, including e-commerce sales, and a host of store openings.  The e-commerce business in Europe was boosted by Guess’s own website along with the partnerships it forged with websites like Zalando, and the Retail comp sales, including e-commerce, increased 9% in U.S. dollars.  A sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiatives has kept Guess afloat in a competitive environment. These 5 segments are expected to continue to drive future revenue and profitability growth for the company, in line with the guidance provided by the company, where the Europe segment will continue to be the major contributor to its top line growth. The company is focused on staying close to its customer, improving the customer experience in stores and online, and improving assortments in compelling new product launches with steadier footing in FY2019. We have summarized our forecasts in an interactive model Guess’ Fundamental Value Based On Expected FY ’19 Results . You can modify assumptions such as changes in expected segment revenue or EBITDA margins to see how they impact the company’s value. The image below shows one of the key steps in identifying Guess’ valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which then impacts value (assuming a constant PE multiple). The Company is focused on improving the customer experience in stores and online and improving assortments in compelling new product launches. They still see a lot of opportunity in the Europe and Asia geographies, where they will continue to allocate capital and  plan to continue growing sales while also expanding margins. They also plan to keep working on improving the profitability of the Americas by executing on their cost reduction and margin improvement initiatives. All these factors, coupled with strong sales momentum, will enable Guess Inc to continue to grow its top line in 2019 and beyond. If you have a different view, you can modify various inputs to see how changing inputs impacts the company’s valuation. You can share the links to scenarios created on our platform.   What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    Can ‘Catering And Delivery' Bolster Chipotle's Same Store Sales 10% By 2021?
  • By , 1/15/19
  • tags: CMG DNKN MCD QSR SBUX
  • Chipotle Mexican Grill (NYSE: CMG) continued a strong performance in its third quarter, with the company beating consensus expectations on earnings. The 8.6% revenue increase was driven by a comparable sales increase of 4.4% and 28 new store openings. This positive performance aided in the restaurant level margin expansion of 260 basis points. We expect these strong trends to continue in the fourth quarter as well. In 2018 Chipotle has recorded nearly a 45% surge in its stock price. We have maintained our long-term price estimate for Chipotle at $468. In our interactive dashboard What’s the Upside for Chipotle if…  we provide a scenario in which we estimate Chipotle’s Share Price in a situation where the ‘Catering and Delivery’ offering bolsters its same store sales by 2021. Below we detail the scenario further. The company is expected to continue growing at 8-9% and post approximately $6.1 billion in revenue in the year 2021. It is expected that the Average number of restaurants will reach approximately 2971 by 2021 while expected revenue from each restaurant will touch $2.1 million. We expect the Net Income margin to continue improving and it is anticipated at 7.25% of Total Revenue in 2021. We also estimate the P/E multiple to be 26.65 In our scenario we estimate the expected revenue from each restaurant to reach approximately $2.3 million with a further improvement of 50 basis points in Net Income margin on the back of the growth in the ‘Catering and Delivery’ offering. Overall, for this scenario estimates result in an upside of $82 for Chipotle, which is almost 17.6% higher than our current Trefis Price of $468.     What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    C Logo
    Citigroup Is Worth $78 Despite Soft Q4 Revenue
  • By , 1/15/19
  • tags: C JPM BAC GS MS WFC
  • Citigroup  (NYSE:C) closed 2018 with weaker-than-expected revenue for the fourth quarter, as an unusually poor performance by the bank’s debt trading business resulted in the bank missing revenue expectations. However, Citi more than made up for the revenue shortfall by sticking to its focused cost-cutting efforts – something that helped it churn out a comfortable earnings beat for the quarter. That said, it should be noted that investor expectations for banks for the fourth quarter were fairly low heading into the earnings season. We have summarized Citigroup’s Q4 2018 earnings and also detailed the major takeaways from the announcement in our interactive dashboard on  Citigroup’s Q4: Key Takeaways And Trends, the key parts of which are captured in the charts below. While the sharp decline in share prices across industries towards the end of 2018 has resulted in a large number of companies looking undervalued, Citigroup stands out in particular because of the fact that its shares are currently trading at roughly 8% below their tangible book value of $63.79. While we have revised our estimate for   Citigroup’s stock downwards from $83 to $78  in view of the expected headwinds to consumer banking and securities trading activities in the near future, our new price estimate is still more than 30% higher than the current stock price. See our full analysis of Citigroup Securities Trading Revenues Slumped To Lowest Level In Four Years The fourth quarter of the year is seasonally the slowest period for investment banking activities. While this would have weighed on securities trading revenues for the period, overall capital market volatility was also noticeably low over the first two months of Q4. Although volatility spiked in mid-December, the ensuing sell-off resulted in a sharp decline in valuation across asset classes. This resulted in Citigroup’s FICC trading revenues falling to below $2 billion for the first time in a quarter since Q4 2014. While Citigroup’s equity trading desk reported a sizable improvement in revenues year-on-year, the bank’s top line still took a sizable hit as equities trading accounts for just 20% of its total trading revenues. Total securities trading revenues for Q4 2018 were just $2.6 billion in Q4 2018. This compares to a figure of almost $4 billion in Q3 2018 and $3 billion in Q4 2018 Strong Consumer Banking Loan Growth Citigroup reported an increase in its consumer banking loan portfolio from around $310 billion in Q4 2017 as well as Q3 2018, to more than than $315 billion by the end of Q4 2018. The strong growth was primarily driven by the seasonally strong increase in card lending, which helped total card loans reach almost $170 billion for the quarter. In fact, Citigroup’s card business reported revenues in excess of $5 billion for the first time in four years. While the bank received a helping hand from the series of rate hikes by the Fed, which helped its net interest margin (NIM) figure improve to 2.71% from 2.63% a year ago, its total interest-earning asset base has also grown steadily over recent quarters. This helped the net interest income figure reach $11.9 billion in Q4 2018 from $11.2 billion in Q4 2017. Cost Focus Continues To Add Substantial Value Citigroup’s continued focus on keeping costs in check helps operating costs fall below $10 billion for the first time since at least 2005. This helped Citigroup’s efficiency ratio improve from 58.4% a year ago to 57.8% in Q4 2018 despite lower revenues – driving the bank’s earnings beat for the quarter. We forecast Citigroup to report EPS of $7.43 for full-year 2019. Taken together with our estimated forward P/E ratio of 10.5 for the bank, this works out to a price estimate of $78 for Citigroup’s shares, which is more than 30% ahead of the current market price. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
    X Logo
    Why Did US Steel’s Stock Price Decline By Over 50% In 2018, In Spite Of Tariffs On Steel Imports?
  • By , 1/14/19
  • tags: X STLD NUE
  • United States Steel Corporation (NYSE: X), an integrated steel producer with major production operations in the US and Central Europe, saw a significant decline in its stock price in 2018. Ever since the tariffs on steel imports were officially implemented on June 1, 2018, the company’s stock has fallen from about $37 to $18 at the end of December 2018. If we look at the full year’s picture, US Steel has shed more than 50% of its share value, from $39.40 in Jan 2018 to $18.24 on Dec 31, 2018. View the interactive dashboard that we have created – What dragged US Steel’s stock price lower by more than 50% in spite of tariffs on steel imports? Though the tariffs were supposed to help the domestic steel companies, history has shown that tariffs are only a short term fix. Though the domestic mills are operating at over 80% of their capacity, which is an impressive rise over a year ago, steel still remains a global commodity with a global market. Even with the current level of capacity utilization, the US still needs to import about 30 million tons of steel. Imposition of tariffs moves the demand towards domestic steel companies, but it does not help in addressing the supply situation, which still remains low domestically. American steel consuming industries have to now pay higher taxes to the federal government for these imports. We had seen a similar decline in US Steel’s stock price when tariffs were imposed by the Bush administration in 2002. Last year, along with US Steel, many of its competitors, like Nucor and Steel Dynamics, saw a decline in stock price, albeit not as significant. However, tariffs are  just one part of the story. Following are the two main reasons for a sharp decline in US Steel compared to its peers. Business Model US Steel manufactures steel using traditional blast furnaces that are time-consuming, complex, and offers limited flexibility with their capital-and labor-intensive nature. Nucor and Steel Dynamics, on the other hand, use electric mini-mills, which are smaller in size, but these mills use scrap to manufacture steel, which lowers raw material costs significantly. Smaller scale and size mean low capital and labor requirements, higher flexibility in production, and proves useful during tough business conditions. Thus, US Steel has seen much lower growth in margins compared to its rivals, over the years. No free cash flow US Steel has been able to beat its own estimates and has raised its performance guidance for 2018. However, the market does not seem to be impressed with this. This was mainly due to the company not being able to generate any free cash flow. The company’s flat-rolled segment asset revitalization program that aims to increase productivity and reduce cost in the long term, has led to a planned outage at its Great Lakes Works facility. Though the $2.0 billion program, which would end in 2020, is expected to add $275 million to $375 million annually to the company’s EBITDA, the market is clearly not impressed as the company is currently burning a lot of cash. Though net income is expected to increase by about 80% (y-o-y) in 2018, it would not translate into higher cash on the books. The company is expected to end 2018 with a net cash outflow of $433 million. A higher capital spending – about $1 billion – in FY 2018, for the revitalization program, is proving to be the main drag on its cash flow. Wrong Timing US Steel’s investors seem to have punished the company’s management for making wrong decisions at the wrong time. The company is burning cash for reviving its existing plants at a time when rivals were already prepped up to take advantage of higher steel prices due to tariffs. Though the revitalization program might lead to higher margins for the company in the long run, investors were not impressed with the timing for carrying out such a large capital spending program.   What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    CRM Logo
    Salesforce.com To Post $13 Billion+ In Revenues On The Back Of CRM Segment
  • By , 1/14/19
  • tags: CRM MSFT ORCL SAP
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    What To Expect From CSX Corporation's Q4 Results?
  • By , 1/14/19
  • tags: CSX UNP NSC
  • CSX Corporation (NYSE: CSX)  is set to release its Q4 financial performance on January 16, and we expect the company to post steady growth in all segments. The company saw a record low operating ratio of 58.7% in the previous quarter, as it effectively managed its costs. We expect this trend to continue in Q4 as well, and aid the bottom line. Overall, we estimate the company to post $3.60 adjusted EPS for the full year 2018. We have created an interactive dashboard analysis  ~   What Is The Outlook For CSX Corporation  ~ on the company’s expected performance for the full year 2018 and 2019. You can adjust the revenue and margin drivers to see the impact on the company’s earnings, and price estimate. Below we discuss the key segments which could see growth in Q4. We expect CSX’s coal freight revenues to grow in mid-single digits led by both volume and price gains for the full year 2018. The company posted a 14% jump in coal revenues in the previous quarter, as the weakness in utility coal was offset by strength in the export business, and we expect this trend to continue in the near term. The U.S. coal export segment is seeing growth due to a rise in global benchmark coal prices, which were up roughly 15% in 2018. The decline in utility coal demand can largely be attributed to the trends in natural gas prices. The benchmark Henry Hub natural gas price is currently trading around $3 levels, similar to what it was in the prior year. The prices did move to north of $4.50 last month over supply concerns, but have corrected since then. With gas prices being more attractive, the dependency on coal as an energy source continues to come down. In fact, as per the latest EIA estimates of 650 million short tons (mst) coal consumption in 2019 will mark the year with the lowest coal consumption over the last 40 years. On the other hand, there has been a sharp growth in the coal exports, which were up over 25% (y-o-y) to 87 mst for the nine month period ending September 2018. For the full year, exports are estimated to grow in mid-teens, according to EIA . As such, the utility coal shipments for CSX will likely remain lower, while exports should continue to trend higher in the near term. Intermodal Will Likely See High Single Digit Revenue Growth For The Full Year CSX’s Intermodal segment has seen volume gains of late, and we expect this trend to continue in the near term. This can be attributed to continued driver shortage after the full implementation of the ELD mandate in late 2017, which has put capacity constraints in the trucking industry, and manufacturers are looking for alternative means of transport. The segment revenues were up in high single digits for the nine month period ending September 2018, and we forecast a similar growth in Q4 as well. Merchandise Freight Revenues Could Grow In Mid-Single Digits Looking at Merchandise freight, we forecast mid-single digit growth in segment revenues, primarily led by automotive, metals, and forest products. In fact, the segment revenues were up 12% for the nine month period ending September 2018, with growth across all sub-segments but fertilizers, which saw low single digit revenue decline amid closure of a facility in late 2017. This trend could continue in Q4 as well. However, pricing gains may be moderate going forward, given that crude oil prices have fallen sharply over the last couple of months. Note that fuel surcharge is a component of average revenue per carload for railroad companies, and the same is impacted by any movement in oil prices. We forecast the company’s EBITDA margins to expand by 300 bps for the full year 2018, as the company remains focused on reducing its operating ratio. We estimate the EBITDA to be a little under $7 per share in 2018. We currently have a $80 price target for CSX Corporation, which we will update post the Q4 earnings announcement.   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.