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BA Logo
Upside Prospects For Boeing's Stock
  • By , 11/16/18
  • tags: BA LMT
  • Boeing’s (NYSE:BA) stock has gained momentum in recent times with support from defense spending, and international sales. This increase comes despite pressure from international trade disputes, particularly with China. Boeing currently trades at a forward P/E ratio of 19 with the stock currently trading around $340. Therefore, can Boeing’s stock rise in the coming quarters? We currently have a price estimate of $360 per share, which is 5%  higher than the market price. You can use our interactive dashboard  Can Boeing’s Stock Rise    to modify key drivers and visualize the impact on Boeing’s price estimate. Boeing has re-iterated that despite trade disputes on the rise with China, and China being the biggest customer to its 737 series airliner, Boeing will not face any significant impact. A large part of this can be attributed to Boeing’s recent efforts to localize manufacturing. Sales to China are expected be in the  region of 7,700 units over the next decade, making China a key market. Furthermore, Boeing expects increased sales from its military division, as customers in the Asia-Pacific and the Middle East regions increase purchases. Japan and Korea are particularly expected to be key markets in the coming years, as Boeing looks to sell maritime patrol, and helicopters. The commercial airlines space especially has been rewarding, driving margins higher during recent quarters. Efficiencies along the line of production have played an important role in improving margins, in addition to these improvements, increased spending on maintenance and spare parts are expected. All of these factors bode well for the bottom line going forward. Should Boeing be able to continue its pace of deliveries of wide-body aircraft, and with the Federal and international governments increasing defense spending, we expect the shares to rise over time.   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.
    COF Logo
    How Have Credit Card Balances For The 10 Largest U.S. Card Lenders Changed Over The Last Twelve Months?
  • By , 11/16/18
  • tags: AXP BAC BCS COF C DFS JPM USB WFC
  • After having crossed the $1 trillion mark a year ago, the U.S. card industry has grown steadily over recent quarters after nudging lower over the seasonally weak first quarter to reach $1.04-trillion in size by the end of Q3 2018. This represents an increase of just under 4% over the last twelve months. While the overall shift towards cashless payment options remains the primary factor behind swelling card balances, upbeat consumer sentiments have also played a role in boosting card usage over the last few months. As detailed in the table below, most of the ten largest U.S. card lenders benefited from this trend, with all of them except for Barclays witnessing an increase in their card portfolio since Q3 2017. Also, all but three of them (Barclays, Capital One and Bank of America) recorded faster growth in their card balances compared to the industry. Synchrony and American Express stand out among these lenders with a year-on-year growth figure of around 14% – more than three times the overall industry. This can be primarily attributed to their card-focused business models. However, Capital One’s card balances have grown at a much slower rate compared to its peers despite its focus on card lending because of its high card charge-off rate over late 2017 and early 2018. As we detail in our interactive valuation dashboard for Capital One, this had a notable impact on its card loan growth. Figures for most card issuers at the end of Q3 2017 and Q3 2018 are taken from their quarterly SEC filings. For some issuers that don’t detail their U.S. card loan balances separately, we have used the latest call report as filed with the FDIC here . It should be noted that the figures for American Express and Discover here capture the outstanding balances for cards they issued directly, not those that are issued for their payment networks by other card lenders. The total card debt figure is as compiled by the Federal Reserve  here . JPMorgan figures at the top of the list, with a market share of a little more than 14%. The diversified banking giant has done well over the years to leverage its strong retail banking presence to report growth across card segments. Notably, the five largest U.S. card issuers account for almost 55% of all outstanding card balances in the country, while the combined market share of the top-10 players is well over 75% – highlighting the concentrated nature of the industry. With the holiday season expected to result in a sharp increase in card spending for the fourth quarter, these card issuers should end the year on a strong note with their combined market share likely reaching 76%. Details about how changes to outstanding card balances affect these issuers can be found in our interactive model for  JPMorgan Chase  |  Citigroup  | Capital One  |  Bank of America  |  Discover  | American Express | Wells Fargo  |  U.S. Bancorp 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
    AMAT Logo
    What Are The Trends Weighing On Applied Materials' Tough Q1 Guidance?
  • By , 11/16/18
  • tags: AMAT TI INTC
  • Applied Materials  (NYSE:AMAT), the world’s largest semiconductor capital equipment supplier, recently reported its Q4 fiscal 2018 results, which were largely in line with expectations. However, the company’s outlook for the first quarter came in below expectations, amid weakening memory prices and a scale-back of capital spending in both the display and semiconductor segments by major vendors. Applied’s revenues for Q1 FY’19 are projected to come in between $3.56 billion and $3.86 billion, down 12% year-over-year at the mid-point, with its adjusted EPS projected at between $0.75 to $0.83, marking a decline of 25% at the mid-point. Below we take a look at some of the trends that are likely to drive the company’s performance in the near term. View our interactive dashboard analysis on what to expect from Applied Materials in Q1 FY’19 . You can modify any of the key forecasts and drivers to gauge the impact changes would have on the company’s EPS. Semiconductor Vendors Are More Circumspect About CapEx There are multiple factors driving a slowdown in the wafer fabrication industry. For one, macroeconomic risks and global trade tensions have increased in recent quarters. For instance, the U.S has moved to block the export of chip production equipment to some memory manufacturing companies in China, amid allegations that they stole intellectual property from U.S-based Micron Technology. Moreover, there has been a pullback in memory-related investments, with demand in the server, PC and mobile space coming in weaker than expected and memory prices seeing some softness. Customers in the foundry space, who generally manufacture chips on a contract basis, are also scaling back on their investments as they look to optimize capacity. For instance, Samsung, one of Applied’s largest customers, indicated that it expects its capital expenditures to drop by 27% to 31.8 trillion Korean won ($28 billion) this year. That said, Applied expects the slowdown to be temporary, noting that its customers expect demand to pick up and memory pricing to stabilize during H2 2019. Adoption of EUV Technology Could Cause Some Headwinds Applied also expects to see some headwinds from the semiconductor industry’s adoption of extreme ultraviolet (EUV) technology for chip production in 2019. EUV lithography eliminates the need for multiple deposition/etch processes as well as multiple masks, which are sold by companies such as Applied Materials. While Dutch semiconductor maker ASML is likely to be the biggest beneficiary of this new technology, Applied could potentially stand to lose some market share. 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
    BBY Logo
    Can Best Buy Keep Beating Expectations In Q3?
  • By , 11/16/18
  • tags: BBY
  • Best Buy (NYSE: BBY) is scheduled to announce its fiscal third quarter results on Tuesday, November 20. The company has had a better-than-expected fiscal year so far, as both its earnings and revenues came in ahead of market expectations for the first half. In the first six months of fiscal 2019, Best Buy’s revenue grew 6% year-over-year (y-o-y) to around $18.5 billion, largely due to an enterprise comparable sales increase of 6.6%. The company benefited from stronger consumer demand across major categories, particularly the appliances, computer, and mobile phone categories. The retailer’s online sales grew 11% on a comparable basis to $2.3 billion, primarily due to higher conversion and increased traffic. Best Buy also reported non-GAAP EPS of $1.72 in the period, up 34% y-o-y, primarily driven by a lower effective tax rate and a higher domestic revenue. Our $76 price estimate for Best Buy’s stock is around 15% ahead of the current market price. We have created an interactive dashboard  What To Expect From Best Buy’s Q3 and Fiscal 2019   which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation. Q3 Expectations In Q2, Best Buy’s gross margin was 23.8%, down 30 basis points, largely due to increased fulfillment costs resulting from growth in digital sales. On the cost side, selling, general and administrative (SG&A) expenses grew 3% y-o-y, due to increases in growth investments, higher incentive compensation expenses, and higher variable costs due to increased revenue. Going forward, we expect this margin pressure to continue in Q3 as well – driven by increased investments in the supply chain and higher transportation costs. The company also expects operating margins to decline in the third quarter as investments will ramp up, including those backing the national rollout of a tech support platform. The retailer’s aggressive push to keep up with Amazon is leading to shrinking margins. In Q3, Best Buy expects its sales to benefit from the positive category momentum of the first half of 2019. Best Buy expects its top line to range between $9.4 billion and $9.5 billion, compared to the consensus estimate of $9.49 billion. The retailer also expects non-GAAP EPS of $0.79 to $0.84, compared to a consensus estimate of $0.91. However, Best Buy has guided for a 2.5% to 3.5% comparable sales increase in Q3, which would be the slowest pace in the last six quarters. However, this relative slowdown is largely a consequence of tougher year-on-year comparisons, as the company has registered strong growth in recent years.  Fiscal 2019 Outlook For full-year fiscal 2019, Best Buy raised its revenue outlook to range between $42.3 billion to $42.7 billion, compared to the previous guidance of $41 to $42 billion. The retailer is now calling for same-store sales to climb as much as 4.5%, compared with a prior target of flat to 2% growth. In addition, the company also raised its profit outlook to range between $4.95 and $5.10, compared with a prior range of $4.80 to $5.00 a share. The retailer’s investments in specialty labor, supply chain and increased depreciation related to strategic capital investments and ongoing pressures in the business, including approximately $40 million of lower profit share revenue, will be partially offset by a combination of returns from new initiatives and ongoing cost reductions and efficiencies. To add to that, the company also expects the Best Buy mobile store closures that were announced in Q4 fiscal 2018 to negatively impact full-year revenue by approximately $225 million, with a flat to slightly positive impact on its operating income. 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
    CSCO Logo
    How Have Cisco's Prospects Changed Post-Q3 Results?
  • By , 11/15/18
  • tags: CSCO
  • Cisco (NASDAQ:CSCO) reported its Q1 results on Wednesday post-market, beating consensus expectations for revenue and EPS. The company’s growth continued to be broad-based with 9% y-o-y growth in product revenue. As we noted earlier, Cisco has been building business momentum on the back of demand, and also continues to benefit as revenues increasingly become software-oriented. We are maintaining our price estimate of $54 per share for Cisco, which is around 10% higher than the current market price. Our interactive dashboard on Cisco’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. Cisco’s Q1 results carried the strength seen last quarter. What was interesting to note was the relative momentum that Cisco seems to be building across segments. Total revenue growth (y-o-y): 8% in Q1 2019 vs 6% in Q4 2018 vs guidance of 5-7% y-o-y growth for Q1 2019 Infrastructure Platforms revenue growth (y-o-y) of 9% in Q1 2019 vs 7% in Q4 2018 was driven by growth in switching on the back of increasing data consumption. Switching growth in campus was attributed to Cat9K and to Nexus 9K in data centers. Even the routing business, which was down last quarter, was up this time around. Applications revenue growth (y-o-y) of 18% in Q1 2019 vs 10% in Q4 2018 was driven by growing strength in Unified Communications, TelePresence and AppDynamics. Cisco claims that over 95% of the Fortune 500 use the company’s collaboration solutions Security revenue growth (y-o-y) of 11% in Q1 2019 was 1% lower than the 12% in Q4 2018. However, the company saw growth across Identity & Access, Advanced Threat and Unified Threat. Service revenue growth was flat y-o-y at 3%. While the management does not believe that there have been any major issues owing to the U.S.-China trade disputes, product deferred revenue was down 24%. However,  management attributed this primarily to a higher portion of revenues becoming software-based and the impact from the adoption of ASC 606. ASC 606 requires upfront recognition if the customer receives software functionality. We believe the company’s guided revenue growth range of 5-7% for Q2 may again turn out to be conservative, given the broader growth in multi-cloud environments and higher portion of Cisco’s revenues becoming software-based. Do not agree with our forecast? Create your own price forecast for Cisco by changing the base inputs (blue dots) on our interactive dashboard .
    VWAGY Logo
    What's Volkswagen's Fundamental Value Based On 2018 Expected Results
  • By , 11/15/18
  • tags: VWAGY F HMC DDAIF
  • Volkswagen AG ADR (OTCMKTS: VWAGY) released its third quarter results and conducted a road show with Bernstein in London on November 6th, 2018. The company has increased the delivery to customers by 4.2% y-o-y in the first nine months, despite the challenges faced by the WLTP (Worldwide Harmonized Light Vehicle Test Procedure). Having burnt its hands in the dieselgate scandal, Volkswagen has succeeded to clean its dented image and deliver better results this year after paying a huge amount (more than $34 billion) in the dieselgate issue, and has generated sales revenue of approximately $198 billion in the first 9 months of 2018. We expect $264 billion in revenues from the German behemoth automaker in 2018. Further, the company initiatives to invest in Ford’s Argo AI to compete with e-mobility giant, Tesla, has boosted investor confidence in the company. The company has previously invested in Quantum Space, a battery-building unicorn, for the establishment of mass production of solid-state batteries by 2025 (Strategy 2025). Volkswagen also runs Hey-Car in Germany, a used car venture, in which Daimler AG has recently invested, depicting that electric-vehicles segment (currently a very small portion of the company’s portfolio) could generate billions in sales revenue for the company in the future. The company has recently announced its intention to convert three German factories to build electric cars as the automaker starts mass-producing electric cars by 2022 in these plants. We have a price estimate of $16.27 per share for the company, which is in line with the market price. View our interactive dashboard – What is Volkswagen’s Value Based on 2018 Results – and modify the key assumptions/expectations to arrive at a price estimate of your own. An outlook of Brands & Businesses The Volkswagen Group expects the global economy to record slightly weaker growth in 2018 due to protectionist tendencies, turbulence in the financial markets, and structural deficits in individual countries further worsened by geopolitical tensions and conflicts. The company expects the full-year deliveries in 2018 to moderately surpass the previous year’s figure and sees a 5% growth in sales revenue and other business areas. Field sales revenue for Volkswagen Passenger Cars has risen by 7.3% to approximately $71 billion (assuming 1€ = $1.13) in the first nine months. However, in addition to the changeover to the WLTP emission standards, the company experienced higher distribution expenses resulting from scrapping premium, exchange rate effects and upfront expenditures for implementation of electric mobility, exacerbated by the diesel issue costs of around $1.8 billion. But higher vehicle sales and improved product costs were able to partially offset the above-mentioned factors. With an expected delivery of 4.2 million passenger vehicles in 2018 by Volkswagen, we expect $98 billion in revenues from the passenger vehicle division. Sales revenue of Audi stand at approximately $50 billion in the first nine months of 2018, a marginal increase from the figures a year ago but the company faced a decline in the operating profits, reflecting the impact of WLTP. The lower operating profits went downhill due to $0.9 billion due to diesel issue. We expect 1.4 million units sales of Audi, which also include Lamborghini and Ducati brands sales. Besides, the company sustained declining profits in Skoda due to cost optimization and improved price positioning but the margins for the brand were eventually pulled down by negative exchange rate and mix effects. In addition, the company posted losses in Bentley’s operating profit, largely due to delays in the start-up of new continental GT and costs associated with the delays and mix effects. Furthermore, Volkswagen’s commercial vehicles’ profits declined by 10% in the first nine months, outlining the challenges by WLTP and the unfavorable exchange rate trends in the WLTP implemented areas. Be that as it may, the company was able to generate higher revenue and operating margins from its higher Porsche sales and due to positive mix effects. Sales revenue from the commercial vehicles ( Scania and MAN commercial, MAN power engineering ) was higher, backed by higher volumes, a favorable exchange rate trend, and improved financial services business. However, due to higher expenses due to restructuring activities in India, MAN’s commercial vehicles operating profit declined. Additionally, Volkswagen’s financial services profit climbed by 8.6% to approximately $2.2 billion in the first nine months of 2018, exhibiting a higher business growth potential in this division.   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.
    INTC Logo
    Here's What Will Drive Intel's Near Term Earnings Growth
  • By , 11/15/18
  • tags: INTC AMD NVDA
  • Intel  (NASDAQ:INTC) is seeing strong growth in its Data Center business, and we expect it to drive the company’s near term earnings growth. The strong demand for high performance products, such as Xeon Scalable, has aided the segment growth in the recent past, and we expect this trend to continue in the near term. Apart from the Data Center Group, the company’s Client Computing Group will also aid the overall earnings growth, led by modest growth in the overall PC TAM (total available market). We have created an interactive dashboard ~  What Will Drive Intel’s Near Term Earnings Growth . You can adjust the revenue and margin drivers to see the impact on the company’s overall earnings, and price estimate. Expect Data Center Group To Drive Near Term Growth We forecast the Data Center Group revenues to grow in low 20s percent for the full year 2018. The segment is benefiting from its cloud business, as well as high performance products, primarily Xeon Scalable. The company is seeing growth in all verticals, Cloud, Enterprise & Government, and Communications. Cloud, in particular, is seeing strong growth and saw a 50% jump in Q3 revenues. The overall public cloud computing market is expected to grow in the low 20s percent to $186 billion in 2018, according to a research by Gartner . Growth in cloud computing will result in higher demand for faster and high performance servers, and this will bode well for Intel. While Intel’s market share in data center servers is in the high nineties percent, AMD is trying to increase its market share with its EPYC processors (Also see ~  Expect Ryzen And EPYC To Drive AMD’s Future Earnings Growth ). Given the overall growth in the cloud computing, Intel’s Data Center Group will continue to see strong growth in the near term, in our view. Also, we expect a slight uptick in EBITDA margins, led by higher ASPs for its products. Client Computing Group Will Aid The Overall Earnings Growth   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.
    SLB Logo
    What's The Outlook Like For Schlumberger In International Markets?
  • By , 11/15/18
  • tags: SLB HAL
  • Schlumberger   (NYSE:SLB), the largest oilfield services company, posted a relatively mixed performance over the last quarter, as the North American market – which is the biggest driver of Schlumberger’s growth – has faced some hiccups on account of weaker activity in the Permian Basin and softness in the hydraulic fracturing space. However, the company’s international business is showing signs of improvement, and could compensate for some of the weakness in the U.S. In this note, we take a look at some of the trends that could drive the company’s international business going forward. Why International Oilfield Spending Looks Set To Grow Overall exploration and production investment across the globe has been subdued, with the spending falling by about 44% between 2014 and 2017, per Schlumberger, on account of weak oil prices. Moreover, the number of major project FIDs (final investment decisions) has also dropped, with just about 30 projects major projects approved in 2017, compared to an average of 40 projects a year between 2007 and 2013. However, investment will need to pick up for multiple reasons. Firstly, oil demand growth over 2019 is likely to be stronger compared to 2018. Moreover, it’s likely that declining production in Venezuela and a possibility that Iranian oil  will exit the broader market amid U.S sanctions could call for more investments by other players in the oil market. The international rig count, which is a leading indicator of oilfield services demand, has been trending higher, rising  to 1017 units, marking a 7% year-over-year increase. Schlumberger stands to benefit from an expanding oilfield services market, considering its broad technology portfolio, geographic footprint as well as its emphasis on performance-based contracts and integrated projects. Over the third quarter, the company’s Latin America and Middle East operations saw higher activity, driven by national oil companies and independent operators, while Europe, CIS, and Africa segment saw strong activity driven by Russia. The company has indicated that it expects its international equipment capacity to be fully utilized by the end of this year, potentially allowing it better leverage with pricing going forward. Capacity for drilling-related equipment and measurements, in particular, could be more constrained. View our interactive dashboard analysis for Schlumberger: What’s driving our valuation for Schlumberger stock? What’s Schlumberger’s revenue and profit breakdown? What drove Schlumberger’s Revenue And EBITDA Changes Over The Last 3 Years? 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.
    BLK Logo
    Is BlackRock Losing Its Edge In The ETF Industry?
  • By , 11/15/18
  • tags: BLK SCHW STT BK JPM C
  • The global exchange-traded funds (ETF) industry nudged lower in size over the third quarter of 2018 despite a strong inflow of assets around the world due to currency headwinds from a strengthening U.S. dollar over the period. As a result, total industry assets fell from a little over $5 trillion at the end of Q2 2018 to $4.94 trillion now . However, the U.S. ETF industry returned to a strong growth trajectory after a lukewarm performance over the first half of the year, as upbeat economic conditions drove gains across asset classes. Notably, there has been a discernible trend in the market share of the five largest ETF providers in the U.S. (BlackRock, Vanguard, State Street, Invesco and Charles Schwab) over recent quarters. While these players account for 90% of the total ETF market in the U.S., industry leader BlackRock has seen a sizable reduction in its market share for two consecutive quarters while Vanguard, Invesco and Charles Schwab steadily improved theirs. State Street has also steadily lost market share over recent years due to its focus on institutional clients. With a share of nearly 40% of the U.S. ETF industry, and more than 35% of the global ETF market, BlackRock remains the undisputed leader in the industry. However, the asset management giant has not been able to keep smaller competitors at bay, as evidenced from its loss of market share amid the ongoing ETF price war. As ETFs now form the largest chunk of BlackRock’s revenues, a steady decline in market share could have a material impact on the company’s valuation. Details about the impact of changes in ETF assets on BlackRock’s valuation can be seen using our interactive dashboard on   BlackRock’s fundamental value . Source: U.S. ETF assets by issuer  (ETF.com) ETF Industry Snapshot ETFs have seen impressive growth over the last decade, thanks to the convenience and transparency they provide investors, in addition to the relatively low fees. Over recent years, the intensifying competition among ETF providers has also triggered a price war among incumbents – making ETFs an even more attractive investment option for retail investors. The table below has been compiled from data gathered by ETF.com and captures the changes in U.S. ETF assets for the five largest ETF providers in the country over the last five quarters. As seen here, the total size of the U.S. ETF industry has increased by almost 19% over the last 12 months. While Invesco’s 55% jump in assets came largely thanks to its acquisition of $39 billion in ETF assets from Guggenheim Investments, Schwab’s growth has been primarily organic and can be attributed in large part to its ability to cross-sell ETFs to its brokerage customers as well as its large robo-advisory platform. Meanwhile, Vanguard continues to impress with its above-average ETF growth from its extremely low-cost ETF lineup. As we detailed above, BlackRock has reported lower-than-average growth in ETF assets for two consecutive quarters now. In fact, its growth in the last 12 months trailed State Street despite the fact that the latter does not have a major presence in the rapidly growing retail ETF market. The slowing growth resulted in BlackRock’s market share shrinking from around 39.5% over the four-quarter period from Q2 2017  – Q1 2018, to 38.7% now. While a reduction over two quarters is hardly a major cause for concern – especially given the sheer size of the company’s asset base – the fact that BlackRock’s market share has remained steady, while Vanguard managed to improve its market share steadily, highlights the latter’s success in attracting more cash from investors. What remains to be seen is if BlackRock is able to leverage its strength in the industry to reverse the declining trend over the coming quarters. If the trend continues, then the lower growth in ETF assets – coupled with the increasing pressure on ETF fees across the industry – could drag down BlackRock’s results substantially. You can find additional info in our interactive dashboard for  BlackRock |  State Street  | Charles Schwab 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
    Why We Reduced Our Price Estimate For GreenSky To $16
  • By , 11/15/18
  • tags: GREENSKY GSKY AXP JPM COF
  • GreenSky (NASDAQ:GSKY) saw its shares tank more than 35% early last week despite reporting a strong performance for the third quarter, as the FinTech company lowered its guidance for full-year 2018 due to industry headwinds . The company attributed the revised guidance figures to a reduction in expected near-term transaction volume from weaker home improvement spend, as well as a steeper-than-expected yield curve. The latest sell-off has sent GreenSky’s shares below $10 – representing a ~65% reduction in value from the peak level of $27 they reached within days of the company’s IPO in May. The factors pointed out by GreenSky will have a material impact on the company’s financial performance in the near- to mid-term. This is because GreenSky makes money by acting as an intermediary between lenders and potential borrowers, and an overall slowdown in its core home improvement market will hit the company’s transaction volume. Additionally, as interest rates increase, banks are likely to target customers with strong credit histories (which form a majority of GreenSky’s user base) with cheaper financing options directly – hurting growth in GreenSky’s customer base. Also, the company’s decision to repurchase shares worth $150 million within six months of going public could also indicate a lack of many near-term investment opportunities for the company. Taking all this into account, we have reduced our price estimate for the company from $23 to $16, as detailed in our valuation dashboard for GreenSky . Notably, the new price estimate is still more than 60% ahead of the current share price. Understanding The Impact Of Industry Headwinds On GreenSky’s Growth As we detailed above, the biggest concern for GreenSky is a reduction in the growth rate for most of its key revenue drivers. Below are the notable trends underlying these forecasts: As home improvement activity declines, the company will have to contend with much lower growth in transaction volume – which directly affects its transaction fees. We now forecast a reduction in GreenSky’s transaction volume per merchant from about $346,000 in 2017 to $260,000 by 2020 (instead of our original forecast of $290,000 by 2020) As banks try to target GreenSky’s existing and potential customers directly to persuade them to take on cheaper financing options, the number of customer accounts will likely grow at a slower pace than we initially forecast. We have slightly reduced our forecast for the number of customer accounts to factor this into our analysis. Moreover, as merchants on GreenSky’s platform also push the cheapest financing option available from GreenSky’s list of bank partners, there will likely be a sizable reduction in the fees generated per transaction. We expect its transaction fees as a percentage of volume will decline at a much faster rate to 6.5% by 2020 (instead of 6.9% by 2020 under the original forecast) from 7.4% in 2017. Finally, the industry headwinds will likely force GreenSky to increase its marketing spend in the near future – leading to a reduction in its EBITDA margin. The impact of this will be seen the most in 2019, as we capture in our updated forecast. Taking all these factors into account, GreenSky’s high growth rate from recent years will likely be unsustainable in the near future. Because of this, we have reduced our EV/EBITDA multiple for GreenSky from 21x (which was at the high end of the 15-21x range for payment processing companies) to a figure of 18x, which is closer to industry average. All these changes point to an equity value of $3 billion for GreenSky, or a per share price estimate of $16, as detailed in the chart below. Note that the gray bars represent our previous estimates, while the blue bars show our updated forecasts and estimates. However, if you disagree with any part of our analysis,  you can create your own model by making changes on our dashboard . List of Interactive Valuation Dashboards For Multi-Billion Dollar Startups Including Uber, Airbnb And Xiaomi 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
    TGT Logo
    What To Expect From Target's Q3
  • By , 11/15/18
  • tags: TGT AMZN WMT
  • REV Logo
    Key Takeaways and Trends from Revlon's Q3 Earnings Release
  • By , 11/14/18
  • tags: REV LRLCY
  • Revlon  (NYSE: REV)  reported its Q3 earnings  recently, where its top line posted a slightly decline of 1.7% in net sales to $655.4 million, compared to $666.5 million during the prior-year period. On a constant currency basis, net sales were slightly positive y-o-y  driven by strong growth in the Revlon segment in North America and growth in the Elizabeth Arden segment. Revlon’s 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 prospectives 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 in Q3 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 Q3. With the initiatives adapted by Revlon’s top management for a brand makeover, the company is positive that the new changes will now steer Revlon towards the path of growth in Q4 and beyond. Please refer to our dashboard on  Revlon’s Q3 Earnings . Key trends from Revlon’s Third quarter 2018 earnings are outlined below: Segment-wise performance in Q3 – Effective January 1, 2018,  Revlon began to operate under four global brand teams reporting its results under four new segments: Revlon, Elizabeth Arden, Portfolio brands, and Fragrances. Net sales for the Revlon segment decreased by 2% y-o-y to $258.3 million, driven by a downturn in the net sales of Revlon color cosmetics and Revlon ColorSilk hair color due to the impact of service level disruptions at the Company’s Oxford, N.C. manufacturing facility with a slight growth in the North America market. Elizabeth Arden net sales, on the other hand, increased by 4.9% on a y-o-y basis to $122.1 million compared to the prior-year period, driven by an increase in net sales of Elizabeth Arden branded skin care products internationally. Professional segment net sales decreased by 8.7% y-o-y in Q3 to $145.4 million due to weakness in net sales of American Crew men’s  grooming products  and Cutex nail care. Whereas the Fragrances segment net sales decreased by 15% to $94.8 million y-o-y, driven by a decline in the mass retail channel and the prestige channels. Decline in International Markets  – Total International Sales of the company saw a y-o-y decrease of 2.5% in Q3 driven by a decline in sales of Revlon, Portfolio, and Fragrance segments. On the other hand, Elizabeth Arden segment’s International net sales of $81.1 Million in the Q2 of 2018 increased by 23.0% compared to the prior-year period, primarily driven by higher net sales of skin care products within the EMEA and Asia regions. Digital Initiatives – Revlon is getting more aggressive in digital and e-commerce initiatives by setting up a new team of digital professionals, realizing the importance of digital progress and social media in a brand’s reach and popularity among its clientele.  Along with increasing ad investments, the company is also shifting most of its campaigns to the digital platform.  Recently, Revlon collaborated with a leading digital consultancy, Sapient Razorfish,  to create a stronger digital presence. These factors are positively working in its favor as an increasing number of customers are buying beauty products online. Outlook for fiscal 2018 – Revlon is expected to reap stronger results in Q4 and beyond from the Elizabeth Arden integration and thus post healthier results in the coming quarters.
    AMD Logo
    Expect Ryzen And EPYC To Drive AMD's Future Earnings Growth
  • By , 11/14/18
  • tags: AMD INTC NVDA
  • AMD  (NYSE:AMD)  has seen a strong jump in revenues in the recent quarters, led by higher sales of its Ryzen and Radeon products, along with EPYC processors. Ryzen processors are gaining popularity due to their competitive power at a relatively lower cost. The company plans to launch its 7 nanometer chips next year, which are expected to see strong demand. Also, EPYC processors are seeing strong growth, given its single socket design, performance, and lower cost. These trends should continue to drive growth for AMD in the coming years. We have created an interactive dashboard ~ What Will Drive AMD’s Near Term Earnings Growth . You can adjust the revenue and margin drivers to see the impact on the company’s overall earnings, and price estimate. Computing & Graphics Will Drive Near Term Earnings Growth We forecast the Computing & Graphics segment revenues to grow 40% to north of $4.2 billion for the full year 2018. This can primarily be attributed to the success of its Ryzen and Radeon products. Ryzen processors have seen strong demand in the recent quarters, given its superior performance and lower cost. For instance, AMD’s 2700X with eight cores and 16 threads is priced at around $300 while Intel’s 9900K, with eight cores and 16 threads is priced around $500. While Intel’s chip may have the upper hand in some of the performance metrics, AMD’s price point makes it very attractive. In fact, some of the reviews place AMD’s chip above Intel’s. Apart from Ryzen, AMD’s Radeon GPUs are also doing well, and we expect this trend to continue. The segment’s future growth can partly be linked to its 7nm chips, which it plans to roll out in 2019. If the company is able to deliver on its 7nm chip, it will allow it to better compete with Intel and gain further market share. We also expect the segment EBITDA margins to increase sharply to around 15% in 2018, backed by an increase in AMD’s market share as well as pricing. Expect Enterprise, Embedded & Semi-Custom To Aid The Overall Growth We forecast the Enterprise, Embedded & Semi-Custom segment revenues to grow in low double digits in the near term. This can be attributed to AMD’s EPYC processor, which is finding increasing acceptance among corporates. In fact, AMD has signed some significant new deals with large corporates, including Microsoft, and Cisco, which will help sustain the momentum in its enterprise business. AMD’s EPYC single socket design processor can deliver better performance than many dual processor servers currently, and it costs less when compared to the offerings from its peers. While Intel controlled close to 99% of the server market share till last year, AMD’s management in the recent earnings conference call stated that they are on track to achieve server market share in mid-single digits. The company’s future earnings growth can partly be linked to how much market share it can gain from Intel. Overall, AMD is rightly positioned for continued strong growth in the near term, with higher demand for its Ryzen and EPYC processors, and highly anticipated 7nm chips, that should fuel the demand and drive the future earnings growth. We forecast the full year EPS to be around $0.55, and use a TTM price to earnings multiple of 34.5x to arrive at our $19 price estimate for AMD, which is slightly below 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.
    HD Logo
    Despite A Good Quarter, Home Depot's Stock Declines After Weak Guidance
  • By , 11/14/18
  • tags: HD LOW
  • Home Depot  (NYSE:HD) beat consensus expectations on both sales and earnings, with the metrics improving to $26.3 billion and $2.51 per share. The revenue increase has been driven by strength in the housing market and growth in its digital segment. Meanwhile, the earnings improvement has been a consequence of revenue growth, as well as the reduced effective tax rate, due to the lowering of the corporate tax effective January 2018. We expect these trends to continue in the short term, though higher than anticipated transportation costs may play a bit of a dampener. The company is undertaking significant investments in its supply chain to counter this, which should begin to show results in the medium term. However, a warning regarding decelerating sales in the fourth quarter, due to a tough comparison, resulted in the stock falling 3%. In Q4 2017, the company had received a $400 million boost to its sales from hurricane related items. We have a $217 price estimate for Home Depot, which is higher than the current market price. The charts have been made using our new, interactive platform. You can click here for our interactive dashboard on Home Depot’s Performance In Q3 And Estimating Its Fair Price  and to modify our driver assumptions to see what impact it will have on the company’s revenues, earnings, and price estimate. Factors That May Impact Performance 1. Housing Market:  Despite news regarding a weak housing market, reflected in the declining home sales figures, CEO Craig Menear stated that the company feels positive about the strength in the home improvement sector. The company has often stated that the housing stock in the country is old and in need of repair and renovation, which should help Home Depot. Moreover, unemployment is at its lowest level since 2000, and wages are improving. Although interest rate hikes make mortgages more expensive, on the whole, it is indicative of a strong economy. Strong macroeconomic conditions bode well for a company like Home Depot that is heavily reliant on the improvement of the economy. 2. Pro Sales Outpacing DIY (Do It Yourself) Sales:  The company’s Pro-segment is a key driver of its growth, with Pro-sales outpacing the sales of the DIY segment. According to a senior executive, while pros account for just 3% of the customer base of Home Depot, they make up 45% of the sales . As a result, a focus on this segment is imperative for ensuring future growth. Pro-segment sales improved above the company average in the third quarter. Home Depot has been increasing its investments to deepen its relationship with such customers, including enhanced associate tools in the stores and expanded delivery options. For example, in the case of the latter, the company has started two-hour and four-hour deliveries in some markets. HD’s big-ticket transactions, those above $1,000, form 20% of their U.S. sales, and grew 9.1% in the third quarter. 3. Interconnected Retail Strategy:  Home Depot has made a concerted effort to focus on its integrated retail strategy, which seamlessly connects online and offline channels, making its stores more efficient. This has resulted in improved revenues and profitability, with the online space being a key driver of the impressive growth Home Depot has witnessed in recent times. In the third quarter, online traffic improved at a healthy rate, sales increased 28% versus Q3 2017, and 40% of online orders were picked up in-store. Moreover, in the digital space, the typical transaction ticket size is three times of that in a store . By focusing on an integrated channel strategy, Home Depot has been able to increase revenues per square foot, rather than generating revenues from new square footage. This has ensured that its existing store network is being effectively used to drive revenues. 4. Higher Ticket Size: A number of factors have resulted, and should continue to benefit, the average ticket size. Besides the aforementioned factors such as greater pro-sales and growth in digital sales, the focus on appliances, as well on innovation, are other factors driving this increase. Greater investment into appliances has resulted in share gains, with appliances garnering a higher than average ticket size. An example of innovation is the use of lithium technology in outdoor equipment, such as the lithium lawnmower, which is priced at $500, as compared to one that runs on gas, which typically costs between $200 and $300. 5. Higher Transportation Costs: The company faced transportation headwinds in the third quarter which had a 23 basis points negative impact on the gross margins, following on from the 16 bps and 8bps contraction from this in Q2 and Q1. While Home Depot isn’t the only company facing higher transportation costs, the increasing shift toward the online space, as well as the addition of features such as same-day delivery, can result in a pressure on the gross margins through the financial year. Given these headwinds, the company expects gross margin to improve 37 bps this year, down from the previous guidance of 44 bps. 6. Supply Chain Investments: HD has stated its intention of investing roughly $1.2 billion into its supply chain over the next five years. Given the changing retail landscape, the company believes “a great customer experience depends on great supply chain capability.” Over the past decade, the company has made big strides in its upstream supply chain – moving product to the stores and direct fulfillment centers (DFCs) – and more recently, it has undertaken significant expenditure to build its downstream supply chain – delivering to customers directly. However, the home improvement giant feels there is still some way to go to fully leverage its upstream network, as well as build the fastest and most efficient delivery system. In this regard, some of the steps being undertaken by the company include adding 170 distribution facilities across the U.S. to reach 90% of the U.S. population in one day or less, opening 40 flatbed direct fulfillment centers to serve HD’s top 40 markets, and continuing the rollout of van and car delivery options in top urban markets in 2018. 7. Reduced Tax Rate: Given the fact that Home Depot operates primarily in the U.S., its effective tax rate has been 35% or higher in the past few years. As a result of the decline in the corporate tax rate from 35% to 21%, effective January 2018, the company is expected to have a tax rate of 24%, which should be a key driver in the substantial improvement in the net income margin this year. See complete analysis for Home Depot’s stock
    WDC Logo
    How Long Is Demand Weakness Likely To Affect Western Digital?
  • By , 11/14/18
  • tags: WESTERN-DIGITAL STX WDC
  • Western Digital  (NASDAQ: WDC) expects the weakness seen in Q1 to spill over to the next fiscal quarter on the back of industry and geopolitical challenges. Despite the underlying strong demand for storage, there will likely be some intermittent slack until demand and supply alignment improves, which may continue to weigh on the stock. We currently have a price estimate of $50 per share for Western Digital, which is around 10% higher than the current market price. Our interactive dashboard on Western Digital’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. Western Digital’s commentary regarding industry cyclicality echoes that of competitor Seagate. Furthermore, the company notes that flash pricing weakness – coupled with end customer conservatism and currency volatility – have been compounding business weakness. In order to align its capacity with the underlying demand, Western Digital had planned to cut output by 10% to 15% for calendar year 2019. On the back of these planned actions, the company’s output is likely to start contracting starting Q3 of fiscal 2019. The improving demand-supply equation is also likely to help boost revenue growth in the second half of calendar 2019. Despite cyclical weakness, Western Digital saw strength across capacity enterprise, surveillance hard drives and embedded flash solutions, as each revenue stream increased by more than 30% year-on-year. Q1 revenue came in at $5.03 billion (-2% q-o-q, -3% y-o-y). Also notable is the fact that the company ended with nearly $4.8 billion in cash and equivalents, which represents more than a third of the $13 billion market cap of the company. In light of the interim market weakness, Western Digital revised its fiscal Q2 revenue guidance to $4.2-4.4 billion. Given the underlying demand for storage, we expect the current weakness to be temporary. Do not agree with our forecast? Create your own price forecast for Western Digital by changing the base inputs (blue dots) on our interactive dashboard .
    H Logo
    What Is Hyatt Hotels' Near-Term Outlook?
  • By , 11/14/18
  • tags: HYATT H
  • The hospitality space has been disrupted by the rise of digital business models aimed at enabling a better demand-supply match. While Hyatt Hotels  (NYSE: H) is a leader in the luxury market, the company realizes that it is important to strengthen its presence at the top end of the market in order to offset growing competition, particularly on the basis of price. We currently have a price estimate of $77 per share for Hyatt Hotels, which is around 10% higher than the current market price. Our interactive dashboard on Hyatt’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. Hyatt has been shuffling its portfolio by divesting real estate assets in favor of brands such as Two Roads, and has also been forging alliances to complement its current presence. The biggest disruption to asset-owning service providers has been the rise of aggregators, and hospitality is no different. The likes of Expedia have benefitted the ecosystem by reducing the friction between market participants. However, the rise of Airbnb (and others) has upended the long-standing rules of the industry. Disruption has primarily occurred at the base of the pyramid, while Hyatt has a stronger high-end market presence. Accordingly, the company’s extensive focus on its World of Hyatt platform, coupled with the company’s exclusive alliance with the Small Luxury Hotels of the World (SLH), makes strategic sense. SLH offers Hyatt a broader presence in the European luxury hotel market, where its presence has historically not been as strong. Furthermore, the company has been taking additional steps such as introducing loyalty points (redeemable across its platforms and alliances) and co-branded credit cards, which have seen 25% growth in spending. As Hyatt continues through the process of its portfolio realignment, the company is likely to open up further avenues for long-term growth. Do not agree with our forecast? Create your own price forecast for Hyatt Hotels by changing the base inputs (blue dots) on our interactive dashboard .
    UL Logo
    A Look At Unilever's Valuation
  • By , 11/14/18
  • tags: UL PG KMB CL
  • Unilever ‘s (NYSE: UL) turnover revenues decreased 5% year-over-year (y-o-y) in the first nine months of fiscal 2018, primarily due to a negative currency impact of 8.1% and a net impact from the disposal of the spreads business to KKR. The company’s organic growth of 2.9% was mostly comprised of volume growth of 2.3% and pricing growth of 0.6%. The consumer goods company reported an improvement across its major business divisions, and benefitted from strong volume growth in emerging markets. We have summarized our forecasts in our interactive dashboard on  What Is Unilever’s Fundamental Value Based On Expected CY 2018 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 charts below show some of the key steps in identifying Unilever’s valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which in turn impacts its enterprise value (assuming a constant EBITDA multiple).  Unilever’s stock price has fluctuated between $51 and $57 since the beginning of fiscal 2018.  We have maintained our long-term price estimate for Unilever at  $58, which is around 10% ahead of the current market price. Detailing Forecasts For Unilever Looking ahead in fiscal 2018, Unilever expects its full-year underlying sales growth to be at the bottom end of its range of 3% to 5% for 2018 and an improvement to 20% in the underlying operating margin, which will keep it on track for its 2020 targets. Overall, we expect Unilever to generate around $61.4 billion (+1% y-o-y) in revenues in 2018, and earnings of almost $7.7 billion. Of the total expected revenues in 2018, we estimate $13.7 billion in the Foods business, around $11.5 billion for the Refreshments business, nearly $23.8 billion for the Personal Care segment, and almost $12.2 billion in the Home Care business. Personal Care is Unilever’s largest division, having overtaken the Foods division in 2011 to take the top spot. The company’s shifting priorities are evident from the fact that the revenue share of its Foods unit has fallen from 30% in 2011 to 23% in 2017, while the share of its Personal Care segment has grown from 33% to 39% over the same period. More recently, Unilever named the expansion of the segment through acquisitions as one of its top priorities. Some of the recent acquisitions  in the space include  Quala, Carver Korea, Sundial, Schmidt’s Naturals, and Equilibra.  Such key strategic acquisitions will ensure that this segment becomes a key growth driver for the company going forward. The company is expected to benefit from its ‘Connected 4 Growth’ initiative, which includes supply chain simplification, innovation, and cost-saving initiatives. Our forecasts for the year are summarized in our dashboard for Unilever. If you have a different view, you can modify various inputs to see how updated inputs impact the company’s valuation. You can also 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.
    CSCO Logo
    What To Expect From Cisco’s Q1 Results
  • By , 11/14/18
  • tags: CSCO JNPR HPE IBM FFIV MSFT VMW
  • Cisco (NASDAQ:CSCO) is scheduled to report its fiscal Q1 earnings after the market closes on Wednesday, November 14. The company reported broad-based growth in Q4 of fiscal 2018, and guided for stronger-than-expected growth for Q1. We expect the themes of network transitioning to cloud and momentum in Cisco’s recurring revenues to continue driving growth for the company. We currently have a price estimate of $54 per share for Cisco, which is around 10% higher than the current market price. Our interactive dashboard on Cisco’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. Relevant Trends The company saw a return to growth in 2018 predicated on strength in infrastructure platforms (ex-routing), applications and security. In the infrastructure platforms segment, data centers helped drive +7% y-o-y revenue growth (in Q4) which is expected to continue given the secular cloud adoption trends. The applications area was also strong, with upticks in unified communications, telepresence, conferencing, and AppDynamics. While the company did not break out the growth between AppDynamics and remote access solutions, even if AppDynamics was the driver of +10% y-o-y growth in revenue (Q4), remote access also appeared to witness at least mid- to high-single digit growth. The +12% y-o-y growth in revenue (Q4) for the security division was attributed to strength across network security, unified threat, policy and access, and web security. Meanwhile, momentum on the product side also helped services revenue grow by +3% y-o-y (Q4). Furthermore, the company guided for 5-7% y-o-y growth in Q1 revenue for fiscal 2019. For Q1, we will be listening for some color around growth in deferred revenue and sustainability of momentum. As Cisco increasingly transitions to a subscription-based revenue model, delivering a larger portion of its products through software (and incrementally through the cloud), the company is likely to continue seeing improvements in growth. Do not agree with our forecast? Create your own price forecast for Cisco by changing the base inputs (blue dots) on our interactive dashboard .
    MO Logo
    Key Takeaways from Cronos Group's Q3 Results
  • By , 11/14/18
  • tags: MO
  • The Cronos Group (NASDAQ:CRON), a vertically integrated Canadian marijuana company, published its Q3 2018 results on Tuesday. While revenues rose by 186% year-over-year to $3.8 million, driven by higher production capacity and better volumes in both the domestic medical and international channels, the company swung to a net loss on account of higher operating costs. Although the company’s financial results are not of much consequence yet, there were multiple noteworthy trends and developments over Q3, which could drive Cronos’ longer-term performance. We discuss these trends below. 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. Updates On Capacity Expansion Cronos is looking to aggressively scale up its manufacturing capacity and production volumes, driven by Canada’s legalization of recreational marijuana and also by the company’s continued expansion into international markets. Over Q3, Cronos indicated that it completed its new Building 4 at its Peace Naturals facility in Ontario, adding 286k square feet of indoor growing space. The first harvest from this facility is expected by the end of this year, and the company expects it to produce as much as 40,000 kilograms of cannabis annually at peak production. Separately, the company also forged a joint venture with a group of investors, creating a partnership called Cronos Growing Company, which expects to construct an 850k square foot greenhouse that will produce up to 70,000 kilograms of cannabis annually. Construction of the greenhouse has started and is expected to be complete during the second half of 2019. Demand Should Remain Strong Canada legalized cannabis sales for adult recreational use in mid-October, and Cronos has been actively bolstering its distribution footprint, currently selling dried cannabis, pre-rolls and cannabis oils to Ontario, British Columbia, Nova Scotia and Prince Edward Island, which together account for more than 50% of Canada’s overall population. Cronos noted that it expects to receive additional provincial listings as more of its production capacity comes online. The company also entered into a supply agreement with Cura Cannabis Solutions, which is one of the largest cannabis companies in the world. Under the deal, Cura will purchase a minimum of 20,000 kilograms of cannabis from Cronos after it receives all the necessary licenses from Canadian authorities.   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.
    LULU Logo
    As Lululemon Repositions Will It Be Able To Justify Valuations?
  • By , 11/13/18
  • tags: LULULEMON LULU NKE UA
  • Lululemon’s (NASDAQ:LULU) most recent quarter was quite impressive. It saw revenues surge 25%. Providing evidence that the company’s re-positioning its omni-channel model, by enhancing its merchandising and digital footprint, has started to show signs of paying off. But will this shift be enough to justify its current valuation? Lululemon currently trades at a valuation of ~53 P/E and a forward P/E of 38. We currently have a price estimate of $90 per share, which is 30% lower than the market price. You can use our interactive dashboard  Can Lululemon Justify Valuations?    to modify key drivers and visualize the impact on Lululemon’s price estimate.   In the first part of its strategy Lululemon, over the past couple of quarters, (much like its competitors), has been increasingly shifting into the e-commerce space. This shift resulted in e-commerce sales surging by 48% in the quarter .  Lululemon has also increasingly focused on the athleisure space in recent times, this goes hand-in-hand with its overall strategy.   Lululemon has also increasingly used social media as a key platform to promote its brand. Allowing itself to re-position to serve Millennials, which it believes will drive its sales in the coming years. Platforms like Instagram and Twitter have been key as it partners on these platforms, with those it believes can help correctly position its brand.   Merchandising has also been a key part of this re-positioning strategy. With traditional athletic apparel in decline, Lululemon has decided to focus on the athleisure space. With the industry being worth $44 billion, Lululemon believes it can be the key driver as it looks to increase sales to $4 billion by 2020. This focus has allowed Lululemon to position its brand, and therefore pricing strategy, correctly as well. Moving away from increasingly relying on discounts in the past to the current trend that allows it to be a premier brand in the market, and therefore price products much more in line with its overall brand image. This, in recent times, has paid off with margins increasing and profits almost doubling. The coming quarters will determine whether valuations are in line with the company’s earnings. Should Lululemon execute its strategy to consolidate its brand image, correctly position its sales strategy, and successfully maintain its market position in the athleisure space, it should be able to continue the momentum it has achieved in recent quarters.   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.
    NVDA Logo
    Expect Strong GPU Sales To Drive Nvidia's Q3 Earnings Growth
  • By , 11/13/18
  • tags: NVDA AMD INTC
  • Nvidia  (NASDAQ:NVDA) is set to report its Q3 results on November 15, and we forecast a low 20s percent growth in the earnings (y-o-y). We expect both the Tegra Processors and GPU segment to see revenue growth in the high teens. The company has seen massive decline in cryptocurrency GPU sales in the recent past, and this trend will likely continue. Also, the impact from tariffs could weigh on the company’s overall earnings. Effective September, the U.S. has put 10% tariffs on several Chinese goods. We have created an interactive dashboard analysis ~  What Is The Q3 Outlook For Nvidia ~ on the company’s expected performance in Q3. You can adjust various drivers to see the impact on the company’s overall earnings, and price estimate.  Expect Strong Growth In GPUs And Tegra Processor Segments We forecast both GPUs and Tegra Processor segments to see revenue growth in high teens to $2.6 billion and $490 million, respectively, in Q3. The Tegra Processor segment will likely see continued growth in its SOC modules for Nintendo Switch in the near term, given the holiday season is approaching, and Nintendo Switch sales are expected to be higher . Apart from SOC modules, the company is also seeing growth on the Automotive side, led by its AI (artificial intelligence) platforms, such as DRIVE PX, which are doing well in the market. Looking at the GPUs segment, we expect the growth to be primarily led by its gaming GPUs, which are seeing higher demand due to its Max-Q technology, and the Datacenter, which is seeing strong demand for its Volta architecture. In fact, the Datacenter sales were up 77% in the first half of 2018. The decline in cryptocurrency GPU sales is well known, and the company expects negligible contribution from the same. However, the tariffs imposed in September on Chinese goods could have some impact on the company’s performance in the near term. We Estimate The Full Year EPS To Be $7 Overall, we believe that GPUs will be the key growth driver for Nvidia in Q3. We currently estimate the company’s overall revenues to be a little under $3.10 billion in Q3, of which 84% can be attributed to GPUs, and Tegra Processors making up for the rest. We forecast the EPS to be $1.63 in Q3, and $7.09 for the full year 2018. We use a TTM price to earnings multiple of 35x to arrive at  our price estimate of $248  for Nvidia. This implies a premium of over 30% to the current market price. Note that Nvidia’s stock has declined by more than 20% over the past month, following the weak Q3 numbers from some of the tech stocks and the market’s reaction to the tariffs.   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.
    WFC Logo
    Strong Growth In Q3 Card Lending Partially Mitigates Sluggish Growth Across Other Loan Categories
  • By , 11/13/18
  • tags: BAC C JPM USB WFC
  • Loans across the U.S. banking industry continued their growth trajectory over the third quarter of the year, albeit at a slower rate compared to the previous quarter. The total portfolio of loans across U.S. banks witnessed year-on-year growth of 4.6% in Q3 2018 – down from 4.9% in Q2 2018 – as there was a visible reduction in the rate at which the banks handed out loans across categories. The only loan category to grow faster in Q3 compared to Q2 was commercial and industrial loans (5.4% growth y-o-y in Q3 compared to 4.8% in Q2) – something that can be attributed to the fact that many  banks relaxed lending requirements for businesses in the second quarter . Notably, this helped commercial and industrial loans become the largest loan category for U.S. banks. That said, the fastest-growing loan category remains credit cards, as upbeat consumer sentiment over recent quarters has boosted discretionary spending among individuals. Credit card loans across U.S. banks swelled 9% between Q3 2017 and Q3 2018. In fact, continued strength in card lending helped the total card loan portfolio in the U.S. banking industry cross $800 billion for the first time in October, although some major card lenders have begun tightening card lending to keep potential loan losses in check. We capture the trends in loans and deposits for each of the five largest commercial banks in the country – JPMorgan Chase,  Bank of America,  Wells Fargo,  Citigroup,  U.S. Bancorp  – through interactive dashboards, while also detailing the impact of changes in these key factors on their share price. The table below is based on the Federal Reserve’s most recent data. * Credit card loans include unsecured revolving credit, while retail loans include auto loans, student loans and other secured consumer loans. Other loans primarily include loans to financial institutions, to foreign governments, and for agricultural purposes. As shown above, mortgages, commercial loans and CRE loans now represent roughly equal parts of the total portfolio of loans across U.S. banks (~24%). Notably, mortgages made up more than 30% of these loans in 2011, but a slowdown in the mortgage industry and strong growth in commercial lending over 2012-2014 has resulted in all these loan categories being nearly identical in size now – with commercial loans now being the single biggest loan category. Also, as detailed in the table below, the U.S. banking industry saw total loans grow by 4.6% between Q3 2017 and Q3 2018, with card loans growing the most (9%) and mortgages faring the worst with a growth rate of just 1.8%. We expect this trend to largely continue over the next several quarters as the Fed’s rate hike process weighs on loan growth – especially for mortgages. Mortgage lending is likely to pick up the pace only once interest rates settle down, which we believe will be around mid-2020. In subsequent articles, we will highlight the changes in the loan portfolio of the five largest U.S. banks over recent quarters, while also detailing the relative importance of individual loan categories to the business model of these banks. Details about how changes to key Loan and Deposit parameters affect the share price of the five largest U.S. commercial banks can be found in our interactive model for  JPMorgan Chase  |  Bank of America  |  Wells Fargo  |  Citigroup  |  U.S. Bancorp 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 To Expect From Walmart's Q3
  • By , 11/13/18
  • tags: WMT TGT AMZN COST
  • Walmart  (NYSE: WMT) is scheduled to report its third quarter results on Thursday, November 15. The company has had a solid fiscal year so far, as both its earnings and revenues came in ahead of market expectations for the first half. In the first six months of fiscal 2018, the company’s revenue increased 4% year over year (y-o-y) to $251 billion, driven by growth in the domestic market due to its marketplace offerings. Walmart U.S. delivered a strong top-line performance, with comparable sales of 3.5%. Globally, on a constant currency basis, the company’s e-commerce sales increased 40% in the Q2. In the company’s other segments, Walmart’s international sales grew 8% y-o-y to $60 billion during the fiscal first half of 2018, led by strength at Walmex. On the other hand, Sam’s Club revenues declined marginally y-o-y, negatively impacted by tobacco. Our $98 price estimate for Walmart’s stock is slightly below the current market price. We have created an interactive dashboard  Can Walmart Continue Its Strong Growth In The Second Half Of The Year? which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation. Walmart saw its stock gain nearly 50% in 2017 and is up slightly over the course of 2018. The retailer witnessed a relative slowdown in the company’s e-commerce growth in the fiscal first quarter, to 33% y-o-y from 60%+ in the first three quarters of fiscal 2018 (year ending January 2018), which resulted in pressure on the company’s stock. However, the stock bounced back after the company posted strong fiscal Q2 results. Going forward, we expect the company to continue to post an increase in revenue growth rate in Q3, driven by growth across operating segments. We also expect the GAAP earnings pressure to continue, due to investments in technology and a rise in employee wages. We forecast the company to post adjusted earnings per share of around $1.05 in the third quarter, compared to $1.00 in Q3 fiscal 2018. Also, we expect online grocery to drive some growth for Walmart, though the accompanying expenses could result in margin pressure. Fiscal 2019 Outlook Walmart has lifted its full-year adjusted EPS guidance to $4.90 to $5.05 from its previous range of $4.75 to $5.00. The retail giant also expects net sales growth of ~2%, compared to a prior range of 1.5% to 2.0%. In addition, the company expects comparable sales of around 3%, which compares to the previous guidance of at least +2%. Management is aggressively rolling out grocery pickup and delivery in the U.S. and expanding omnichannel initiatives in Mexico and China. We expect Walmart to generate around $511 billion in revenues in fiscal 2019, and earnings of almost $14 billion. Of the total expected revenues in fiscal 2019, we estimate $330 billion in the Walmart U.S. business, almost $120 billion for the International business, and nearly $58 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 2019. We expect Walmart’s fiscal 2019 store count in the U.S. to be over 4800, with average square footage per store of 147k and revenue per square foot of $466, translating into $330 billion (+3% y-o-y) in domestic revenues in fiscal 2019. In addition, we also expect close to 6370 stores in international markets with an average square footage per store of 58k and revenue per square foot of $319, translating into $119 billion (+1% y-o-y) in international revenues in the same period. On similar lines, we expect Sam’s Club revenues to reach $58 billion (-2% y-o-y) in fiscal 2019, with 599 Sam’s Club stores, 134k square footage per store and $724 of revenue per square foot. We expect a decline here on the account of the  closing of 63 Sam’s Club locations . 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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    Wheaton Precious Metals Earnings Preview
  • By , 11/13/18
  • tags: WPM NEM ABX
  • Wheaton Precious Metals Corporation (NYSE: WPM) will release its third-quarter results on November 14, 2018, and conduct a conference call with analysts the following day. The market expects the company to report an EPS of $0.10 and revenue of $191 million, a decline from the last year’s EPS of $0.15 and revenue of $203.03 million respectively. Earnings for the streaming company, WPM, are expected to decline due to a decrease in silver sales volume and a lower prevailing spot-price of the metal. Though the trouncing miner realized higher prices for gold and silver in the second quarter, higher spot prices for the metal in the third quarter, which positions traditional miners in a better place, and lower silver sales volume are going to bring down revenues and earnings for the company. We have a $21 price estimate for the company, which is substantially higher than the current market price. View our interactive dashboard – Our Outlook For Wheaton Precious Metals In 2018 – and modify the key assumptions/expectations to arrive at a price estimate of your own. Outlook :  Currently, the company has entered into 23 long-term agreements (3 of which are early deposit agreements) with 16 different mining companies, for the purchase of precious metals and cobalt (“precious metal purchase agreements” or “PMPA”) relating to 19 mining assets which are currently operating and 9 which are at various stages of development, located in 11 countries. Pursuant to the precious metal purchase agreements, Wheaton acquires metal production from the counterparties for an initial upfront payment plus an additional cash payment for each ounce or pound delivered which is fixed by contract, generally at or below the prevailing market price. However, the company announced the restructuring of the agreement at San-Dimas mine earlier this year wherein it terminated its existing San Dimas purchase agreement and entered into a new purchase agreement with First Majestic with respect to San Dimas. The terms of the new agreement reduce the company’s silver output share from San Dimas and increase its access to the mine’s gold output. The new agreement has remained beneficial for the company as a greater exposure to gold has enabled it to benefit from the prevalent higher gold prices. The company is expected to report a marginal increase in its realized gold prices and a substantial 20% increase in its gold sales volume when compared to the numbers posted a year ago. Higher gold prices are expected to remain beneficial for the company in the remainder of the year, while lower silver sales volume primarily due to lower production output at Antamina mine (11% of the stock price according to our estimates), is going to weigh on the upcoming results. The lower production at Antamina mine is due to lower silver grades resulting from mine sequencing in the open pit. Further, the company expects to produce approximately 355,000 ounces of gold, 22.5 million ounces of silver, and 10,400 ounces of palladium in 2018. Going forward, the company expects to increase palladium production significantly in the next 2 years and starting in 2021, the company expects 2.1 million pounds of cobalt production per 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.
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    How Will A Slowing Semiconductor Market Impact Applied Materials' Q4 Results?
  • By , 11/13/18
  • tags: AMAT TI
  • Applied Materials  (NYSE:AMAT), one of the largest providers of semiconductor capital equipment, is expected to publish its Q4 FY’18 results on November 15, reporting on a quarter that likely to see the company’s growth slow down significantly amid declines in chip and memory prices and weaker capital spending by major semiconductor manufacturers. The company has guided for net sales of between $3.85 billion and $4.15 billion, roughly flat at the midpoint year-over-year, with adjusted EPS projected to come in at a range of $0.92 to $1.00, marking a 3% increase at the mid-point. Below, we take a look at the key trends to watch as the company publishes results. View our interactive dashboard analysis on what to expect from Applied Materials in Q4 FY’18 . You can modify any of the key forecasts and drivers to gauge the impact changes would have on the company’s valuation. Weaker CapEx For Semiconductor Companies Will Hurt Applied Over the first nine months of the fiscal year, the company saw its revenues grow by 25% year-over-year to $13.24 billion, with operating income soaring by 36% to $3.78 billion, led by strong sales in the Semiconductor Systems segment, which provides semiconductor fabrication equipment. However, the market for semiconductor products appears to be peaking off, with NAND memory prices seeing declines over the last few quarters driven by oversupply, and DRAM prices also projected to drop from 2019 onwards after seeing a strong run. The market for smartphones, which have been a big driver of chip demand, is also saturating, hurting the outlook. Customers in the foundry space, who manufacture chips on a contract basis, are also scaling back on their investments as they look to optimize capacity. For instance, Samsung, one of Applied’s largest customers and a major player in the memory and foundry space, indicated that it expects its capital expenditures to drop by 27% to 31.8 trillion Korean won ($28 billion) this year. Other semiconductor players such as Texas Instruments and Skyworks have also provided subdued near-term revenue and earnings guidance. Research firm Gartner expects industry-wide Semiconductor Wafer Fab Equipment (WFE) spending to cross  $55 billion in 2018 before declining in 2019 and 2020. Applied has indicated that the figure could come in at about $50 billion in 2019, while noting that its customers are still moving ahead with their long-term technology transitions, continuing to invest in long lead time equipment. 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