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GES Logo
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.
    CMG Logo
    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
  • CSX Logo
    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.
    NFLX Logo
    What To Expect From Netflix's Q4
  • By , 1/14/19
  • tags: NFLX
  • Netflix (NASDAQ: NFLX) is scheduled to announce its fourth quarter results on Thursday, January 17. The streaming giant has over 130 million paid subscribers (while its total memberships stand at 137 million as of now) in over 190 countries, along with a vast range of TV shows and movies, including original series, documentaries and feature films. In the first nine months of fiscal 2018, the company’s revenues increased close to 40% year-over-year (y-o-y) to $11.6 billion, largely driven by growth in subscribers across both the U.S. and international streaming markets. Netflix saw its stock gain nearly 20% over the course of 2018. We have a  $376 price estimate for Netflix’s stock, which is almost 10% ahead of the current market price. We have created an interactive dashboard  Netflix Projects Strong Subscriber Growth In Q4, 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. Streaming Forecasts In Q4 In Q4, Netflix expects 9.4 million global net additions, compared to a 7.64 million consensus estimate. We forecast Netflix to reach 61 million subscribers in the U.S., with an average monthly fee per subscriber of $11, translating into $2 billion in domestic streaming revenues for Q4. In addition, we also estimate close to 85 million subscribers in international markets with an average monthly fee per subscriber of $8.40, translating into about $2.1 billion in international streaming revenues in the same period. Netflix has been growing its subscribers by leveraging its original content slate, and we expect this to continue in the near term as well. On the other hand, Netflix’s DVD business is expected to continue to lose steam, and its revenues will likely decline to just below $90 million. Overall, we expect the company to report revenues of around $4.3 billion, based on strong adoption in international markets. Furthermore, we anticipate that the total subscriber base for both international and U.S. streaming services could grow to over 146 million during the quarter. Netflix is spending a significant portion of its content budget on original shows. The company has a long-term goal of ensuring that nearly 50% of the content on its platform is original. Netflix planned to spend as much as $13 billion on shows and movies in 2018, up from $6 billion earmarked for content in 2017, which has driven subscriber growth but will weigh on full-year margins. We expect Netflix to benefit from healthy subscriber growth, which should lead to improved cash flows and can, in turn, allow the company to invest further in content. 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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    Schlumberger Q4 Preview: Weak U.S. Fracking Activity Could Hurt Results
  • By , 1/14/19
  • tags: SLB HAL RIG
  • Schlumberger   (NYSE:SLB), the largest oilfield services provider, is expected to publish its Q4 2018 results on Friday, January 18. We expect the company to see a sequential decline in revenues amid weakness in the North American market, though that is likely to be partly offset by a steady performance in the international market. In this note, we take a look at some of the key trends to watch when the company publishes earnings. International Markets Schlumberger has indicated that international revenues could remain flat sequentially in international markets, as stronger integrated drilling services revenues help to offset the winter slowdown in the Northern Hemisphere, as well as some potential weakness in the Latin American market. Moreover, the company previously indicated that it could see more favorable pricing conditions in the international market, as it indicated that international equipment capacity could be fully utilized by the end of the year, allowing for better leverage with pricing. North American Headwinds Will Hurt Results Schlumberger indicated that revenues from its North American business could  fall 15% sequentially over the quarter, driven primarily by headwinds in the fracking market. The company noted that it had seen a larger than expected drop in demand for fracking over the quarter, causing pricing to take a hit. 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. Moreover, well productivity gains for tight oil appear to be tapering off in regions including the Permian and the Eagle Ford, with operators likely to see lower incremental returns on investments in existing wells, causing some softness in activity. Impact Of Oil Price Decline On 2019 Outlook Oil prices declined meaningfully over the last quarter, with WTI prices currently trading at under $50 per barrel, 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 spending, particularly in early 2019. That said, lower than expected production rates from U.S. wells and some moderation in global spending could help to bolster prices going forward. We will be looking for more updates from the company on this front during its earnings call. 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.
    SCHW Logo
    What To Expect From Charles Schwab's Q4
  • By , 1/14/19
  • tags: SCHW AMTD ETFC
  • Charles Schwab  (NYSE: SCHW) has had a solid year so far. The brokerage’s revenue grew by just over 17% in the first three quarters of 2018, and we expect this trend to continue when the company reports its fourth quarter earnings on January 17. We expect the brokerage’s interest-earning assets to be the main driver of growth in Q4. Additionally, we expect trading revenues to increase marginally as a result of growth in trading volumes, despite the commission pricing cuts implemented in the first quarter of 2017. However, since trading commissions generate only a small portion of the company’s overall revenue, we don’t expect the price cut to have a major impact on its revenue and EPS growth in the near term. Consequently, we expect the brokerage’s 2018 revenue and EPS to grow by 18% and 51%, respectively, and Q4 results will likely be along the same lines. Our price estimate for Charles Schwab’s stock stands at $57, which is around 10% above the market price. We have also created an interactive dashboard –   which outlines what to expect from SCHW’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. Fed’s Rate Hike  Should Drive Growth Fueled by multiple Fed rate hikes, Charles Schwab’s interest earning assets grew by 15% in the first nine months of 2018. In addition, the yield on these assets went by nearly 31 basis points during the same period. The solid growth in assets, coupled with the yield increase, has led to a massive 34% jump in interest revenues. With recent hikes and more planned hikes in the near term, we expect the interest generated on these assets – which contributes to roughly half of the Schwab’s overall revenues – to drive near-term growth, due to its high asset base and moderate current yield on these assets in comparison to competitors. Growth In Trading Volumes To Drive Trading Commissions Owing to increased competition from discount and traditional brokerages, Schwab decided to cut its commissions per trade by nearly 40% to just under $5. Despite this, robust growth in trading volumes (+22% y-o-y) in the first nine months of 2018 more than offset the losses. Improvement in U.S. GDP, coupled with increased volatility in the stock market, should significantly boost trading volumes in near term – driven by enhanced client activity, which in turn should improve trading commissions marginally. This factor should continue to offset the negative impact of the reduced commission rate.
    UA Logo
    What Will We Need To See For Under Armour To Beat Its 5-Year Plan?
  • By , 1/11/19
  • tags: UA LULU NKE
  • With Under Armour (NYSE:UA) facing competitive issues in the past 3-4 years, the company revealed its 2023-five year plan. As it stands, the plan has failed to impress investors, as the strategy, and expectations, as laid out by management, left a lot to be desired. Here is what we know: Under Armour expects revenue to return to the low double digits, improvements down the supply chain are expected to increase gross margins by 275-300 BPS,  and operating margins are expected to increase to low double digits. With cash flow expected to come in at $700 million by 2023. We currently have a price estimate of $18 per share, which is in-line with the market price. You can use our interactive dashboard  Under Armour’s 5-Year Plan    to modify key drivers and visualize the impact on Under Armour’s price estimate. Under Armour has said it will move its focus back to ‘innovative athletic performance products’, thereby making athletic performance the core of their strategy going forward. The move did not sit well with investors, and this was reflected in the recent stock market sell-off. Consumer trends show that the the Athleisure segment is expected to be a $83 billion market by 2020, growing at annual rate of 20%. The Athletic performance market, on the other hand, is growing at an annual rate of 4.3%, and is expected to garner $184 billion in sales by 2020. We believe, Under Armour deciding that it will significantly reduce its focus on the athleisure market, is a poor decision, and a decision that will impact growth moving forward. Therefore, we believe the company’s plan does not go far enough, as does the market, and this has led to the recent market reaction, where the stock has sold off, falling by as much as 10% on December 12th post Under Armour presenting its strategy. The stock is now down 26% from its December high of $26. Unless Under Armor comes up with a pertinent strategy that is in line with current trends, we believe that it may not be able to reach its desired goals by 2023. In conclusion, we believe Under Armour’s five-year plan, is simplistic, in an industry that is increasingly competitive. It continues to focus on past trends, and therefore its 5-year plan may not translate into the high expectations that it has set out for itself. Therefore caution is advised, as we don’t expect earnings to pick up any time soon. 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.
    LB Logo
    What Is L Brand's Fundamental Value Based On Expected 2019 Results?
  • By , 1/11/19
  • tags: L-BRANDS LB
  • L Brands  (NYSE: LB) 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 to $2.77 billion, compared with $2.61 billion a year ago, up 6% from the prior-year quarter, with adjusted earnings per share at $0.30. This growth has been driven by growth across its Bath and Body Works segment, a well-positioned customer strategy,   international diversification, and rising online sales. L Brands has been continuously revamping business by improving the store experience, localizing assortments, and enhancing direct business. These measures have facilitated it to generate incremental sales and increase store transactions through higher conversion rates.  A sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiatives has kept L Brands afloat in a competitive environment. Also, L Brands is seeing very strong momentum in online sales growth with online revenue for VS and Bath & Body Works going up. These 4 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 VS segment will continue to be the major contributor to its top line growth. The company is focused on improving performance in the Victoria’s Secret business, 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 L Brands’ 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 L Brands 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 more  focused than ever on execution, ongoing improvements in top-line growth, and continuing actions to expand margins, and accelerating their strengths to create more value for their consumers, customers,  colleagues, and shareholders. The company plans to grow their business through continuous improvement and sustain their profitability. All these factors, coupled with strong sales momentum, will enable L Brands 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.
    ALK Logo
    Can Alaska Air Reach $90?
  • By , 1/11/19
  • tags: ALK JBLU DAL AAL LUV
  • Alaska Airlines (NYSE:ALK), the fifth largest airline in the United States by fleet and passenger revenue, is currently trading at $62 with a  forward P/E of 9.8. Compared to its peers, Alaska Air has better fundamentals, owing to its low leverage, and its ability to operate efficiently relative to its peers. It has a better return on equity, at 22.5%, and has had relatively steady growth of 5% yoy. With the recent declines in oil prices, and the price of oil being a key component of Alaska Air’s costs, it is surprising that the stock continues to trade at a discount to its peers. We currently have a price estimate of $70 per share, which is 12% higher than the market price. You can use our interactive dashboard Alaska’s Path To $90 to modify key drivers and visualize the impact on ALK’s price estimate. Furthermore, the company is not highly levered with the current ratio (0.7) being lower than many of its peers. Debt has been one of the biggest concerns for the airline industry, in an environment where interest rates are going up. This is not the case with Alaska Air. This is especially useful for the company to expand its fleet as aircraft manufacturers bring newer, and more improved aircraft onto the market in the coming years. Furthermore, Alaska’s low leverage, therefore, will aid the aircraft in terms of margins, and the ability to weather higher oil prices relative to its peers.   In addition to everything else,  the recent declines in oil, should result in an improvement in Alaska’s cash flows. Should the stock trade at a valuation similar to those of industry averages, we believe the stock could rise to $90 per share, but before it does so, there are fundamental issues to consider, mainly revenue growth.  That metric has been slow, which may mean the market will continue to undervalue the stock, especially if revenues don’t rise as quickly as those of Alaska’s industry peers. Further, relative to its peers, Alaska Airlines is expected to see pre-tax margins improve to 15%, with industry peers averaging 11%. Alaska Air also has a higher ROIC (return on invested capital) of 16.7%, vs its industry peers at 13%. Again all of this points to higher relative cash flows, which is fundamental to airlines. The most important issue facing Alaska Air is growth, the company has been growing at 5%, while many industry peers, have been able to increase revenue yoy at 8-10%. This is seen as a headwind, with Alaska Air not expanding, or taking advantage of increased passenger flow in 2018, unlike many of its peers in the industry. Part of the issue stems from the airline’s merger with Virgin. With logistical issues of the merger weighing on operations, Alaska grew slower than it otherwise would have. But beyond this, there are few issues with the airline, and we therefore believe this is a stock that is flying under the radar, and being ignored by the broader market. The company, has been improving itself to increase fleet, and routes. These improvements will come to the fore in 2019 as the new routes, and planes become operational. Overall the stock may benefit as tailwinds from lower oil prices, along with factors already mentioned take hold. But with the recent sell-off the stock’s upside is dependent on overall market sentiment, and may reach $90 in over 4-5 quarters should the airline’s earnings continue to show marked improvement.     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 Lowe's Fair Value?
  • By , 1/11/19
  • tags: LOW HD
  • Lowe’s (NYSE: LOW) has reported decent top-line and bottom-line growth through the first nine months of the year, driven by increased comp sales – as a result of higher average ticket and new store additions, partially offset by reduced customer transaction and adoption of the new revenue recognition standard. However, the company still lags behind its closest competitor, Home Depot  (NYSE:HD). Lowe’s is faced with significant organizational changes, including a new CEO and CFO, along with certain disruptions and inventory issues which have pressured sales, despite favorable macroeconomic conditions. Although the industry outlook remains bright, the company has reduced its guidance for the year given the number of strategic initiatives being undertaken. Sales and comps growth is now expected to be 4% and 2.5% (versus 4.5% and 3% earlier), the operating margin is anticipated to decline by 240 to 255 basis points (versus a fall of 180 basis points earlier), including 135 to 150 basis points from charges associated with its strategic reassessment, and diluted EPS is projected to be in the $4.08 to $4.24 range (versus $4.50 to $4.60 earlier). Meanwhile, the company’s adjusted diluted EPS is expected to be in the range of $5.08 to $5.13. We have a $114 price estimate for Lowe’s, which is over 15% higher than the current market price. Our interactive dashboard on  Our Outlook For Lowe’s In 2019  details our key forecasts and drivers for the company. You can modify the driver assumptions to gauge their impact on the company’s revenue, earnings, and valuation. We have arrived at our $114 price estimate for Lowe based on revenue projections of $6.2 billion for 2019, net income of $544 million, a P/E multiple of 21, and a share count of 80.1 million. Factors That Should Impact Performance 1. Focus On Pro-Customers:  Professional customers generally place larger orders compared to the do-it-yourself (DIY) segment, and better serving these customers should boost revenues for Lowe’s in the long term. Despite the recovery in the housing segment, Lowe’s growth has not been on par with Home Depot’s, largely due to its focus on DIY consumers. While the DIY segment is lucrative and accounts for most of Lowe’s revenues, these customers are comparatively smaller-ticket buyers and often just one-time buyers. On the other hand, pro customers account for only 30% of Lowe’s revenues, but they often enter into big-ticket transactions and are usually repeat customers. Keeping this in mind, the company has been focused on these customers by introducing pro-focused brands such as Mapei and Zoeller. 2. Housing Market: Lowe’s has continued to benefit despite news regarding a soft housing market, reflected in the declining home sales figures. The company saw its revenues grow by just under 5% in the first nine months of 2018, as more homeowners preferred to remodel their homes rather than selling. Further, the company remains positive about the home improvement sector as much of the housing stock in the country is in need of renovation. Additionally, home price appreciation continues to encourage homeowners to engage in discretionary projects, which in turn should benefit the likes of Lowe’s and Home Depot. Moreover, consumer confidence is high, 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 Lowe’s that is heavily reliant on the improvement of the economy. 3. Digital Growth: Comps grew 12% on the company’s website in Q3, which accounts for nearly 5% of the overall company sales. Lowe’s intends to continue enhancing the shopping experience, with features such as optimized search capability, expanded assortment, faster site speed, improved checkout, and next day delivery. In addition, the company also provides flexible fulfillment options – buy online, pick up in store, and buy online, deliver from store – in addition to making it easier for customers to engage with its in-home project specialists to request services. We expect solid growth from this segment, once the company sorts out its inventory issues. 4. Exiting Orchard Supply Hardware Operations:  The main reason for exiting these operations is to concentrate on the core home improvement business. The company’s management expects to close all 99 stores which are located in California, Oregon, and Florida, as well as one distribution facility by the end of FY 2018, which is one of the factors driving a larger than intended decline in operating margins. In FY 2017, Orchard generated $600 million in sales, but was a $65 million drag on EBIT, so our expectation is that the closure should positively impact margins from the next financial 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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    T-Mobile Could Keep Its Solid Postpaid Momentum Going
  • By , 1/11/19
  • tags: TMOBILE TMUS VZ S T
  • T-Mobile  (NASDAQ:TMUS)  published its subscriber figures for the fourth quarter, noting that it added a total of  1.4 million postpaid subscribers, marking a Q4 record while adding 1 million postpaid phone customers – its best holiday quarter in four years. The full year figures were also encouraging, as total branded postpaid phone net additions accelerated to 3.1 million, meaning that the company likely led its rivals by a significant margin. While the carrier likely been benefiting from some equipment promotions and offers, it has also been doing a good job of retaining existing customers and expanding its reach, potentially allowing for longer-term gains. Our interactive dashboard on  what’s driving T-Mobile’s valuation  details our expectations for the company through the rest of the year and the factors driving our valuation estimate. Expanding Store Count, Coverage Over the last few years, T-Mobile has been expanding its retail presence and improving coverage. The company has a sizable amount of low-band spectrum, particularly in the 600 MHz spectrum bands, which allows it to improve its presence in rural and suburban areas in a relatively capital-efficient manner. As of November 2018, the company noted that its 600 MHz Extended Range LTE was active in more than 1,500 cities and towns . An increasing store count is also likely helping the company expand its penetration. While the company doesn’t regularly disclose its store figures, it opened about  1,500 new T-Mobile stores and 1,300 MetroPCS  stores in 2017, with a total of 16,400 retail locations at the end of 2017. Churn Is Trending Lower  T-Mobile also appears to be doing a better job at retaining customers. Over Q4, T-Mobile’s branded postpaid phone churn stood at 0.99%, marking a decline of 19 basis points year-over-year. This is likely being driven by the company’s improving customer service as well as moves to bundle video services such as Netflix with family plans. In mid-2018, the carrier overhauled its customer service operations, giving customers a dedicated set of customer care representatives who offer quick phone support, without having to go through robotic assistance and push-button menus. This is likely to be helping customer satisfaction rates, effectively reducing attrition. 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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    Barrick Gold's Profitability Likely To Improve Through 2020 Due To Synergies Generated By Its Merger With Randgold Resources
  • By , 1/10/19
  • tags: ABX FCX CLF AA VALE
  • Having received approval from shareholders of both the companies in November 2018, the $6.5 billion merger of Barrick Gold Corporation (NYSE:ABX) and Randgold, an African-based gold mining company, is all set to take effect from January 2019. The new entity, with a combined revenue generating capacity of $10 billion, will own five of the world’s ten lowest-cost gold mines. We expect the combined entity’s revenue to be ~$8.9 billion and $9.5 billion in 2019 and 2020, respectively. Costs of $6.5 billion (excluding finance and tax expenses) in 2020 – slightly lower than 2019E costs – on the back of an efficient supply chain, better working capital management, and Randgold’s higher gold grades, is expected to push the EBIT margin to 25% in 2019 and further up to 30% in 2020 from a low of ~11% in 2018. View our interactive dashboard –  How Much Synergies Can Barrick Gold Generate In 2020, From Its Merger With Randgold Resources? – and modify the key drivers to arrive at your own EBIT margin estimate for the company. Revenues of $9.5 billion in 2020 would likely be driven by increased demand for gold as an investment hedge against an expected slowdown in markets. In contrast to the previous 2 years, we expect gold volumes and price to increase, in turn leading to higher revenues for New Barrick Company. Additionally, we also expect an increase in copper revenues due to higher pounds sold and an increased price level. This would mainly be driven by increasing sales of Electric Vehicles (EVs) year over year, which require copper to a large extent. The combined entity is expected to benefit from Randgold’s superior gold grades over its rivals. Randgold’s average grade of 3.7 grams per ton over the last three years is much higher than Barrick’s average of 1.55 and the average of 1.12 grams per ton for the top five producers. This would translate into higher production at a lower cost. Also, Randgold’s disciplined management of inventory, stockpiles, and logistics has helped it to have 52 days of inventory outstanding, much lower than Barrick’s 132 days and Senior Gold Peers’ 78 days. These factors would help the combined entity in better cost management and higher cash flow generation. Total cost is expected to be around $6,673 million and $6,670 in 2019 and 2020, respectively. Consequently, EBIT margin would be higher for the next two years. Conclusion : Our analysis, valuation, and forecasts above suggests that higher grades, lower mining costs, better working capital management, and an efficient supply chain logistics framework will help in achieving synergies for New Barrick Company, which could reflect in the EBIT margin rising to 25% in 2019 and to 30% in 2020.   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 L'Oreal Based On Expected 2019 Results?
  • By , 1/10/19
  • tags: LRLCY
  • L’Oreal  (OTCMKTS: LRLCY),  the world’s biggest cosmetics company, has continued on its growth momentum in its recent half yearly earning of 2018 with 6.6% rise in sales to 13.3 Billion euros. The company’s earnings were primarily driven by strong performance in the active cosmetic division, L’Oreal Luxe segments, and emerging new markets, particularly Asia-Pacific which grew +13.2%. All the top brands of the Luxe segment posted more than 10% growth and the Active Cosmetics Division posted double digit growth driven by the success of its La Roche-Posay and SkinCeuticals brands, the new impetus of Vichy, and the dynamism of CeraVe. The Consumer Products Division saw an outstanding performance in China.  In the New Markets, especially the Asia Pacific Zone, China’s consumers’ aspirations for iconic brands remained strong. E-commerce and Travel retail remained strong for the company. With the acquisition of the Canadian company, ModiFace, the company’s digital acceleration has moved up a gear, which provided  innovative technologies to enhance services and the beauty experience for all the brands. E-commerce sales have increased strongly and continue to rise rapidly, and now account for ~10% of the total sales. We have summarized our forecasts in an interactive model L’Oreal 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 L’Oreal’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). L’Oreal’s margins have continuously improved in FY 2018, with growth in each of its segments. Despite entering into new emerging markets, shifting strategies, and making new acquisitions, the company has ensured its structure remains strong, and its operations continue to be efficient. We believe that L’Oreal 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 leading 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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    How Will A Complete Shift To Digital New Video Game Software Impact GameStop's Earnings?
  • By , 1/10/19
  • tags: GME
  • GameStop Inc  (NYSE:GME) has been facing a decline in sales of late, given the rise of digital downloads. In fact, the company might soon be sold, as some of the private equity companies are willing to buy GameStop, according to a media report . The growth in digital downloads has impacted the company’s business model of physical sales. In this note we discuss the impact on GameStop’s earnings, if all of new video game software sales were to be digital. We have created an interactive dashboard analysis  ~  What Will Be The Impact of All New Video Game Software Sales Going Digital On GameStop’s Earnings . You can adjust several drivers to see the impact on the company’s earnings. We assume the physical sales to be 60% of GameStop’s overall new video game software sales, which translates into $1.4 billion in physical sales. Note that the company also sells digital downloadable content (DLC) mostly on the day of launch. We analyze a scenario if there is a shift for these physical sales to digital downloads directly from the game publishers, thereby eliminating GameStop as an intermediary. The complete shift to digital is very much a possibility. In fact, some of the analysts have predicted this to happen as early as 2022. To understand the impact of this scenario on earnings, we use the company’s overall adjusted net income margin of 6% and 98 million share count to arrive at $0.86 earnings per share that can be attributed to physical sales of new video game software. This is roughly 30% of the company’s overall estimated earnings of $2.96 per share for 2019, according to our estimates. Note that GameStop also sells physical pre-owned video game software, which is not accounted for in this calculation. We forecast new video game software sales to decline in mid-high single digits in fiscal 2018, and in low single digits in fiscal 2019. The decline in revenues, and the company’s charge related to impairment have impacted the bottom line in the recent quarters. The company also decided to sell its Spring Mobile business in 2018, and reduce its debt, along with focusing on the core video game business. Separately, there have been changes in the company’s top management in the recent past. Longtime CEO Paul Raines died in March 2018. He was replaced by Michael Mauler, who left after just three months, and currently Shane Kim is GameStop’s current CEO. The company’s stock price has declined more than 35% in 2018, owing to these factors. However, the share price jumped up over 20% over the last week or so, given the news of interested buyers for GameStop.  
    F Logo
    How Much Is Grab Worth?
  • By , 1/10/19
  • tags: F GM TTM TM
  • Grab is a Singapore-based company which offers ride hailing, ride sharing and food delivery services via its mobile app in Southeast Asia. In addition to Singapore, the company’s services are available in countries such as Malaysia, Indonesia, Thailand and the Philippines. In March 2018 Grab acquired Uber’s operations in Southeast Asia and Uber now holds a 28% stake in Grab. This deal is likely to drive significant growth for Grab – which already dominates the Southeast Asian ride hailing market – with reportedly more than 60% market share in the region. Grab was valued at $10 billion in its most recent funding round, where it raised $2 billion for future growth. The company expects to double its revenues in 2019, as it integrates Uber’s operations and forays into bike sharing and digital payments. Our interactive dashboard Estimating The Valuation Of Grab  looks at Grab’s key value drivers and the likely upside in its valuation if the target of 100% growth in revenues is met in 2019. Grab has witnessed significant growth in rides booked via the company’s app over the last two years. Its number of users  nearly doubled between 2017 and 2018, and average daily rides have increased significantly from around 2.5 – 3.5 million in 201 7 to 6 million in 2018 . For 2019, as the company benefits from the acquisition of Uber in the region, expands its bike sharing initiatives and builds further on its dominant market position in Southeast Asia, we expect significant growth in the company’s number of users. This will drive growth in the total number of annual rides and boost revenue growth. Based on limited data available for the total number of rides and total revenues, we estimate the average gross revenue per ride for the company to be around $2.50 in 2018. We forecast this number to increase to $3 in 2019, as the company establishes its dominance in Southeast Asia (post-acquisition of Uber’s business) and sees increased demand for longer rides. With reduced competition, Grab can also look to withdraw discounts, leading to higher revenues. Grab charges a 20% commission from its drivers and we expect this number to remain steady over the next few years. You can modify the blue dots here to arrive at your own estimate of Grab’s revenue per ride and analyze its impact on the company’s valuation.                 Based on its most recent valuation and expected revenues for 2018, Grab commands an estimated revenue multiple of around 10x.  This is higher than Uber’s revenue multiple of about 5x based on its most recent valuation of $76 billion in August 2018 and Didi Chuxing’s valuation multiple of around 7.5x. If the company is able to achieve net revenues of around $2 billion in 2019 (per its own target), its valuation could potentially reach $16 billion with a lower revenue multiple of around 7x (lower than its current multiple as growth is likely to slow down in future years). Grab is focusing on growth initiatives and has an ambitious goal of becoming an “everyday app” and the company is diversifying into areas such as online grocery, food delivery and payments. However, regulatory hurdles and competition from local players are likely to be its key challenges, and the company’s ability to navigate these will be critical for future growth. While Grab is not profitable yet, its market dominance, high volumes and expansion into food delivery and other areas should lead to economies of scale, driving profitability in the future. We believe Grab still has strong growth potential, and is likely to see some upside in its valuation in the near term even if multiples decline. You can modify any of our key drivers and forecasts to arrive at your valuation for the company using our interactive dashboard  here. 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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    Will Apple Succeed In The Video Streaming Business?
  • By , 1/10/19
  • tags: AAPL GOOG
  • With sales of iPhones and other hardware cooling off, Apple  (NASDAQ:AAPL) has been turning to its Services business to drive growth. The company is expected to launch its own streaming video service this year, taking on the likes of Netflix and others. In this note, we take a look at what the service could mean for the company. We have created an interactive dashboard analysis on  Breaking Down Apple’s Services Revenue . You can modify the various drivers to arrive at your own estimates for Services revenue. Services Business Has Largely Been Commission-Driven Thus Far While Apple’s Services business has recently been the biggest driver of the company’s growth, growing at about 20% over the last few years, we estimate that about two-thirds of Services revenues come in the form of commissions from third parties, for app sales, licensing and other services. However, this business faces some challenges as some developers and digital service providers are pushing back on the cut Apple takes. For instance, Netflix indicated that it would be  stopping in-app subscriptions  on  Apple  (NASDAQ:AAPL) devices, as it looks to bypass the commission that Apple charges on subscriptions made via iOS apps (related:  How Much Does Apple Stand To Lose As Netflix Stops In-App Subscriptions? ). Apple typically takes a 30% commission from subscriptions initiated on its platform over the first year, with the number dropping to 15% from the second year onward. The company takes a 30% cut on app sales. While we don’t see a decline in these commission-based revenues, Apple could be looking to hedge its bets by providing more of its own services along the lines of iCloud and Apple Music. Content Will Determine The Uptake Of The Service While Apple has a large installed base and the technology required to drive its streaming foray, the quality of content will ultimately decide the uptake of the new service. Competition in the streaming market has been heating up; while over half of U.S. households have a Netflix subscription, Disney has plans for its own streaming service and AT&T is also prepping to launch its own offering. These companies are likely to significantly outspend Apple in terms of content. Netflix spent upwards of $8 billion over the first 9 months of 2018, compared to Apple’s estimated $1 billion in content spending last year. However, Apple is apparently looking to create a niche for itself, sticking to family-oriented fare, focusing on high-quality shows with a broad appeal. While original content could make up a large part of the titles, we believe that Apple may have to leverage programming from other media players as well. For instance, the company could buy content from the likes of MGM, Paramount or Lionsgate. Apple Is Opening Up To Providing Its Services On Other Platforms Apple has shown some signs that it was open to expanding its Services business via partnerships over the last few months. In November, the company announced that its Apple Music service would be available on Amazon’s Echo devices. The company also recently said that Samsung would start including an iTunes app in its Smart TVs, allowing users to buy and rent movies and videos. These moves could indicate that the company is setting the stage for its streaming business, which could be hampered if it were limited to just the Apple TV device, which still has relatively low penetration. How Large Could Streaming Service Be For Apple? It’s not clear what business model Apple will follow for the streaming service. While it’s most likely that the company will make it a paid service with a monthly subscription, we also believe that Apple may begin by offering it as a free perk that comes with its devices or with Apple Music subscription. Apple could also opt for an ad-supported model, although this is less likely. To be sure, it could take a few years for the service to scale up meaningfully. If we assume that the company is able to garner 50 million subscribers (under 5% of its total device installed base) who pay on average about $7.50 per month, the streaming service could add about $4.5 billion to the company’s top line by 2022.
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    What To Expect From Alcoa's Fourth Quarter Results?
  • By , 1/10/19
  • tags: AA RIO MT VALE
  • Alcoa  (NYSE: AA), a global producer of alumina, bauxite, and aluminum, will release its fourth-quarter 2018 results on January 16, 2019. The  market expects  the company to report revenue of $3.38 billion, 6.6% higher on a year-on-year basis. The Non-GAAP earnings for the quarter are expected to be $0.62 per share compared to $1.04 per share reported a year ago. The lower EPS is likely to be the result of volatility in aluminum and alumina prices due to production curtailment at Alunorte (the largest alumina factory), sanctions on Rusal, and a 10% tariffs on Chinese goods. We have a price estimate of $42 per share for the company, which is higher than its current market price. Our detailed estimates for Alcoa’s key drivers that impact its price estimate are available in our interactive dashboard –  How Will Alcoa End 2018 . You can make changes to our assumptions to arrive at your own price estimate for the company. Key Factors Affecting Alcoa’s 4Q 2018 Results The imposition of a 10% tariff (which could go up to 25% in 2019) on Chinese goods by the US government in September 2018, would likely lead to lower shipments of alumina and aluminum in Q4 2018. The US-China trade war has led to a lot of volatility in the prices of alumina and aluminum, which has also led to the stock shedding almost 50% of its value in a year. The supply deficit is also expected to be exacerbated by a 50% capacity cut at Alunorte Refinery in Brazil, which has reduced its alumina production capacity. Also, US sanctions on Rusal, which accounts for 14% aluminum production outside China, has affected supply. This would be offset to a certain extent with Alcoa successfully having ensured that the striking employees at its three mines in Australia are back at work. Considering all the factors, we continue to project a global deficit for both alumina and aluminum and see the bauxite market remaining in surplus with increasing stockpile. We forecast a higher average realized price of $450 per ton of alumina and an average price of $2500 per ton of primary aluminum for 2018. Though the shipments would reduce due to decreased global supply, higher prices in both the commodities would drive alumina revenues up 32% and aluminum revenues higher by 11% in 2018, compared to FY 2017. Global excess supply of bauxite would drive prices lower as experienced in Q3 2018. A lower price would likely reduce revenue from bauxite by 25% in 2018. We expect higher alumina prices to help Alcoa report higher margins in 2018. The management has increased its adjusted EBITDA guidance, and we believe that the current market situation will help the company achieve its target for the 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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    Salesforce.com's Cloud Software Revenue To Double By 2020
  • By , 1/10/19
  • tags: CRM MSFT ORCL SAP
  • Salesforce.com ’s (NYSE: CRM) cloud software revenue segment is comprised primarily of its Salesforce Platform cloud offering. The revenue for the same in 2017 was recorded at $1.93 billion which has been growing at a robust 35-40% per year between the years 2014 to 2017. The Global Public Cloud Software and Services Market was $153.5 billion during the year 2017 and is expected to grow at approximately 14% CAGR till the year 2020. The Salesforce Platform offering is one of the fastest growing revenue segments of the company and is expected to continue growing at a CAGR of 25% till the year 2020. This growth is expected to be powered by a comprehensive set of service offerings like Trailhead, Einstein AI, Lightning, IoT, Heroku, Analytics, and the AppExchange. The Platform also includes various tools that customers can leverage to build intelligent and connected enterprise apps. As per Salesforce.com, thousands of partner-built apps and millions of custom apps built by customers have been developed effectively on the Salesforce Platform. We estimate that the cloud software revenue segment (Salesforce Platform) will reach a revenue estimate of $4.3 billion by 2020. We have created an interactive dashboard How will Salesforce.com Cloud Software Revenue Double In the Next 3 Years? including the drivers of the revenue. You can modify our assumptions to see the impact any changes would have on the cloud software revenue segment.    
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    Overview of Bed Bath & Beyond’s Q3 Results And Q4 Outlook
  • By , 1/10/19
  • tags: BBBY WMT AMZN
  • Bed Bath & Beyond ‘s (NASDAQ: BBBY) earnings per share came in ahead of market expectations while its revenues slightly missed the consensus mark in its fiscal third quarter earnings. The company stated that it is ahead of its plan to moderate operating profit declines and grow net earnings per diluted share by fiscal 2020. Further, the retailer also believes that its fiscal 2019 net earnings per diluted share will be about the same as fiscal 2018. The company continues to guide for net earnings per diluted share for the full year 2018 to be about $2.00. Below we highlight some of the most notable items from the Q3 earnings release. We have also created an interactive dashboard on what t o expect from Bed Bath & Beyond’s fiscal Q4 and fiscal 2018, which outlines our forecasts for the company. You can change the expected revenue, operating margins and net margin figures for the company to gauge how it will impact its earnings. We recently revised our price estimate for BBBY downwards to $14, which is almost 15% ahead of the current market price, on account of lower expected fiscal fourth quarter revenue and earnings per share estimates. Growth in Revenues, Decline In Earnings in Q3 In the third quarter, Bed Bath & Beyond’s revenue grew 3% year-over-year (y-o-y) to $3 billion, as a 1.8% decrease in comparable sales was offset by an increase in non-comparable sales, including One Kings Lane, PMall, and new stores. The retailer saw strong sales growth from customer-facing digital channels and a mid-single digit percentage decline in sales from its stores. The overall decline in comparable sales reflected a decline in the number of transactions in stores, partially offset by an increase in the average transaction amount. In terms of capital expenditures, the company spent $256 million in the first nine months of fiscal 2018, of which about 70% was spent on technology projects, including investments in digital capabilities and the development and deployment of new systems and equipment in stores. The retailer also posted diluted earnings of 18 cents per share, which declined 60% y-o-y. Margin Pressures Continue In Q3 Bed Bath & Beyond’s gross margins continued to face pressure in the third quarter as well. The company’s gross margin declined by approximately 220 basis points (bps), from 35.3% in Q3 2017 to 33.1% in Q3 2018. The company identified an increase in net direct-to-customer shipping expenses as the primary reason for this decline, which resulted from more promotional shipping activity. In addition, a decrease in merchandise margin and an increase in coupon expense also reduced the company’s gross margins in the quarter. On the cost side, Bed Bath & Beyond’s selling, general and administrative (SG&A) expenses increased slightly to around $950 million. Future Outlook Going forward, Bed Bath & Beyond expects its fourth quarter revenues to decline in high single-digit percentage. This is largely due to the fiscal calendar shift resulting from the 53rd week in the prior year, which also moved the post-Thanksgiving week from the fourth quarter into the third quarter. For full-year 2018, Bed Bath & Beyond now expects its comparable sales growth to decline by 1%, compared to a previous outlook of flat growth. We expect margin pressure to continue through fiscal 2018, due to an increase in net direct-to-customer shipping expense, growth in coupon expense, and continued investment in the company’s customer value proposition, including the impact from BEYOND+ and College Savings Pass programs, as well as the ongoing shift to its digital channels. In addition, the company expects its full-year capital expenditures to range between $350 million and $400 million. Bed Bath & Beyond continues to expect to open a net 20 new stores (with the majority being buybuy BABY and Cost Plus World Market stores) and close approximately 40 stores (with the majority being Bed Bath & Beyond stores) for fiscal 2018. 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 SAP's Revenue And EBITDA Breakdown?
  • By , 1/9/19
  • tags: SAP CRM MSFT ORCL
  • SAP (NYSE: SAP) after the 3rd Quarter results raised its 2018 outlook for the third time in the year on the back of strong growth reported. The company reported 10% growth year on year (YOY) in Total revenue with Revenue from Cloud subscriptions and support leading the way with a 41% growth YOY. The company’s traditional premise license revenue remained strong by recording a 6% growth YOY. Operating profit also grew at a 11% YOY. We have created an interactive dashboard on SAP’s Revenue and EBITDA breakdown, which details our forecasts for the company in the near term. You can modify our assumptions to see the impact any changes would have on the company’s revenue and EBITDA. We expect SAP to generate a Total Revenue of $29.18 billion with an EBITDA of $5.82 billion. We have divided the revenue stream for the company into 5 segments. The resource planning software segment (ERP) is expected to contribute revenue of $7.52 billion, while Customer Relationship management software will contribute approximately $3.83 billion, while Supply Chain Software revenue about $3.37 billion. Business Intelligence is expected to continue to grow and contribute $3.61 billion to total revenues. Professional services and other software revenues should approximately give $4.83 billion and $5.43 billion, respectively.  
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    How Will Freeport-McMoRan’s EPS Be Impacted If Copper Prices Decline By 20% In 2019?
  • By , 1/9/19
  • tags: FCX CLF AA VALE NEM CLD
  • Freeport-McMoRan Inc. (NYSE:FCX), one of the world’s premier copper, gold, and molybdenum mining companies, saw its stock lose about 40% of its value in 2018, with its current market price at $11.19. This decline was mainly driven by lower copper prices during the year – the price was down 18% in the last one year from $3.30/pound in Dec. 2017 to $2.70/pound in Dec. 2018 –  owing to the US-China tariff war, slowing economic growth in China, and regulatory uncertainty in Indonesia. Copper prices have a very large impact on the stock’s performance, as about 71% of revenue (2018E revenue) is contributed by the company’s copper mining operations and allied activities related to copper. Though we believe that copper prices will remain stable this year with a slightly upward bias due to rising EV sales, it would be interesting to see the impact on FCX’s EPS if copper price were to decline in 2019. As China consumes nearly 48% of the world’s copper, a sudden and more severe than expected slowdown in the Chinese economy would send the copper prices tumbling. Our scenario analysis shows that a 20% decline in copper price this year would lead to a $0.30 drop in FCX’s earnings per share. The chart below shows that a lower net income of $1,653 million (due to lower copper revenues) and 1,449 million common shares outstanding, would help the company achieve an EPS of $1.10 in 2019. View our interactive dashboard –  Impact of 20% decline in copper prices on Freeport-McMoRan’s EPS in 2019? – and modify the key drivers to arrive at your own Net Income and EPS estimate for the company.   Impact on Copper Revenue The realized price of copper for FCX has been stable at $2.93 per pound in 2017 and 2018E. In 2019, with a 20% decline, the price would go down to $2.34. FY2018 is most likely to see volumes grow by ~8.1%. In 2019, in spite of a significant decline in prices, we would expect volumes to grow, albeit at a slower pace. We have forecast a 5% volume growth in 2019, benefiting from rising EV sales, slightly offset by equity reduction to 48% from 90% at the Grasberg mine. Thus, volume of 4725 million pounds priced at $2.34 per pound would generate revenues of $11,075 million in 2019, which is 16% lower than 2018E revenues from the segment. Lower copper revenues would have an adverse impact on the total revenues of FCX which would decline to $16.5 billion in 2019 from $18.5 billion a year ago.     Net income margin is expected to remain stable at 11% in 2018, similar to levels of 2017 and YTD Sept 30, 2018. A fall in copper price would pull the NI margin lower as the margin realized per pound sold would drop. However, in such a scenario, we expect the company to resort to discretionary cost-reduction to avoid a sharp decline in margins. Based on these factors, net income margin would likely drop to 10% in 2019. Revenues of $16.5 billion and a 10% NI margin would lead to net profit of $1,653 million in 2019, a reduction of 18.6% over the previous year.   Conclusion Our analysis above of FCX’s performance in a scenario of a 20% reduction in copper prices next year would therefore lead to a drop of $0.30 in the EPS of the company, on the back of lower net income at $1,653 million and 1,449 million of common shares outstanding. Though the possibility of such a sharp price drop appears remote, a further Chinese economic slowdown and other curtailment/restrictions imposed in China could lead the above situation to materialize.   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 Will Be The Impact of Small Giant Games Acquisition On Zynga's Earnings?
  • By , 1/9/19
  • tags: ZNGA EA ATVI
  • Zynga  (NASDAQ:ZNGA) has recently entered into an agreement to acquire Small Giant Games, best known for its Empires & Puzzles franchise in a deal valued at $560 million for an 80% stake in the company. The acquisition can add roughly 12% to Zynga’s earnings, according to our estimates. We have created an interactive dashboard ~  How Much Value Can Small Giant Games Acquisition Add To Zynga’s Earnings ~ which shows the incremental earnings for Zynga. You can adjust various drivers drivers to see the impact on the earnings. Below we discuss our forecasts in detail. Zynga will acquire Helsinki-based Small Giant Games for $330 million cash, and $230 million in Zynga’s stock for an 80% stake in the company. Zynga will purchase the other 20% stake over the next 3 years. Zynga expects the acquisition to add to its forever franchises portfolio. Small Giant Games’ monthly active users (MAUs) are estimated to be north of 3 million, and average revenue per active user of $43 will translate into revenues of over $140 million. However, the company estimates its revenue run rate to be $130 million. The Empires & Puzzles has also been in the top 10 grossers list with 26 million downloads. Zynga expects to close the transaction in January 2019, and have guided for a 7% growth in bookings and 9% EBITDA growth in 2019. Zynga’s stock price has moved by over 13% since the merger announcement. We assume the adjusted net income margin for Small Giant Games to be the same as Zynga at 13% to arrive at $19 million earnings. Zynga’s stake is 80% in the company, which translates into $0.02 EPS assuming 890 million shares outstanding. We currently have a $0.14 EPS forecast for Zynga, and $0.02 incremental EPS represents roughly 12% of Zynga’s 2019 earnings estimate.   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.