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HP Enterprise is scheduled to report its fiscal Q4 earnings on Tuesday. We expect further top line growth in the quarter.

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VMware's market share has declined slightly in recent years, but the company still holds a commanding share of the market.

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UTX Logo
Sixth Consecutive Shareholder Suit Threatens To Interrupt UTC-COL Merger
  • By , 11/20/17
  • tags: UTX
  • Earlier in September,  United Technologies  (NYSE: UTX) managed to close the much awaited acquisition deal with aircraft parts manufacturer Rockwell Collins for nearly $30 billion, which includes $7 billion in net debt. However, since then, many concerns regarding the deal have been raised by customers and investors alike. While customers feel like the combined company would create a monopoly that could hurt their bargaining power, investors feel like they don’t have enough information on the deal to make an informed decision. United Technologies has agreed to pay out about $140 per share in the merger. Per the agreement, each Rockwell Collins shareholder will get about $93.33 per share in cash, and the remainder in UTC common stock. The company hopes to fund the cash portion of the transaction partially through debt and the balance through cash on hand. The transaction is expected to close by Q3 2018, subject to approval of Rockwell Collins’ shareholders and other regulatory bodies. Under the deal, Rockwell Collins and UTC’s Aerospace Systems segment will be combined to create a new business unit named Collins Aerospace Systems. The combined entity is expected to see many benefits. If all goes to plan, United Tech could see over $530 million in annual savings as early as year 4. Additionally, on a pro forma basis, the company is expected to see close to $23 billion in aerospace sales in 2017 alone. That said, investors are still skeptical. Last week, lawyers filed the sixth shareholder suit in the U.S. District Court in Cedar Rapids. Much like the earlier suits, it does not ask for the court to overturn the proposed merger. Instead, it claims that both companies have left investors in the dark. Shareholders feel like the companies have not provided them with enough information to make an informed decision about the deal. The company has refused to comment on the suits filed so far, but this is not a point of concern. One must keep in mind that most public mergers are subject to lawsuits. More often than not, these issues are resolved and the merger goes through unharmed. This is what we expect happening in this case as well. A date for the shareholder’s vote is not yet set. But the company hopes to schedule it in the first three months of the coming year. We can expect these suits to be settled well before that time.   View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    DE Logo
    Deere Q4 Earnings: What To Expect?
  • By , 11/20/17
  • tags: DE
  • Deere (NYSE: DE) is scheduled to report its fourth quarter fiscal 2017 earnings on November 22. We expect the company’s overall sales to increase in low double digits this quarter, primarily due to the strength in the construction industry in the last couple of quarters. Deere’s profits are also likely to increase in double digits this quarter due to the expected sales growth and Deere’s cost-cutting measures. The government support for infrastructure projects in China and India should continue to boost Deere’s construction sales. The rebound in the North American construction industry is also likely to play a vital role in Deere’s sales growth this quarter. Deere’s agriculture equipment sales grew strongly last quarter, but we expect moderate growth in the segment this quarter. Deere’s Construction Equipment Sales May Gain Momentum Deere’s construction and forestry division had a strong third fiscal quarter, as its sales increased by nearly 30% and operating income doubled. The solid growth of Deere’s construction equipment sales was driven by strength in the Asian construction industry, led by China. The government support for infrastructure projects continued in the third quarter of 2017 despite the slowing growth of the Chinese economy. Housing starts and government spending on infrastructure projects in the U.S. have also increased in the last couple of quarters. We expect the above factors to drive Deere’s construction sales this quarter. Agriculture Equipment Sales Growth Likely To Remain Sluggish This Quarter Last quarter, Deere’s agriculture and turf revenues grew by nearly 13% with the sales growth coming across operating regions. The increase was largely the result of solid growth from the U.S. and Canada, where sales had declined earlier due to a supply-demand mismatch. However, we do not expect significant growth for Deere’s agriculture equipment this quarter. Farm incomes in North America have declined this year due to lower exports caused by high grain stocks and the record harvest in the United States. We expect Deere’s agriculture sales to continue to grow this quarter, albeit at a slower rate than last quarter. For more information, please refer to  our complete analysis for Deere See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    TSLA Logo
    Why The Roadster Matters For Tesla
  • By , 11/20/17
  • tags: TSLA GM F
  • Tesla  (NYSE:TSLA) had a surprise announcement in store during its Semi truck event held last week, unveiling an all-new version of the Roadster sports car, which it discontinued in 2012. The vehicle boasts very impressive performance per Tesla, including a 0 to 60 acceleration time of just 1.9 seconds, which would make it the fastest production car in the world. The car will also carry a 200 kWh battery pack, which would give it a 620-mile range per charge. In comparison, a base Model 3 offers just 220 miles. That said, volumes on the vehicle are likely to be very low given its high starting price of $200k. There could be concerns that Tesla is biting off more than it can chew at this point, given its current production woes with the Model 3, the planned launch of the Semi in 2019 and its high cash burn rate. However, we think that there are some good reasons for Tesla to get back into this ultra-premium space, which we discuss below. We have a $205 per share price estimate for Tesla, which is well below the current market price. Halo Product At A Time When Competition Is Mounting We view Tesla’s early entry into the EV market and its brand as selling points for the company. It’s possible that the new Roadster will also serve as a “halo” product for the company, boosting the brand image of other Tesla products including the mass market Model 3. It is becoming increasingly important for Tesla to bolster its brand image, as the advantages of the shift to all-electric drive trains (superior acceleration, lower maintenance, and running costs) are unlikely to remain exclusive to the company over the long term. Mass market manufacturers such as GM and Nissan have already proven that they can manufacture relatively compelling electric products, such as the Bolt and Leaf, and players like Volkswagen are planning to invest about $40 billion over the next five years to develop EVs (related: Does Tesla Really Have An Economic Moat? ). Bt producing the world’s fastest production vehicle at a super-premium price point, Tesla could potentially improve the perception of its other vehicles as well. Margins Should Be Very Lucrative, Reservations Provide Interest-Free Capital Tesla is pricing the new Roadster at a $200k base price, with reservations open now for $50,000, although deliveries are only expected to begin in 2020. The company is also selling 1,000 Founders Series models with even better performance, priced at $250,000. The company expects prospective buyers to pay upfront to reserve this model. These reservation fees are well ahead of the $5,000 the company asks for from Model 3 buyers, and we believe that that should provide the company with a significant amount of interest-free capital. While the company’s track record of missing its production targets could hinder prospective buyers, Tesla could nevertheless net about $250 million and if the company manages to sell out its first 1,000 Founders series cars, with a further upside from the base model.  We believe that margins on the sports car should also be very attractive compared to Tesla’s current models. As Tesla only intends to manufacture the vehicle starting from 2020, it would be able to take advantage of declining battery costs. Moreover, being a low volume car, Tesla should be able to build it at its Fremont facility with minimal capital investment. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    DNKN Logo
    Here’s What T. Rowe’s Significant Stake In Dunkin’ Brands Means For Its Investors
  • By , 11/20/17
  • tags: DNKN MCD SBUX
  • As the quick service restaurant industry enters an interesting consolidation phase, speculation is rife around the potential acquisition of Dunkin’ Brands  (NASDAQ:DNKN) . Recently, Panera Bread (which was earlier this year acquired by JAB holdings) announced that it is acquiring Au Bon Pain – its closest competitor. This impacted Dunkin’ Brands negatively since investors hoped that JAB holdings would eventually add Dunkin’ to its portfolio. JAB Holdings already owns Krispy Kreme and Keurig and when it acquired Panera bread earlier this year, investors expected the next target to be Dunkin’. However with Au Bon Pain’s acquisition, it appears that JAB holdings is not looking at Dunkin’ Brands as an immediate target.  Investor interest in Dunkin’ Brands seems to be increasing with T. Rowe Price recently disclosing in an SEC filing that it now owns 9.2 million shares  of Dunkin’ Brands, up from 2.7 million in September 2017. This makes T.Rowe Price the largest investor in the company, indicating that it believes Dunkin’ Brands has a strong growth potential. Our price estimate for Dunkin’ Brands is $55, slightly lower than its current market price of around $57. We believe aggressive expansion can lead to a nearly 15% upside in our price estimate for Dunkin’ Brands and it appears that T. Rowe Price’s stake increase in the company is based on the possibility of an aggressive expansion. Click here to see our complete analysis for Dunkin’ Brands Click here to analyze our “Impact of aggressive expansion” scenario for Dunkin’ Brands.   Aggressive Expansion Possible Via Acquisition While Dunkin’ Brands is working on several initiatives including a strong focus on coffee to drive revenues, the company has been struggling to grow customer traffic. Comparable sales growth of its Dunkin’ Donuts U.S. segment (which is the company’s largest segment) was less than 1% in the first three quarters of 2017, primarily due to declining guest traffic.  The company’s growth expectations are around 300-350 restaurants every year, however, with this rate of expansion, we do not expect a significant increase in its valuation, above the current market price. Dunkin’ Donuts operates around 9,000 restaurants in the U.S. and we expect this number to increase to nearly 11,500 by the end of our forecast period. However, if the company is able to expand aggressively and reach 13,000 restaurants (for Dunkin’ Donuts U.S.) by the end of our forecast period, there can be an upside to our price estimate. Similar assumptions for its other divisions (Dunkin’ Brands International and Baskin-Robbins) can lead to an upside in our price estimate. Click here to see the growth in the total number of Dunkin’ Donuts U.S. restaurants and its impact on the company’s valuation. An acquisition by a strong player can enable Dunkin’ Brands to achieve higher growth and this can impact its stock price significantly. The high stake by T. Rowe Price indicates that the investor has confidence in Dunkin’ Brands future growth and this could be achieved via several paths in the future.   View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    YELP Logo
    How Is Yelp’s Local Ad Business Trending?
  • By , 11/20/17
  • tags: YELP
  • Yelp (NYSE:YELP) generates most of its revenues from local ads. While the total addressable market (TAM) for the company is over 20 million local businesses in the North Americas, the company has close to 4 million businesses on its platform. As a result, the company still has scope for growth in the local ad space, which is estimated at $149 billion in 2017. In this note, we explore how Yelp’s local ad business is trending. Check out our complete analysis of Yelp Local Ads Business Set To Grow According to our estimates, the local ads business makes up over 76% of Yelp’s estimated value. The revenues for this business has grown by CAGR of over 48% from $194 million in 2013 to over $630 million in 2016. The local ad revenues are set to cross $770 million in 2017.  The key drivers for this division are the average revenue per active local business account and the number of active local business accounts listed on Yelp. As stated earlier, the company has a total addressable market (TAM) of over 20 million local businesses in North America. The number of active advertising business, which pays for Yelp’s services, listed with the company is just a fraction of this market at 155,000 in Q3 2017 . While we expect that the base effect will limit the active business listing CAGR to around 10%, we believe that the company can add over 300,000 active business accounts by 2024. The factors that will impact growth are as follows: Mature Cohorts Conversion: The number of claimed businesses, which have a listing with Yelp but do not pay for any of the premium services, stands at 4 million. Most of these businesses are in regions where Yelp has been operational for more than five years. Considering that mature markets witness higher conversion rates from claimed businesses to active businesses, we expect strong growth in active business accounts from these regions. Average Revenue Per Active Business To Grow:  Average revenue per active local business (ARPALB) is one of the most important drivers in our valuation for Yelp’s locals ads business. According to Yelp, the monetization rate of a city or region increases with time as more businesses sign up for premium services such as dedicated web pages and call to action to promote their products or services. The company’s ARPALB improved to $11,332 (15% y/y growth) for regions where Yelp started offering services in 2005, and to $929 (21% y/y growth) for regions where Yelp services started in 2010. Blended ARPALB has grown from $3,592 in 2013 to $4,572 in 2016. As Yelp’s services gain traction in the regions it operates in, we expect blended ARPALB to grow to $6,755 by 2024.   Mobile App Adoption To Drive Revenues: Yelp’s mobile app continues gain traction as users increasingly use the app to find restaurants and other businesses while on the move. In Q3 2017, Yelp’s app was installed on over 30 million devices, and its reach on mobile was close to 34%. Furthermore, over 70% of page views for Yelp came from the mobile app. Considering the rampant growth in the usage of mobile devices, we expect the mobile platform to become a major revenue driver for Yelp in the coming years. We believe that adoption of Yelp’s mobile platform will drive growth in traffic for Yelp, which in turn will lead to more businesses signing up. This should also help the company to improve its ARPALB. Our price estimate for Yelp stands at  $30, which is around 20% below its current market price. Understand How a Company’s Products Impact its Stock Price at Trefis Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    ANF Logo
    Improving Comps Drives Growth For Abercrombie In The Third Quarter
  • By , 11/20/17
  • tags: ANF AEO URBN GPS
  • The retail sector has been buoyed with the improving results seen at companies such as Gap, Foot Locker, and Wal-Mart.  Abercrombie & Fitch  (NYSE:ANF) was another such retailer that posted strong gains as it carried on with the momentum it has built up recently, posting a beat on both revenue and consensus estimates. Its shares were up close to 24% after its earnings release. The impressive performance was shored up by the 4% comparable sales growth for the company, which thumped the 0.3% gain expected. The shift towards online and fast-fashion stores have hit a number of teen-retailers, including Abercrombie. In response to this, the company has implemented a bevy of changes to turn around its fortunes and revamp its image. Abercrombie also expects a strong holiday quarter, with comps slated to increase in the low single digits, to close out the year on a high. Below we’ll highlight some growth drivers for Abercrombie. We have a $12 price estimate for Abercrombie & Fitch, which is now below the current market price. 1. Direct-To-Consumer (DTC) Segment One avenue of long-term growth is the company’s online business. A fundamental shift from brick-and-mortar to the online platform is evident, and retail companies have to embrace this trend in order to be relevant. Keeping this in mind, ANF has integrated its Abercrombie and kids websites and optimized it for mobile, payment, and tracking. The company reported an 11% growth in this segment this quarter, with a majority of the growth coming from mobile. This implies that the company’s significant investments into mobile are paying off, as more than two-thirds of the DTC traffic comes from this platform. Abercrombie’s digital store-centric capabilities such as purchase online, pick up in store, which witnessed a 75% growth this quarter, have been driving traffic to stores and, as a result, been spurring the purchases and productivity within the store. DTC has grown to 24% of the company’s business, up from 23% last year. The company has a robust omnichannel functionality in markets such as the US, Canada, and the UK. These capabilities are being introduced in its other markets as well, which is a necessary area of focus for driving international growth. 2. Hollister Hollister has continued to perform strongly amid a tough retail environment. The brand built on the momentum it had gathered in the past few quarters, growing its comps by 8% in the third quarter. While A&F’s comps are improving sequentially, they are still in the negative territory. As can be seen in the chart below, the third quarter of FY 2016 seems to be the turning point for the comps. While Hollister’s recovery started in the quarter prior, for the namesake brand and the whole company, the comps have trended better since Q3. Changes to the assortment have been a factor driving the growth at Hollister, as well as its lower-priced products as compared to A&F. Its Club Cali loyalty program continues to do well, and attract new customers. The program has grown to over 8 million customers by the quarter-end, who get to make use of the member-only events. 3. Online Partnerships Abercrombie has partnered with online retailers such as Zalando and Zalora, to get access to their customer base in Europe and Southeast Asia, respectively. Since every sale through these websites will be additional revenue, without any fixed costs associated, it may have a positive impact on the margins. The company is also not that heavily existent in these regions, and hence, a presence on the websites will not result in cannibalization. The company also last quarter launched Abercrombie & Fitch and Abercrombie Kids on Alibaba’s Tmall platform. The success of Hollister on this platform for the past three years prompted ANF to showcase its other brands as well, and this move helps to leverage the strong digital growth in China. 4. Intimates & Swimwear Victoria’s Secret’s loss seems to be A&F’s gain. The former discontinued its swimwear line and has suffered from comp declines ever since. Abercrombie, on the other hand, witnessed aggressive growth in its Swim and Intimates line, with Gilly Hicks continuing to attract new customers to the Hollister brand. The Gilly Hicks brand was relaunched globally in the beginning of 2017 and seems poised for success in the future. Even for American Eagle, its lingerie and activewear brand, Aerie, has been its best-performing segment for a while now, demonstrating tremendous growth in this field. See our complete analysis for Abercrombie & Fitch Have more questions about Abercrombie & Fitch? See the links below: Apparel Retail Companies: Surviving The Holidays 101 Abercrombie & Fitch Looks To The East For Growth Part 2: Is There A Way Out Of The Rut For Brick And Mortar Stores Retailing Conundrum, Part 1: Is There A Way Out Of The Rut For Brick And Mortar Stores? Notes: Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
    HPE Logo
    Hewlett-Packard Looks Likely To Report Another Quarter Of Revenue Growth
  • By , 11/20/17
  • tags: HPQ
  • Hewlett-Packard  Incorporated (NYSE:HPQ) is set to announce its fiscal Q4 results on Tuesday, November 21. While we expect the company to report an improvement in PC revenues as the company continues to outperform the declining PC hardware industry, printer hardware and supplies revenues are also likely to improve as HP’s supply chain strategy yields positive results. Below we discuss what to expect in more detail. For precise figures, please refer to  our full analysis for Hewlett Packard Incorporated Outlook For Q4 2017 And 2017 For fiscal Q4, HP expects its supplies revenues to flatline. In Personal Systems, it expects to see continued increases in the cost of components, which the company plans to pass on to consumers through an increase in PC prices. HP estimates GAAP diluted net EPS from continuing operations to be in the range of $0.37 to $0.41, and non-GAAP diluted net EPS to be in the range of $0.42 to $0.45. For 2017, HP estimates non-GAAP diluted net EPS to be in the range of $1.63 to $1.66. New Launches Across Product Lines Boost Market Share, Revenues The Personal Systems division is HP’s second-largest division and accounts for around 41% of its value, per our estimates. The global PC industry stabilized in Q3’17 as PC shipments flatlined during the quarter . According to IDC estimates, global PC shipments declined to 67 million in Q3 2017, while HP’s PC shipments grew by 1.4% to 15.29 million in the same period. We believe that this could translate into revenue growth for the company during the quarter. Furthermore, the company continues to target the premium range of PCs with its new releases. We believe that the average selling prices (ASPs) and margins for HP’s PCs improved due to this shift towards the premium category. Printer Segment Revenues To Improve HP’s printer division is its largest division, and we estimate that it accounts for about 59% of its value. In Q2 2017, IDC estimated that the worldwide hardcopy peripherals market grew 0.6% year over year with more than 23.3 million . It also estimated that HP’s shipments grew by 1.3% as the company continued to maintain its leadership in the space. We expect this trend to persist in fiscal Q4, and forecast HP’s share in shipments to improve. Furthermore, we believe that HP’s channel inventory sales have picked up, as the company has changed its supply model. We expect that as the company continues to tweak its supply chain management strategy, its supplies revenues will improve in Q4. We also expect ASPs to grow both sequentially and year over year, driven by both mix (more laser printer sales compared to inkjet) and pricing. At present, we have an $18 price estimate for HPQ’s stock, which is around 15% below the current market price. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research  
    RBS Logo
    Robo-Advisory Moves Should Boost RBS's Profits
  • By , 11/20/17
  • tags: RBS BCS C HSBC
  • In a bid to make the most of the rapidly growing robo-advisory industry, The Royal Bank of Scotland Group (NYSE:RBS) has begun offering its customers robo-advisory services through its NatWest Invest platform . While the robo-advisory industry in the U.K. has dominant players like Scalable Capital ( in which BlackRock acquired a minority stake this June ), MoneyFarm and Nutmeg, RBS is the first major bank in the country to offer these services. RBS’s ability to push the new platform among existing retail banking customers, and the fact that other U.K. banks have yet to jump onto the robo-advisory bandwagon, should give RBS a distinct advantage relative to incumbents, who are all independent companies. Notably, the fee revenues from NatWest Invest will be split between the bank’s retail banking operations (which provides the investment platform) and its asset management operations (which will be the investment manager).
    GES Logo
    Guess' Q3 Fiscal 2018 Might Show Further Improvement In Performance Boosted By Sales In Europe And Asia
  • By , 11/20/17
  • tags: GES GPS ANN LB
  • Guess (NYSE: GES) is slated to release its Q3 FY 2018 earnings on November 21st (fiscal year ends in January). The company is currently following a strategy of expanding its presence in Europe and Asia while gradually decreasing its presence in its domestic American markets. The footfall decline in the American brick-and-mortar stores has been the reason for Guess’ weak performance for the last few years and hence, the company is turning into markets where its products are better received. This strategy is gradually reaping benefits for the company as is witnessed by the quarter over quarter improvement in its performance since the end of last year. For the second quarter of fiscal 2018, Guess’ top line grew by 5% to $574 million which is a considerable recovery from its 3% revenue decline in Q2 FY 2017. Even compared to its Q1 fiscal 2018 top line growth of 2%, the second quarter’s revenue growth was significantly higher. Currently, Guess is targeting the millennials as the main segment of consumers for its apparel and towards that end, it is strengthening its digital presence and upgrading its omni-channel capabilities. It is transitioning all its websites into a state-of-the-art responsive site, which will improve the user experience with faster speed and less navigation steps. It has recently partnered with marketplaces such as Tmall, JD, and vip.com in China, La Redoute and Otto in Europe, and Amazon in the U.S. and Canada in order to further build the omni-channel capabilities. Guess is experiencing double digit growth in both Europe and Asia and this is primarily on account of new store openings, healthy wholesale businesses, and a growth in the comparable store sale figures. It is shutting down stores in the Americas due to their persistently weak performance. We have a $18 price estimate for Guess which is in line with the current market price. Guess Continues To Grow In Europe In the European markets Guess’ net revenues for the first half of fiscal 2018 grew by 21% y-o-y mainly driven by a rise in comparable store sales and also a double-digit growth in the wholesale business’ revenues. Guess’ profitability in the wholesale business is currently growing in Europe which is evident from the fact that despite not significantly increasing the number of wholesale dealers over the past year, the revenues from the wholesale business keep growing. Guess has opened new stores in regions including Italy, Spain, UK, Netherlands, Switzerland, Russia, and Poland so far in fiscal 2018. A few months ago, the company opened a new 625,000 square-foot distribution center in Venlo, in the Eastern part of the Netherlands. The distribution center, expected to be fully operational by the end of fiscal 2018, will help Guess further with its supply chain management in Europe. It Is Building A Bigger Presence In Asia Guess’ current CEO Victor Herrero had plans of major expansion in Asia ever since he assumed his position in mid-2015. Herrero, who had a tremendous success story of building a $4 billion business from scratch for Inditex Asia, wanted to replicate the same growth for Guess in Asia. Towards that end, in Q3 fiscal 2016, the company hired a new Director for China and a new Director of the Middle East, India, and Southeast Asia. Both the directors are Mr. Herrero’s ex-colleagues from Inditex. Further, the company doubled its capital allocation for the Asian stores and the e-commerce business in Asia was strengthened by a greater presence on websites like Tmall, JD.com, and Guess.cn. The company’s 16% y-o-y growth in the Asian markets for the first half of fiscal 2018 was driven by a rise in store openings and comparable store sales (which included e-commerce sales). The Company Is Focusing On Higher Profitability And A Smaller Presence In North America In the first half of the fiscal year, though Guess’ American wholesale business witnessed a growth of around 6% to $69 million, the retail segment’s revenues fell by 13% to $375 million. Guess is gradually trying to reduce its footprints and increase profitability in the region.The Americas are expected to represent only 25% of its business in the future and it plans on achieving a 7.5% overall long term operating margin in the Americas. Towards that end, the company is taking several steps, including: creating a better balance between the American retail and wholesale businesses; store closures (it plans on closing a total of 70 stores in the Americas by this fiscal year end); improving its product offering which will include inputs from customer feedback; and, building a stronger online presence through celebrity endorsements, marketing, and promotions.   Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    HPE Logo
    HPE's Revenues Set To Grow In Q4
  • By , 11/20/17
  • tags: HPE
  • Hewlett-Packard Enterprise  (NYSE:HPE) is set to release its fiscal Q4 2017 earnings on Tuesday, November 21. The company continues to focus on high-end enterprise hardware and customer services, and continues to build its core portfolio of services for the hybrid cloud infrastructure to bolster its revenues. In the previous quarter, HPE reported top line improvement as revenues from networking, core servers, and technology services grew. We expect that this trend continued in Q4 and revenues from the Enterprise group and Technology Services grew. Outlook For Q4 And 2017 For the fourth quarter of fiscal 2017, HPE estimates that its GAAP diluted net EPS will be in the range of $0.00 to $0.04 and non-GAAP diluted net EPS to be in the range of $0.26 to $0.30. Fourth quarter fiscal 2017 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.26 per share, related primarily to separation costs, restructuring charges and amortization of intangible assets. Marginal Growth In Enterprise Group Revenues According to Trefis estimates, the Server & Storage businesses, which make up the Enterprise Group vertical, account for close to 52% of HPE’s total valuation. The worldwide server revenues grew by 6% in Q2’17 . Although HPE continues to lead the industry, its revenues and share declined in Q2 as demand for white-box (unbranded) servers dented sales of branded servers. Nevertheless, with several clients upgrading to Intel’s new Skylake processors based servers, we believe server shipment grew in Q3. This should have a trickle-down effect on HP’s server revenues, and the company may report marginal top line improvement for Q4. The Storage division revenues are also reported under the Enterprise group umbrella. This division reported double-digit growth in Q3 driven by 30% growth in all-flash storage as its acquisition of Nimble bore fruit. Despite the increase in revenues from hybrid storage, the business environment in storage remains challenging amidst consolidation. However, constraints in NAND supply should drive prices for flash storage, and this should help the company to shore up its revenues.  As a result, we believe that inorganic revenue growth and flash storage will continue to bolster storage revenues in Q4. Signings and Revenues From Technology Services To Grow The Technology Services division, which includes virtualization, cloud deployment, and security services, makes up nearly 30% of our estimated valuation for HPE. The company continues to focus on building its competencies for software-defined hybrid infrastructure services. This has led to growth in new orders in the trailing five quarters. We believe that this trend continued in Q4 and revenues are expected to improve. We currently have a $14 price estimate for HPE’s stock, which is in line with current market price. For precise figures, please refer to  our full analysis for Hewlett Packard Enterprise View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    Groupon's Stock Up 50% This Year, Price Estimate Revised To $4.50
  • By , 11/20/17
  • Groupon (NASDAQ:GRPN) has undergone some major restructuring in recent quarters, as it has been exiting some key markets for a while now. Groupon was operating in almost 50 countries a couple of years ago, a figure which is now down to 15 countries. The company took these steps in a attempt to boost profits, and it has been a success thus far. In recent quarters, the company reported a significant decline in operating expenses and a boost in profits. Groupon’s net income per share (GAAP) has been negative since its IPO, while the company has barely reported a profit (non-GAAP). Groupon’s net profits in the last three years have been a few cents a share with its market price falling from its IPO price of over $20 to low single digits in recent years. We have a revised $4.50 price estimate for Groupon, which is around 20% lower than the current market price. Groupon’s stock price has risen by over 50% in the last year, from $3.30 at the beginning of the year to $5.50 currently. Below we take a look at why Groupon’s stock price has surged this year and why we revised our price estimate from $4 to $4.50. We also take a look at why we remain conservative with our estimate. See our complete analysis for Groupon here Groupon’s Restructuring Has Led To Lower Revenues Groupon has brought down its international presence to streamline its operations. The company intends to primarily focus on certain high-performing regions across North America and Europe. As a result, the company’s gross billings for the third party goods business in the international segment has fallen in recent quarters. A shift away from third-party goods makes sense, since competition among various e-commerce and online booking companies has led selling prices to drop. Moreover, comparison websites divert customers away from discount websites. Furthermore, the direct sales business has been low performing in North America this year. Consequently, we have revised our forecast revenues for this year and subsequent years, as shown below. Despite lower gross billings for the third-party stream in the international segment, Groupon has performed well in direct sales in strong-performing areas. The renewed focus on North America and Europe has led to the addition of new customers in recent quarters. The total number of active users has risen by over 7% this year to over 49 million customers this year on a trailing twelve month (TTM) basis. Lower Expenses Have Helped Improve Margins The company’s intent to focus on high-performing markets has reflected positively in the company’s recent earnings. Groupon’s selling, general and administrative (SG&A) expenses have fallen over 10% y-o-y to just under $677 million through the first three quarters of the year mainly driven by cost cutting efforts by the company, including reducing its headcount. As a result, we’ve revised our forecast for SG&A expenses. Lower marketing and employee expenses have lead to an improvement in operating profits and EBITDA margins for the year. With presumably lower order discounts and relatively lower new customer acquisition costs in markets it intends to stay in, Groupon is seemingly on course to improve profitability in the long run. However, the company has moved away from many international markets, thereby reducing its potential addressable market size. You can modify the interactive charts in this article to gauge how changes in individual drivers for Groupon can have on our price estimate for the company. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    Revising Apple Price Estimate To $180 On Services And iPhone Strength
  • By , 11/20/17
  • We are increasing our price estimate for Apple  (NASDAQ:AAPL) from $166 per share to about $180 per share, to account for strong momentum in the iPhone business and a robust outlook for the company’s services division. Our price estimate represents a slight premium to the current market price. In this note we explain the changes we have made to our forecast model for the company. See Our Complete Analysis For Apple Here iPhone To See Growing Momentum With New Launches The iPhone business is set for a strong fiscal 2018, driven by the launch of the iPhone X and, to a lesser extent, the iPhone 8 Plus device. The iPhone X could turn out to be more lucrative to Apple than previously estimated. Research firm IHS estimates that the 64 GB version of the smartphone costs about $370 to build, well below previous estimates, which pegged potential costs at as much as  $581 . This would imply that margins could be roughly in line with previous iPhones, and dollar gross profits are likely to be significantly higher, given the $1,000 starting price. Apple’s manufacturing ramp-up for the device also appears to be progressing well, with shipping times declining to as low as 2 to 3 weeks, from the previous estimates of as much as a month. Apple also has a wider lineup of legacy iPhones this year, including the iPhone 7, 6S and SE, which could cater to more price-conscious buyers (price range $350 to $669), allowing Apple to compete head-on with mid-range Android devices. Margins on these legacy devices could still be attractive, as they use a basic design that is more than 3 years old. Services Business Will Outperform, Aiding Margins Apple’s Services business has emerged as the company’s fastest-growing segment, growing by about 23% year-over-year in FY’17 to about $30 billion. The company has indicated that revenues could approach levels of about $50 billion by 2020. There are multiple trends driving Services sales. For instance, sales at the App Store could rise as Apple launches new developer kits such as the augmented reality-focused ARKit, which could enable a richer experience.  Apple may also benefit from trends such as cord-cutting and a shift towards streaming video and music services, as the company earns a commission (typically  15% to 30% ) from third-party subscriptions made on its platform. The Apple Pay business could also see revenues accelerate (albeit from a small base) over the next few years, as Apple has already done much of the heavy lifting in terms of building out the necessary infrastructure in many developed markets. As services account for a greater portion of Apple’s revenues, they could have a more positive impact on gross margins, while helping Apple reinforce switching costs around its ecosystem, protecting the high-value iPhone business. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    Is This The Beginning Of A Turnaround For Oil Prices?
  • By , 11/17/17
  • LB Logo
    Though L Brands' Performance Remained Dampened, Victoria's Secret's Revival Efforts Might Lead To Better Days
  • By , 11/17/17
  • In line with the rest of its fiscal year, the third quarter fiscal 2017 results were disappointing for L Brands, (NYSE: LB), the parent company for Victoria’s Secret (VS) and Bath & Body Works (BBW). Even though the company’s net sales grew by 1% to $2.6 billion, its net income declined by 29% to $86 million while its EPS stood at $0.30 reflecting a 29% decline. L Brands’ comparable store sales fell by around 1%. The main driver for this poor performance was the weakness in sales in the VS segment whose comparable sales declined by 4%. The brand’s exit from swimwear and apparel last year to focus solely on bras is still hurting its sales. Bath & Body Works on the other hand witnessed a 4% increase of comparable sales. However, VS Stores is the most important segment for the company as it derives close to 50% of its revenues from this segment. The VS Stores and VS Direct together make up for almost 80% of our valuation of L Brands. We have a $41 price estimate for L Brands which is around 16% lower than the current market price. Victoria’s Secret Continued With Its Revival Efforts Which Showed Some Positive Signs For Victoria’s Secret, the decline in traffic in the North American brick-and-mortar stores has been a major cause for its weakness. However, the management discussed ways in which it is strengthening the division with the hope of bringing about a revival. Victoria’s Secret is trying to build a better connect with its customers through its store associates and also through the digital medium. The brand is focusing on providing the most innovative and fashionable bras, in all the segments, namely, unlined, lightly-lined, or push-up bras. In the third quarter, the brand launched Illusion, a constructed bra that comes in three choices. The demand for this bra has been higher than previously launched constructed bras, and that is a hopeful sign for the future. Its Dream Angel and Sleep brands also saw double digit growth in sales of constructed bras and sleepwear, respectively. The Sports bra category, which is a major growth driver for VS, also grew by double digits. Along with an aggressive online presence, the company also reactivated its loyalty program through the Angel Cards. Overall, it does seem like Victoria’s Secret is gearing up for better performances in the upcoming holiday season and also in the next fiscal year. L Brands’ International Sales Seemed Hopeful L Brands’ international segment witnessed an 11% growth in revenues in the third quarter driven by both VS and BBW, with the latter having an especially strong quarter with growth in all regions. VS continued with its weak performance in the U.K. where it is still struggling to revive performance. However, the company is currently focusing on China for its international growth and its investment on people, infrastructure, and real estate in the region continued. VS is looking forward to a major boost through the upcoming fashion show in Shanghai. Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at  content@trefis.com   Notes:
    URBN Logo
    Margins To Remain Pressured For Urban Outfitters In The Third Quarter
  • By , 11/17/17
  • tags: URBN GPS AEO ANF
  • The apparel retail industry has been plagued with the rise of Amazon and fast-fashion brands such as H&M and Zara. As a result expectations from companies in the sector have remained pretty poor come this earnings season. Hence, it should not come as a surprise if  Urban Outfitters  (NASDAQ:URBN) is able to surpass consensus estimates this time around as the bar has been set low. The company has also been seeing favorable earnings estimate revisions recently, which is a sign of positive news surrounding Urban right before their earnings disclosure. This time around a significant decline in earnings on flat sales growth is expected. If the company is able to outperform the poor results expected, it should provide a boost to its stock price, similar to what happened post the second quarter earnings announcement. Below we’ll highlight a few factors we feel will be impacted in the third quarter. Comparable Sales Recovery Expected Outside factors aren’t alone in causing the declining sales of the Urban brands. One-dimensional focus on certain products at the expense of a well-balanced, wider assortment has resulted in a downfall of the Urban Outfitters brand. Furthermore, a higher lead time inhibited the company’s ability to quickly rectify its mistakes. For this reason, the North American business spent the second quarter trying to re-architect itself. Instead of buying a bulk of its assortment earlier, it started buying a smaller quantity upfront and then bought the remainder, with a faster turnaround, based on the sales. Although the full implementation of this strategy may take some time to even out the flaws, it is expected to show some results in the third quarter. For the Anthropologie brand, the potential reduction in markdowns may hamper the sales growth in the quarter but may help out the margins. The 3% growth seen in Free People in Q2 was impressive given the current retail situation and the fact that the prior year’s quarter included higher sales as a result of increased markdowns. This implies that the potential of the brand can be considered to be strong. While the apparel market in the US continues to be challenging, if the initiatives undertaken by the company do result in an improvement in the assortment, the back half of the year may not be as bad as the first half. Furthermore, URBN has an enormous potential in the international market, where the company has been witnessing positive comps. Keeping that in mind, the Anthropologie brand signed a wholesale distribution agreement to sell its home products in John Lewis stores in the UK. The Urban brand opened three new stores in Europe during the second quarter. Additionally, the company intends to sign several international franchises and joint venture agreements over the next one or two years. These actions may help the company tide over the weaknesses in the domestic market. Margin Pressure Will Remain Urban’s gross profit margins declined by 440 basis points in Q2, to 34.1%, as compared to the corresponding quarter in FY 2016. The main reason for this had been cited to be the underperforming women’s apparel and accessories merchandise at Anthropologie and Urban Outfitters, which forced the company to undertake higher markdowns. Another factor held responsible for the decline was the higher delivery and logistics expense related to the focus on the direct-to-consumer (DTC) channel. These factors together with the higher digital marketing spend resulted in the fall of the operating margin by 470 basis points, to under 9%. In its prepared statement, the company did state that the gross margin is expected to decline at a lesser rate than that seen in the first half and that August was faring better than the second quarter, with a slight improvement in traffic and a better reaction to the women’s line. This would imply better comps, and consequently a reduced need for markdowns. However, whether this trend continues through the quarter remains to be seen. Moreover, the highly competitive nature of the apparel retail business makes the achievement of higher margins pretty unlikely. Since the merchandise is very similar across most retailers, they resort to reducing prices in order to gain market share, which has been wreaking havoc on the bottom-line for many such companies. Hence, while reduced markdowns may give some respite, the margins of retail companies can be expected to remain pressured for the foreseeable future. Moreover, a focus on the better performing segments of the company – DTC and Free People Wholesale – will no doubt have a positive impact on the top-line, but it won’t do the bottom-line any favors. See our complete analysis for Urban Outfitters Have more questions about Urban Outfitters? See the links below: Urban Outfitters Is Winning Online, But Losing At Brick-And-Mortar Apparel Retail Companies: Surviving The Holidays 101 Does Urban Outfitters’ Strategy Of Opening New Stores Make Sense? Notes: Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap | More Trefis Research
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    Capital One's Decision To Exit Mortgage Origination Business Will Add Value On Multiple Fronts
  • By , 11/17/17
  • In what comes as the latest indicator of the secular shift in the country’s mortgage industry over recent years,  Capital One (NYSE:COF) recently announced that it is shuttering its mortgage origination unit . With the Fed’s ongoing rate hike driving mortgage rates higher, Capital One concluded that it will no longer be able to keep up with the competition in a profitable manner – prompting the abrupt exit. We believe that the decision is a good one for Capital One in the long run. As we have pointed out on many occasions in the past, Capital One’s sizable mortgage business is essentially a by-product of its overall strategy of growing through big-ticket acquisitions – with the current mortgage unit becoming a part of the bank’s card-focused business model after its acquisition of ING Direct’s U.S. operations. Capital One never aimed to grow the unit, as is evidenced by the steady decline in its mortgage portfolio over the years.
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    What Factors Will Drive Growth For J&J's Cardiovascular Pharma Portfolio?
  • By , 11/17/17
  • Johnson & Johnson’s  (NYSE:JNJ) cardiovascular and metabolism portfolio, which primarily consists of Xarelto and Invokana, accounts for around 15% of the company’s value, according to our estimates. Within pharmaceuticals, the company derives most of its value from oncology drugs, which we believe will also be the key growth drivers in the coming years. Looking at the cardiovascular and metabolism segment, we expect Xarelto and Invokana to perform well over the next few years and their sales to peak at $2.5 billion in 2018-2019 and $1.8 billion in 2022, respectively. The chart below shows the historical and projected revenue trajectory for Johnson & Johnson’s cardiovascular and metabolism segment. Xarelto is an anti-coagulant (blood thinner). The drug was launched in 2011 in the U.S. and its revenues stood at nearly $2.29 billion in 2016 and $1.8 billion for the nine month period ending September 2017. Johnson & Johnson has marketing rights for the drug in the U.S. However, Xarelto nears its patent expiry in 2020, and the sales are likely to decline thereafter. While Xarelto’s performance is encouraging, considering that the drug has broken into a crowded and competitive therapeutic area of cardiovascular diseases, the competition from other innovative drugs could weigh on its sales. It should be noted that Johnson & Johnson’s phase 3 pipeline currently does not have any other critical cardiovascular and metabolism compounds. Looking at Invokana, it is an oral medication for type 2 diabetes that helps to lower blood glucose levels. The drug was approved by the FDA in 2013 and its sales stood at $1.4 billion in 2016. While Xarelto is gaining market share, Invokana is facing a decline in market share this year due to competitive pressure, and the revenue growth is also impacted by drop in prices. However, we believe the drug will grow in mid-single digit in the coming years. This will be driven by uptake in the U.S. and potential expansion in international markets. It should also be noted that about 30 million people in the U.S. were living with diabetes in 2015, which is over 9% of the total population. Apart from this, about 100 million people living in the country have diabetic or pre-diabetes conditions. These data points suggest that despite competitive pressure, Invokana may still be able to expand in the U.S. market, albeit at a slow pace. We have a $125 price estimate for Johnson & Johnson, which is around 10% below the current market price. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Hurricanes To Boost Lowe's Sales In The Third Quarter
  • By , 11/17/17
  • tags: LOW HD
  • Given the impressive performance of Home Depot in the third quarter, reported earlier this month, the same can also be expected from  Lowe’s (NYSE:LOW), as both retailers benefited from the string of natural disasters that hit the country. Comparable sales for Home Depot grew at 7.9% in the quarter, 2 percentage points higher than anticipated. Such a bump can be expected for Lowe’s as well. Revenue growth for Lowe’s is also set to be driven by the acquisitions of Maintenance Supply Headquarters in June, and Central Wholesalers back in November of 2016, which are expected to increase the reach of the company among professional customers. Comparable sales growth together with stock repurchases undertaken by the company are expected to uplift the earnings in the third quarter. We have an  $83 price estimate for Lowe’s, which is slightly higher than the current market price. Focus On Integrated Channels Lowe’s is investing in an omnichannel retail strategy to enhance the customer experience. The company is advancing its omnichannel experience to make it easier for customers to engage with its interior and exterior home project specialists. On its website, the company has added online scheduling capabilities which have led to a large number of customers seeking online appointments for these specialists. Lowe’s is also looking to add online tools to its website to improve the customer experience. An integrated retail channel is likely to remain a key growth driver for Lowe’s as customers look for convenience to shop for products and visualization tools to virtually “try” products to understand how they would look in their homes. The company’s bet on the smart home market, by expanding its connected-home shopping experience to 70 stores in the US, also makes sense. The primary purpose of its store within a store feature, in partnership with b8ta, is to educate shoppers on smart home products, enabling them to “easily discover, learn and try the latest smart home technology all in one place.” Given the impressive growth rates expected in this sector, it is not a surprise that Lowe’s also wants to jump on this bandwagon. Furthermore, Lowe’s has the scale necessary for making the significant investments needed to make it big in this space. Margins To Remain Pressured There are a number of factors that are likely to have a negative impact on the margins of the company in the third quarter. The RONA acquisition is likely to add a 15 to 20 basis points pressure on the operating margins in 2017. Second, the steps taken by the company to improve its store traffic trends, to amplify its marketing reach with customers, and to improve its competitiveness are going to strain the margins. Moreover, as was the case with Home Depot, hurricanes would not only have resulted in increased costs but would have also caused higher sales of low-margin items. These factors will also have an adverse impact on the margins. To overcome these, the company has undertaken optimization efforts by working closely with vendors to improve their cost and pricing tactics. The acquisition of Maintenance Supply Headquarters also provides an opportunity to improve the margins through higher sales with pro customers. See our complete analysis for Lowe’s. Have more questions about Lowe’s? See the links below. Lowe’s Bets On The Smart Home Market Improving Housing Trends Bode Well For Home Improvement Companies Lowe’s Posts A Top and Bottom Line Miss, But Growth Continues Can Hurricanes Provide A Boost To Home Improvement Companies? Notes: Get Trefis Technology
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    What Is The Risk To Nvidia If Intel-AMD Partnership Captures Notebook GPU Market Share?
  • By , 11/17/17
  • tags: NVDA AMD INTC
  • There is little doubt that the partnership that  Intel  (NASDAQ:INTC) and  AMD  (NYSE:AMD) announced recently is aimed at combating rival  Nvidia  (NASDAQ:NVDA), which is becoming increasingly competitive. Under this partnership, the two companies will create a new chip which will combine Intel’s CPU with AMD’s Radeon GPU technology. This chip will be geared towards high-end gaming notebooks, and will allow OEMs to develop lighter and thinner notebooks without losing the massive processing power that high-end gaming requires. So what’s the magnitude of risk that this strategy poses for Nvidia? We estimate that if Nvidia loses 10-15% of its share in the notebook GPU market, its valuation can take nearly a 10% hit. Take a look at  our interactive breakdown of key drivers and metrics for Nvidia  to see how this can happen. Our price estimate for Nvidia stands at $134, implying a significant discount to the market. Nvidia Could Lose 10% Value If Its Market Share In Notebook GPUs Falls From 70% to 55% Intel and AMD have partnered to embed Radeon’s discrete graphics technology within Intel’s CPUs to create lighter gaming notebooks.  However, the risk to Nvidia’s valuation will be meaningful only if it loses its market share significantly. We estimate that if Nvidia’s share of discrete notebook GPUs declines from an estimated 70% to 55%, the company could lose 10% of its value. In this scenario, both the number of units and pricing can fall meaningfully below what we expect. Decline In Market Share And Pricing Would Cut Into Nvidia’s Notebook GPU Revenue The charts below show how our downside case forecasts diverge from our base case: If the company’s market share declines, Nvidia will be forced to reduce prices to compete. A decline of 15% in market share and a 25-30% reduction in pricing would lead Nvidia’s notebook GPU revenues to fall nearly 50% below what we forecast in the long run. This, in turn, would imply a 10% decline in the company’s valuation. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Tesla's Semi-Truck Looks Impressive, But Many Questions Remain
  • By , 11/17/17
  • tags: TSLA GM F
  • Tesla  (NYSE:TSLA) unveiled its new Semi truck on Thursday, marking the company’s first step into the commercial vehicle space. The truck, which features autonomous driving capabilities, will offer a range of about 500 miles on a single charge. Unlike Tesla’s luxury vehicles, which sell based on their brand cachet and performance, the company will have to provide a compelling economic argument for fleet operators to adopt its semi-truck, given the low margins in the trucking business. We believe there are three broad factors that will determine how Tesla competes against diesel engine based trucks, namely load carrying capacity, range and cost. We have a $206 per share price estimate for Tesla, which is well below the current market price. See our full analysis for Tesla Range Appears Impressive, But Payload Details Remain Unclear Tesla says that the semi-truck is capable of hauling a gross weight (including vehicle weight) of about 40 tons. While this is in line with other trucks and the U.S. federal limit, the Tesla truck’s battery weight could be significant, potentially hindering the vehicle’s payload (carrying capacity). For instance, researchers at  Carnegie Mellon University estimated  that an electric truck with a range of 600 miles would require a 14-ton battery. Tesla says that the truck will have a range of 500 miles on a single charge, which is a figure that exceeds 80% of commercial trips. In comparison, some diesel trucks can go as much as 900 miles on a single tank. The company also says that the truck can charge up to 400 miles of range in 30 minutes, via its specialized mega chargers. Although the charging time is impressive, it is still higher than the refueling time for diesel trucks, and Tesla will still need to invest in building out an expansive network of charging stations. Operating Costs Will Be Low, But Upfront Costs Remain A Key Factor To Watch Although Tesla hasn’t outlined the price of the new vehicle, Elon Musk notes that the per mile operational costs for the semi could come in at $1.26 per mile, compared to $1.51 for diesel trucks. Maintenance costs and downtime could also be much lower compared to diesel trucks, and they should have a longer life overall, with Tesla providing a 1 million mile no-breakdown guarantee. That said, we believe that upfront costs will be significantly higher compared to diesel trucks, on account of high battery costs. For instance, the Carnegie Mellon University  study noted that a truck with a 600-mile range (about 20% higher than the semi) could have battery cost of about $290k, which is roughly double the price of a Class 8 diesel truck. However, governments could subsidize electric heavy vehicles, given their role in curbing air pollution. For instance, in California, heavy-duty vehicles account for 7% of all vehicles but about 20% of transport-related greenhouse gas emissions and roughly a third of nitrogen oxide emissions. As the Tesla Semi will not have tailpipe emissions, it may be viewed favorably by governments who could provide incentives, bringing down costs for customers. 2019 Timeline Will Give Tesla Time To Sort Out Model 3 Issues  Tesla investors might question the rationale of working on a brand new vehicle that caters to an entirely new type of market at a time when the company is grappling with production issues and a significantly slower than expected manufacturing ramp up for its first mass-market sedan, the Model 3. However, as Tesla intends to begin mass producing and shipping the truck only in 2019,  it could have largely ironed out issues for the Model 3, which has a highly automated manufacturing process. The 2019 launch timeline could also ensure that Tesla achieves greater economies of scale for battery production with its Model 3 vehicles, translating into lower costs for the semi. The semi-truck is also expected to share many components with the Model 3 sedan, including the same electric motors, which could bring down costs. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    Key Takeaways From Best Buy's Q3
  • By , 11/17/17
  • tags: BBY WMT AMZN
  • Best Buy ‘s (NYSE:BBY) announced mixed third quarter results, as its revenue missed market expectations and its earnings per share came in line. The company’s stock declined 4% after the earnings announcement. In Q3, Best Buy’s revenue grew 4% year-over-year (y-o-y) to around $ 9.3 billion, primarily due to an enterprise comparable sales increase of 4.5%, which fell short of the 5.3% street estimates. The company benefited from stronger consumer demand across most categories, particularly computing, wearables, gaming, and tablets. However, revenues in the mobile category were lower than expected, due to the fact that major new phones did not start selling until November. Also, the company felt the impact of the natural disasters in South Texas, Florida, Puerto Rico and Mexico in this quarter. In Q3, the retailer’s online sales grew 22% y-o-y to $1.1 billion, which is now 13% of its domestic revenue. The retailer reported non-GAAP EPS of $0.78, up 30% y-o-y, primarily driven by a lower than expected non-GAAP effective income tax rate and a higher domestic revenue. The company’s SG&A costs grew 2% y-o-y, due to increases in growth investments, higher incentive compensation expenses, and higher variable costs due to increased revenue. Best Buy U.S. Continues To Grow Best Buy’s domestic segment’s revenue increased 4% y-o-y to $8.5 billion, as domestic comparable sales grew 4.5%, partially offset by the loss of revenue from 10 large-format and 44 Best Buy Mobile stores closed during the past year. From a merchandising perspective, the company saw positive comps across almost all its product categories, with the largest drivers being appliances, computing, and smart home. In the international segment, the company’s revenue increased 10% y-o-y to $829 million, driven by comparable sales growth of 3.8%. This positive comparable growth was driven by growth in both Canada and Mexico. Future Outlook For the fourth quarter, Best Buy expects its sales to benefit from the positive category momentum from the first nine months of the year. As a result, the company expects its total revenue to be in the range of $14.2-$14.5 billion in the fourth quarter. It also expects domestic comparable sales growth in the range of 1% to 3%, and adjusted earnings per diluted share of $1.89 to $1.99 for the company. For the full year fiscal 2018, the company raised its guidance, and now expects revenue growth to range between 4% to 4.8% compared to the prior outlook of approximately 4%. It also expects full year non-GAAP operating income growth of 7% to 9.5% versus its original outlook of 4% to 9% growth. Our $56 price estimate for Best Buy’s stock is about in-line with the current market price. Have more questions about Best Buy? Please refer to  our complete analysis for Best Buy  See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Gap Inc. Builds Momentum As It Nears The Final Stretch
  • By , 11/17/17
  • tags: GPS URBN ANF AEO
  • Gap Inc. (NYSE:GPS) easily beat consensus expectations in its third quarter, posting a fourth consecutive quarter of comparable sales growth and a fifth consecutive quarter of gross margin expansion. This has been made possible through the impressive performance of Old Navy, which goes to show that despite a slowdown in the brick and mortar store sales, companies can still attract customers to their low-priced brands. The highlight of the quarter, however, goes to the company’s eponymous brand, which was able to deliver positive comps for the first time in 15 quarters. The momentum being witnessed through the company prompted GPS to raise its full-year guidance to a range of $2.08 to $2.12, from an earlier expectation of $2.02 to $2.10. It has been estimated that roughly 30% of the annual sales of the largest US retail chains and almost 20% of the US retail industry’s annual sales come from the Christmas holiday shopping season . Hence, the fourth quarter is a crucial one for the company, and it seems to be entering it with strengthened brands and operational discipline in place. Given the spate of bankruptcies and store closures in the apparel retail industry in the United States, significant market share has been made available as a result. This gives companies like Gap a tremendous opportunity to drive growth, particularly since traffic to its Gap and Old Navy brands has been beating the industry average, with Banana Republic narrowing its spread. Below we’ll highlight some key areas of the business Gap should focus on given the highly important holiday quarter, using our new interactive platform . We have a $25 price estimate for Gap Inc., which is lower than the current market price. 1. Denim Stretch denim is the latest trend in men’s and women’s fashion. Sometimes the problem with this fabric is that while it stretches well, it does not stretch back. Hence, the company worked with vendors to develop several fabrics, across different price points, that offer the stretch together with excellent compression and recovery. This has met an ailing need in the market, which has ensured good sales and has consequently driven scale for the company. In Gap women’s denim, the company saw 13% comparable sales growth and a 22% gross margin comp. Meanwhile, Old Navy closed out the quarter as the number four denim retailer, which is up two spots from last year. 2. Activewear The US activewear market is a $40 billion behemoth, with an 8% average annual growth rate, representing one of the highest growth areas in the apparel market. Gap’s Athleta brand is solely focused on this space, and the company provides athletic wear in its other segments as well. For the company as a whole, this segment contributes over $1 billion in revenues, while Athleta’s growth continues to outpace the market. The company has taken a number of initiatives to make the supply chain responsive, and as a result, 50% of the assortment in the business is on a pipeline of 6 to 11 weeks. Given the popularity of the brand, 7 new stores were opened in the quarter, taking the total up to 15 for the year. The company expects the size of the fleet to be about 150 at the end of 2017, with continued growth expected next year. 3. Baby and Kids-Wear This segment of the company has been a growing segment for a while now, and Gap has been rewarded with an almost 10% market share. This market in the US has been valued at $30 billion, and the company sees tremendous value and opportunity to drive loyalty with parents. The most significant progress in this field has been made by Old Navy, which has managed to capture 6% of the market on its own. While progress has also been made by its namesake brand, there is significant room to grow. 4. E-Commerce The online and mobile business is the place to be these days, and Gap has ensured its presence is felt in the space. The company has one platform for all of its brands, ensuring customers can purchase items for any of them in one place. This has also ensured its new brands get the recognition that would not have been possible if they had had a separate web presence. An upshot of this is that the company expects double-digit growth from its online channel this financial year, and feels it is on a path to it being a $3 billion business. Gap has rolled out features like Reserve in Store, Find in Store, Ship from Store, and Order in Store in the past, and added Buy Online, Pick Up in Store in two markets in the quarter. See our complete analysis for Gap Inc. Have more questions about Gap Inc? See the links below: Apparel Retail Companies: Surviving The Holidays 101 How Is Gap Inc Going To Ensure Long Term Success? Retailing Conundrum, Part 1: Is There A Way Out Of The Rut For Brick And Mortar Stores? Notes: Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
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    How Texas Instruments Can Expand Its Gross Margins
  • By , 11/17/17
  • tags: TXN
  • Over the past few years, Texas Instruments  (NYSE:TXN) has been focusing on the industrial and automotive markets, which are seeing increasing semiconductor demand. The company is also extensively focusing on the 300-millimeter analog fabrication vertical as 300 mm wafers cost about 40% less than an unpackaged chip built on 200-millimeter wafers, the size used by many of TI’s competitors. This strategy has helped Texas Instruments to improve its gross margins from under 50% in 2012 to 61.6% in 2017. The trend has continued in 2017, with margins expanding further to 64.3% in Q2 and 64.5% in Q3. See our complete analysis for Texas Instruments Margins Set To Grow Further We believe that Texas Instruments’ margins will continue to improve in the next couple of years due to the following reasons: Increasing revenues from Analog vertical : The revenue contribution from the Analog vertical, which employs 300 mm fabs, has gone up from 55% in 2012 to over 64% in 2016. In the past nine months, Analog’s contribution has increased to around 66%. We expect TI to increase its Analog product revenues further due to its focus on the industrial and automotive markets. This can help the company to improve its gross margins from the low 60% range currently to 68% by the end of our forecast period, as 300mm production can help drive down the company’s production costs. Increasing investment in 300mm Fabs : The company is increasing its manufacturing footprint for 300mm wafers, so the company will be able to support about $8 billion of annual Analog revenue on 300-millimeter wafers. TI pointed out in its  presentation about its capital management strategy that it can achieve 68% gross margins for analog chips manufactured on a 300mm wafer. As Analog sales increase, the company should post higher margins in the future. Utilization set to grow in the coming years : The proportion of TI’s revenues from 300mm production is likely to increase in the coming years, driving the company’s margins higher. To increase its 300mm production, the company is likely to ramp up its production from RFAB and DMOS6 facilities, which cater to 300mm production, and were largely under-utilized until 2016. TI’s RFAB and DMOS6 production facilities were operating at  45% and 25% of their full production capacity, respectively. In addition to a favorable revenue mix and improved manufacturing efficiency, the company’s gross margin will also benefit from lower depreciation in the future. At present, depreciation is ahead of TI’s capital expenditures. The company expects its capital expenditures to remain at relatively  low levels (4% of revenue) for the next few years. As depreciation starts to come down over the next couple of years, it will boost gross margins. We currently have an $80 price estimate for Texas Instrument’s stock, which is nearly 20% below the current market price. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Key Takeaways From Applied Materials' Q4 Earnings
  • By , 11/17/17
  • tags: AMAT
  • Building on its strong growth momentum since the last few quarters, Applied Materials  (NYSE:AMAT) reported record revenue and earnings for Q4 to end fiscal 2017 on a high note. Emerging technologies, such as the Internet-of-Things (IoT), big data, and artificial intelligence, are driving strong growth in the industry. Innovation and solid execution has enabled Applied to grow faster than the market by expanding its presence and gaining share. As its customers continue to make large investments to advance semiconductor and display technology, Applied’s growth momentum is likely to continue in the near future. For Q1, Applied expects revenue between $4.0-4.2 billion (+24% y-o-y). During the quarter, the company saw strong growth in both its Semiconductor and Display segments. Further, Applied’s operating margins improved by 4.1 percentage points during the quarter, because of a surge in its revenues and controlled expenses. Driven by multi-year inflections and new demand drivers, the company’s orders and earnings in Q4 were at an all-time high. Inflections In Mobile & Screen Technology Will Continue To Strengthen The Display Market Applied is on track to book more than $2 billion of orders in the Display segment. As the technology and manufacturing become more complex, the company is confident that it is in a unique position to drive growth. Key factors that will drive growth in the display market are: Demand for large format TVs: The average screen size, be it for TV or mobile, has increased over the years and demand continues to grow. As Applied’s customers optimize factories for these bigger screen sizes, they are investing in new Gen 10.5 capacity, which on average require significantly more investment compared to a Gen 8.5 factory. Increasing investment in mobile OLED: Estimates indicate that two-thirds of new smartphones could have OLED displays by 2021, and screen manufacturers are accelerating their investment plans to support this growth. The company has established the leading position in thin-film encapsulation, which enables OLED smartphones. We have a  $37 price estimate for Applied Materials’ stock, which is below the market price. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Solid Q3 Results Drive Wal-Mart's Stock to An All-Time High
  • By , 11/17/17
  • Wal-Mart  (NYSE:WMT) reported stronger-than-expected fiscal third quarter results on Thursday, November 16, as both its bottom line and revenue came in ahead of market expectations. The company’s stock surged to an all-time high of $95.94 after the announcement. The company also posted a full-year adjusted earnings per share guidance of $4.38 to $4.46, which is ahead of the $4.38 per share consensus estimate. Below we discuss some key takeaways from Wal-Mart’s earnings report and Q4 outlook  using our interactive platform : On a reported basis, the company’s revenue increased 4% year over year (y-o-y) to $123 billion, driven by growth in the domestic market due to its marketplace offerings. The retailer’s consolidated net income declined 42% y-o-y to $1.7 billion in the third quarter. Wal-Mart also posted diluted earnings per share of $0.58, down 41% y-o-y, and adjusted EPS of $1.00, which was at the upper end of its guidance range. In terms of the company’s segments, Wal-Mart U.S. delivered a strong top line performance with comparable sales of 2.7%, which was well above the consensus estimates of 1.9%. In addition, the retailer’s international sales grew 4% y-o-y to $29.5 billion during the quarter, due to positive comparable sales in ten out of eleven markets, in addition to a benefit of approximately $450 million from currency. Also, Sam’s Club comparable sales grew 2.8% y-o-y (ex. fuel) in the quarter, led by traffic and hurricanes impact. On the cost side, Wal-Mart’s total operating expenses increased in the quarter, primarily due to ongoing investments in e-commerce and technology. For the nine months ended in October, Wal-Mart generated $17 billion in operating cash flow and $10 billion of free cash flow, which declined 18% y-o-y. This decline was primarily due to an increase in incentive payments, as well as a comparison against significant working capital changes since last year. Overall, the Q3 result suggests investments continue to favorably impact the comparable sales growth, helping the company thrive in a tough retail environment. Wal-Mart U.S. Continues To Grow In Wal-Mart U.S., strong comparable sales growth of 2.7% was driven by a 1.5% increase in customer traffic and a 1.2% increase in average ticket size. Overall, all store formats had positive comparable sales, and e-commerce and hurricane related impact contributed approximately 80 basis points (bps) and 30 to 50 bps to the segment in the third quarter. Additionally, the grocery business continued to improve, as food categories continued to deliver strong quarterly comparable sales performance, led by strong customer traffic. Also, the segment’s operating income grew 1% y-o-y during the quarter. E-Commerce: Strong Growth Driver Wal-Mart’s e-commerce division includes all web-initiated transactions, including those through Walmart.com such as ship-to-home, ship-to-store, pick up today, and online grocery, as well as transactions through Jet.com. Globally, on a constant currency basis, the company’s e-commerce sales and GMV increased 50% and 54% (including acquisitions), respectively, in this quarter. The majority of this growth was organic through Walmart.com, including online grocery, which is growing quickly. This growth was also likely boosted by the company’s recent acquisitions such as Jet.com, Moosejaw, Shoebuy and Bonobos, which have provided expertise in some high-margin categories like shoes and apparel. From a marketplace perspective, the company covers more than 70 million SKUs to date, up more than 35% from the first quarter. However, it should be noted that the e-commerce growth in Q3 has decelerated a bit from the 60%-plus levels of the past two quarters. Future Outlook For the upcoming quarter, Wal-Mart expects comparable sales growth for both Wal-Mart U.S. and Sam’s Club (ex. fuel) to range between 1.5% to 2.0%. For the full year fiscal 2018, the company now expects its adjusted EPS to range between $4.38 to $4.46, compared to previous guidance of $4.30 to $4.40. Our $80 price estimate for Wal-Mart’s stock is around 15% below the current market price following the rally. Please refer to  our complete analysis for Wal-Mart    See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology