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Investors leverage our research to quickly see what really drives a company's value, test what-if scenarios, and make better investment decisions. At the core of each piece of content is a rigorous and deep analytical model, but what makes our research different is the Trefis Interactive Experience. The Trefis Interactive Experience transforms those analytical models into a format that lets you drill down into the data and create your own "what-if" scenarios. We cover hundreds of large-cap stocks and our content is trusted by millions of investors and executives globally on numerous leading online brokerage platforms, as-well-as on platforms such as Thomson Reuters and Forbes.


COMPANY OF THE DAY : DISNEY

Disney raised its bid for Fox's film and TV assets this week to over $71 billion, though Comcast appears to still be interested as well.

See Complete Analysis for Disney
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FORECAST OF THE DAY : VERIZON'S POSTPAID RETAIL SUBSCRIBERS

Verizon has seen continued subscriber growth, though it could see pressure from heightened competition from the T-Mobile Sprint combination.

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RECENT ACTIVITY ON TREFIS

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Dividend Hikes, Share Repurchases To Follow Strong Performance Of U.S. Banks In Round One Of Fed's Stress Test
  • By , 6/22/18
  • tags: BAC C GS JPM MS WFC
  • The 35 largest financial institutions in the U.S. recently sailed through the first phase of the Federal Reserve’s annual Comprehensive Capital Analysis and Review (CCAR) – setting the stage for the banks to reveal their capital plans for this year late next week. This was not a surprise, as no bank has had trouble with the quantitative phase of the tests since 2014 thanks to the massive buildup of equity capital across the industry to comply with stringent capital requirements. The eighth iteration of the Fed’s annual stress test originally involved 38 financial institutions, but the partial rollback of the Dodd-Frank Act last month exempted CIT Group, Comerica and Zions Bancorporation from the annual requirement (as each of them have less than $100 billion in assets). That said, the 35 companies that were a part of this years stress tests represent well over 80% of the total banking assets in the U.S. The Fed detailed the scenario to be tested this year early this February  – modifying some economic conditions under its “adverse” as well as “severely adverse” scenarios, as has been its policy over the years. We simplify the key points to put these tests in perspective below. We also summarize the results in our interactive dashboard for participating banks, parts of which are captured below. An Overview Of The Test Scenario Since it was first conducted in 2009, the Federal Reserve’s annual Comprehensive Capital Analysis and Review (CCAR) for banks has been tracked closely by banks, lawmakers, investors and the public at large. This is because the review process – and specifically the stress test conducted as a part of it – is an important tool in the Fed’s arsenal to ensure that the country’s financial system can withstand an extreme adverse economic scenario in the future. As these tests aim to gauge the strength of each of the country’s largest financial institutions under conditions similar to those seen during the economic downturn of 2008, they help the Fed advise individual firms about how much they need to shore up their balance sheets if necessary. The purpose of the stress test is to ensure that the banks have enough capital to lend to customers and businesses even under extremely trying economic conditions. The test scenarios includes 28 variables that capture various aspects of the global economy . Of these, 16 variables relate to the domestic economy and the rest are international variables. The table below summarizes the main domestic variables considered by the Federal Reserve for the stress test. The most recent value of each of these variables is shown alongside the worst-case figure for each of them under the “adverse” as well as the “severely adverse” scenarios. The 12 international variables capture the impact of a fall in real GDP growth, inflation, and the U.S./foreign currency exchange rate for the Eurozone, the United Kingdom, developing Asia and Japan. The underlying idea is that if the financial institutions can hold their ground under such extreme circumstances, they will be well-positioned to withstand an adverse, but more likely scenario in the future. A Quick Look At The Performance Of Each Institution The key takeaway from the Fed’s stress test is the impact on Common Equity Tier 1 (CET1) common ratios for each of the 35 institutions tested under the severely adverse scenario. Notably, the combined CET1 capital ratio for the 35 participating companies was 12.3% for Q4 2017, with the figure falling to a minimum of 7.9% under the severely adverse scenario under the stress test. While each of the banks saw this benchmark figure fall sharply under the test conditions, the amount it actually fell for a particular bank is governed by the bank’s business model, loan portfolio as well as the type of assets on its balance sheet. The table below represents the change in the Tier 1 common ratios for the U.S.-based Global Systemically Important Financial Institutions (G-SIFIs) from their current figures to their minimum levels as determined by the test for a “severely adverse” situation. It should be noted that the minimum CET1 capital ratio figure for an individual bank needs to remain above the 5% cut-off to pass the stress test. From the chart above, it is evident that the minimum CET1 ratio for State Street (5.3%) and Goldman Sachs (5.6%) came close to the 5% level under the severely adverse scenario. This is likely to weigh on their capital return plans for this year. Some other key observations from the stress tests: U.S. subsidiaries of all foreign banking giants have fared exceptionally well in the stress test. This is primarily because the U.S.-based subsidiaries generally represent a small, lower-risk part of the more diversified business models of these banks. Among the U.S. banks, custody banks BNY Mellon and Northern Trust figure among the best-capitalized firms in the list, and are also the ones least affected by the test scenario. Trading-focused banking giants Morgan Stanley and Goldman Sachs witness the sharpest declines in minimum CET1 common ratios, as the test scenario shaves off more than six percentage points from the benchmarks for each of these banks. What Do These Results Mean For These Banks In The Near Future? The most immediate impact of the announced stress test results for the banks will be on their capital plans for the year, which will be disclosed along with the second and final phase of the stress test results slated to be announced next week (June 28). As the second part of the stress test incorporates any corporate actions the banks proposed to undertake over the next four quarters – including dividends, share repurchases and major acquisitions or divestitures – a bank with a minimum capital ratio figure comfortably above 5% in the severely adverse scenario should have more leeway with its capital plan. There is an important exception to this, though, as the the Fed can still reject a bank’s capital plan for qualitative reasons. While an increase in dividends and modest share buybacks are likely in the cards for most of the big banks, we expect Morgan Stanley and Bank of America to declare a sizable increase in payouts, while Goldman and State Street investors may potentially see lower payouts over the next twelve months. You can compare changes in CET1 ratios for these banks under the severely adverse as well as adverse scenarios in more detail on  our interactive dashboard . What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    What Would A Potential Comcast-Fox Combination Look Like?
  • By , 6/22/18
  • tags: CMCSA DIS FOX TWX VIA
  • In the wake of recent developments, Disney has boosted its bid for the studio and cable network assets of Fox to $71.3 billion in cash and stock ($38 per share in cash and stock). This offer is close to 10% ahead of what Comcast had offered last week. Although Fox’s board has accepted Disney’s offer, the deal is still subject to shareholder approval. In this article, we take a look at how a combined Comcast and Fox entity could shape up – if Comcast comes back with a superior bid to Disney. Total Assets of Fox-CMCSA Entity Comcast is the largest U.S. cable operator and broadband provider. It also owns Universal Studios and Universal Parks and Resorts.   If a Comcast-Fox deal were to happen, Comcast would also own 20th Century Fox studios, FX Networks, and National Geographic’s magazine and TV network. In addition, Fox’s international TV networks – Star India (Indian media company), Fox Network Group International (operating across Europe, Asia, Africa), European network Sky, and Endemol Shine Group – would also add to the company’s portfolio. To add to that, Comcast would also have a majority stake in Hulu after the potential Fox acquisition, as Disney, Comcast, and Fox each control 30% of the streaming video service, while Time Warner has the other 10%. The Sky advantage Comcast recently formalized its $31-billion bid to buy 61% of European satellite-TV provider Sky, which Fox has been trying to buy for nearly 17 months. Fox already owns the remaining 39% of Sky. Comcast sees Sky as a vital platform for furthering its content and OTT strategies in international growth markets, as it is witnessing cable subscription declines in the domestic market due to cord-cutting. Can Comcast Fund This Deal? Comcast has just $7 billion in cash. This means that it would likely have to issue additional debt for the takeover of Sky and most of the $65 billion cash that it bid for Fox. In addition, it would also take on Fox’s debt. In fact, Comcast’s spending spree could nearly triple its total debt to $170 billion, according to Moody’s. This would make Comcast the world’s second-most indebted company by dollars (excluding banks), behind the newly combined AT&T and Time Warner. It should be noted that Comcast is currently rated A3 by Moody’s Investors Service, four steps above speculative grade. However, the rating could be downgraded on the completion of a potential Fox acquisition. Further, now that Disney has raised its bid, Comcast will have to match or exceed Disney’s offer to stay in the running. Comcast would likely have a tough time repaying its debt while continuing to do share repurchases, pay dividends and carry on other M&A activities. The Need of the Hour The reality of the situation is that the media industry is seeing secular pressure, primarily due to the growing cord-cutting phenomenon. This, in turn, is affecting cable and broadcasting businesses. Since many big media players are facing slowdowns from these industry dynamics, they are considering M&A and other deals in order to improve their positioning. The companies are also willing to sacrifice their credit ratings in exchange for M&A opportunities for further growth. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    Citigroup's Loan Portfolio Is Faster Than Its Peers Thanks To Its Diversified Geographical Presence
  • By , 6/22/18
  • tags: BAC C JPM USB WFC
  • Citigroup reported an increase in its total loan portfolio from $623 billion in Q1 2017 to $668 billion in Q1 2018 – a jump of 7.2%. This compares with the average loan growth figure of 4.7% across the U.S. banking industry over this period. With the Fed’s ongoing rate hike process putting pressure on commercial as well as mortgage lending over recent quarters, most U.S. banks have had to contend with lukewarm loan growth. However, Citigroup’s geographically diversified business model helped it buck this trend, as the banking giant gained in particular from its strong presence in key developing nations. Notably, the 5 largest U.S. banks reported a combined loan portfolio of nearly $3.8 trillion worldwide in Q1 2018. This represents nearly 40% of the total loans handed out by all U.S. commercial banks. However, this proportion has gradually nudged lower over recent quarters – primarily because of Wells Fargo’s shrinking loan portfolio. We capture the trends in loans and deposits for each of the five largest commercial banks in the country – JPMorgan Chase,  Bank of America,  Wells Fargo,  Citigroup,  U.S. Bancorp  – through interactive dashboards, while also detailing the impact of changes in these key factors on their valuations. The figures above represent average loans for each bank over the last five quarters as detailed in their latest SEC filings. The total loans for all U.S.-based commercial banks is derived from data compiled by BankRegData.com using quarterly call reports filed by all U.S. banks. As seen here, the loan portfolio for the five largest U.S. banks has grown by just 2.5% over the last five quarters. Given Citigroup’s strong showing over recent quarters, the subpar combined growth figure for these banks is primarily due to the sequential decline in Wells Fargo’s loan portfolio over the last twelve months. While poor activity levels in Wells Fargo’s core mortgage business are partly to blame, the bank has also been hurt by the Fed’s restriction on growing its balance sheet. In view of the Fed’s hawkish interest rate forecast over 2018-19, we expect loan growth to remain largely depressed in the near- to mid-term. The growth rate, however, is expected to normalize once the Fed is done with the rate hikes and the interest rate environment stabilizes, which should be sometime around mid 2020. Until then, Citigroup is likely to be the only major bank to report year-on-year loan growth in excess of 5%. Details about how changes to key Loan and Deposit parameters affect the share price of the five largest U.S. commercial banks can be found in our interactive model for  JPMorgan Chase  |  Bank of America  |  Wells Fargo  |  Citigroup  |  U.S. Bancorp What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    How Sensitive Is Intel To Its EBITDA Margin Change?
  • By , 6/22/18
  • tags: INTC AMD NVDA
  • We estimate that Intel ‘s (NASDAQ:INTC) EBITDA will likely grow in low-mid single digits in 2018, primarily led by its Data Center Group, which has seen solid growth of late, led by its cloud business, as well as high performance products, such as Xeon Scalable. We have created an  interactive dashboard analysis  on Intel’s sensitivity to changes in its EBITDA margin. Note that you can adjust the margin drivers, and see the impact on Intel’s overall valuation and price estimate. Below are some of the charts and data from the interactive dashboard. Expect Data Center Group To Lead Future EBITDA Growth   What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    How Will The FIFA World Cup Impact American Airlines' 2Q'18 Passenger Yield?
  • By , 6/22/18
  • tags: AMR DAL UAL AAL ALK JBLU LUV
  • The FIFA World Cup 2018 has just begun and fans all over the world are aggressively supporting their favorite teams and players. This once-in-a-four-year event not only boosts viewership of online portals and the revenues of the hospitality industry, it also provides a push to the airline industry as many fans travel to the host country to watch the games live. As the airlines experience a surge in their traffic during this large sporting event, it allows them to leverage this opportunity by maneuvering their pricing for different routes and schedules. Consequently, they witness a jump in their revenue during this period. In this note, we analyze  American Airlines ‘ (NASDAQ:AAL) passenger yield during previous football World Cups (2006 onward) and estimate the impact of the current game on its 2Q’18 numbers using our interactive dashboard . Passenger revenue yield per passenger mile is the passenger revenue divided by revenue passenger mile. It represents the average amount that a passenger pays to fly one mile and is useful to assess changes in fares over time. So, we compare American Airlines’ Passenger Yield  in the quarters when the last three FIFA World Cups were held. Since the event is generally held in the second quarter of the calendar year, we look at the quarterly figures to understand the impact. In the last three games – 2006, 2010, and 2014 – we see that American Airlines’ second quarter passenger yield increased strongly compared to the previous year, due to the strong demand for air travel during the World Cup. AAL’s yield rose 7.6%, 14%, and 7.8% on a year-on-year basis in the second quarter of the respective years. Now, given that American’s yield increases in the quarters in which the FIFA World Cup is conducted, we estimate its yield to improve strongly in 2Q’18 as a result of the current ongoing event. We anticipate an increase of 9.8% in AAL’s yield based on the past trend as well as the growing popularity of the game. Feel free to create your own forecast by changing the inputs (blue dots) in our dashboard and visualize its impact on American Airlines’ passenger yield numbers. Also view our core reference data in other related dashboards:  US Available Seat Miles, International Available Seat Miles, Revenue Passenger Miles, Load Factor, Fuel Expenses, Operating Income (EBITDA), and  Capital Expenditure . Do not agree with our forecast? Create your own price forecast for American Airlines by changing the base inputs (blue dots) on our interactive platform .  
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    How Much Will Las Vegas Contribute To Wynn's Top Line Growth?
  • By , 6/22/18
  • tags: WYNN LVS MGM
  • Wynn Resorts (NYSE:WYNN)  has performed strongly over the past few years, with nearly 24% annual growth in revenue and a 14% jump in the stock price between 2015-2017. The strong growth was largely driven by a jump in overall Macau casino revenue and a full operational year of Wynn Palace, its newest property in the Cotai region. Las Vegas, which contributes about 27% of company’s overall revenue, saw modest growth due to saturation in the Las Vegas gaming industry. Based on recent market trends and the near-term outlook provided by the company’s management, we forecast Wynn to report 5-6% revenue growth in the next two years, from $7 billion in FY 2018 to about $7.7 billion in FY 2020. Of the estimated $660 million incremental revenues, we estimate that Las Vegas will contribute nearly half. We arrive at this estimate from Wynn’s key growth metrics such as slot games, food and beverage, and hotel revenue. We have summarized our expectations on our interactive dashboard  platform. If you disagree with our forecasts, y ou can change the key drivers for Las Vegas to gauge how changes will impact its expected revenue. Estimates for Key Growth Drivers The company’s Las Vegas operations have seen revenue growth of around 2% annually between 2015-2017. This was largely due to modest growth in casino and hotel revenue on a comparable basis, as a result of saturation in the Las Vegas gaming industry. The company expects domestic resorts to grow in mid-to-high single digits in the second half of 2018, driven by several citywide conventions and a recovery in the Vegas market. Further, the expected opening of Encore Boston Harbor in the second half of 2019 should boost its domestic revenue and provide for significant medium term growth. However, Wynn expects to see some near term pressure in Las Vegas given the development of Paradise Park – a lagoon-themed park – and its ongoing work at Boston Harbor, which should likely impact company’s margins. We expect the domestic market to remain the driving force led by the  improved outlook of the U.S. economy, recovery in the Vegas market – owing to recent tax cuts and higher customer spending –  and its expansion into Massachusetts . Further, we expect the  legalization of sports gambling to boost its domestic operations. 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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    Key Takeaways From Micron's 3Q'18 Results
  • By , 6/21/18
  • tags: MU AMAT CREE
  • Micron Technology  (NYSE:MU), the Idaho-based semiconductor company, reported a remarkable 3Q’18 financial performance backed by its focus on high-value solutions and continued demand for its memory chips. The company has had a good year so far, as emerging technologies such as cloud computing, big data, and artificial intelligence continue to drive the company’s top line as well as earnings. We expect that robust industry demand, coupled with its innovation and excellent execution, will enable Micron to deliver a stellar fiscal 2018. Below, we present Micron’s valuation based on its P/E Multiple using our interactive dashboard . Key Highlights of Micron’s 3Q’18 Earnings Micron’s 3Q’18 revenue rose to $7.8 billion, 40% higher compared to the same quarter of 2017. This sharp jump in the top line was driven by the company’s efforts to focus on providing high-value solutions such as Managed NAND and low-power DRAM products for the mobile market and SSDs for the cloud market. In addition, the strong demand for memory and storage products further augmented the company’s sales during the quarter. The company’s gross profit grew 81% to $4.72 billion in the quarter, backed by higher volumes, reduction in cost-per-bit, and an improving mix of specialty DRAM and higher-end NAND chips. Micron’s earned a net profit of $3.82 billion, or $3.10 per share, in the third quarter, more than double of what it earned a year ago. Strong top-line growth, focus on high-value solutions, and excellent execution and innovation allowed the company to deliver this remarkable performance. Further, the company announced a share repurchase program of up to $10 billion starting fiscal 2019. This indicates that Micron is committed toward sharing its growth with its shareholders and enhancing their investment value. Going Forward As the demand for memory and storage content continues to grow, Micron is strategically broadening its mobile portfolio to offer high-value solutions that will strengthen its relationship with its customers and boost its profitability in the long term. Some of the products that the company plans to launch this year include 1Y nanometer low-power DDR4 memory, new 64-layer TLC UFS, and eMCP Managed NAND solutions. For 4Q’18, the company expects its revenues to be in the range of $8.0-$8.4 billion, a gross margin in the range of 59%-62%, and earnings to be between $3.23 and $3.37 per share. Do not agree with our forecast? Create your own price forecast for Micron Technology by changing the base inputs (blue dots) on our interactive 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.
    Why Domo's IPO Valuation Is Down Over 75% From Its Last Funding Round
  • By , 6/21/18
  • tags: DOMO
  • Domo Technologies is no longer on the coveted list of unicorns, with the business intelligence company recently filing to go public at a valuation of roughly half a billion dollars . The company, which intends to list its stock on NASDAQ under the ticker DOMO, is offering 9.2 million shares to public investors at a price range of $19 to $22. Considering the fact that the company will have just under 25 million in outstanding shares after an IPO (without the impact of an over-allotment option of 1.38 million), this works out to a valuation in the range of $475 million to $550 million – less than a quarter of the  $2.3 billion valuation at its last round of funding in April 2017. As we capture in our interactive model for Domo, the IPO valuation points to a revenue multiple of just 4x for the company – an unusually low figure given the fact that Domo has created a name for itself in the rapidly growing business intelligence industry. To put things in perspective, the company commanded a revenue multiple of roughly 21x just over a year ago. While inflated valuation multiples for private technology companies (especially those that make the unicorn list) could partly explain a decline in Domo’s valuation, there are a string of other factors responsible for the surprisingly low offer price, which we detail below. Domo Is Critically Low On Cash At the end of April 2018, Domo had just $72 million in cash on hand. While this is roughly 10% of the $690 million it raised over successive funding rounds  over the years, it represents just a few months of operating runway for the company. In other words, Domo may not be able to sustain its operations for more than a few months unless it raises more money. Given the company’s relatively high cash burn rate, and its previous frothy valuation, it is reasonable to conclude that Domo was not able to generate much interest among private investors at a more attractive valuation. The IPO, therefore, looks like an urgent effort for the company to raise cash before having to cut back on growth. And slashing the offer price was likely the only way in which the company could generate interest in its IPO to begin with. The Dual Class Stock Structure Hurts Normal Investors Domo’s dual class stock structure will give CEO Josh James 86% voting rights in the company, even though he will hold just around 15% of the company’s outstanding shares (Class A and Class B taken together) after the IPO. This essentially takes away investors’ say in the management of the company, and essentially puts absolute power in the hands of the CEO to make decisions regarding Domo’s long-term strategy as well as its day-to-day operations. A lower offer price compensates investors for the higher risk they take on due to this lack of control. Domo Isn’t Likely To Turn Profitable Anytime Soon Profits remain elusive for many disruptive multi-billion dollar tech companies, and are certainly not a critical criterion for long-term investment in these companies. However, the cash burn rate for startups is seldom this high as a proportion of revenues. Domo’s sales and marketing expenses stand out in particular – with the company spending an average of $125 million in sales and marketing annually. In the first quarter of 2018, Domo spent more than half a million dollars on average to add each new customer. In comparison, the average subscription revenue per customer is less than $60,000 annually per customer – indicating that it will take the company 9 years just to break even on the customer acquisition . At the same time, Domo has a gross margin figure in the 50-60% range – much lower than the 80-90% range for many software and business intelligence firms. Third-party hosting services and data center costs are responsible for a bulk of the cost of revenues, and should grow at a slower rate going forward. But the company will continue to incur recurring expenses to keep its repository of 500+ connectors (used to gather data from multiple sources) updated while adding support for additional connectors. Given the fierce competition in the business intelligence industry to attract new customers (especially enterprise users), these costs are unlikely to go down over the foreseeable future. This is especially the case since several of the largest tech giants in the world – including Microsoft, Oracle, SAP and IBM – are vying for a larger market share along with a long list of specialized players like Tableau and Qlik who have established a name for themselves over recent years. Taken together, the three aforementioned factors make Domo’s previous valuation of over $2 billion (which represents an aggressive 15x revenue multiple) untenable going forward.  Accordingly, the substantially lower IPO valuation is Domo’s best bet to raise money quickly. What remains to be seen is whether Domo has been able to sweeten the deal for investors enough to generate sufficient interest in its IPO. List of Interactive Valuation Dashboards For Other Multi-Billion Dollar Startups Including Uber, Airbnb And Xiaomi What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    A Quick Snapshot of Norfolk Southern's Chemical Freight Segment
  • By , 6/21/18
  • tags: NSC UNP CSX
  • Norfolk Southern (NYSE:NSC) generates its revenues primarily from various commodities freight, including intermodal, coal, chemicals, and automotive, among others. The Chemical Freight segment accounts for over 15% of the company’s value, according to our estimates. The segment over the last couple of years has been facing pressure on the volume front, given a decline in the chemical shipments. However, the pricing has seen some growth during the same period, which has aided the segment revenues. Looking forward, we forecast the segment revenues to grow in mid-single-digits in the near term, led by higher production, and a continued growth in pricing. We have created an  interactive dashboard analysis   highlighting the company’s Chemical Freight segment. You can adjust revenue drivers and margins for 2018 and 2019 to see how it impacts the company’s overall revenues, earnings, and price estimate. Below we discuss our expectations and forecasts for the company. Expect Steady Growth In Chemical Freight Volume & Pricing The Chemical Freight segment accounts for roughly 16% of the company’s overall revenues and EBITDA. In terms of carloads, it accounts for around 13% of the company’s overall carloads, excluding the Intermodal segment. We expect Norfolk’s Chemical Freight revenues to grow 4% to $1.74 billion in 2018, and $2.20 billion by the end of our forecast period. Chemical freight revenues are dependent on two factors – Number of Chemical Carloads, and Revenue Per Carload. We expect steady growth for both of the factors in the near term. We expect the volume growth to be driven by higher production. While the overall chemical production in the U.S. was less than 2% in 2016, it has picked up the pace since then, and is expected to grow at around 3.5% in 2018 and 2019. In terms of exports, the growth was over 2% in 2017. However, there is a risk on the export front, given the recent fear of a trade war with China. It should be noted that over 12% of U.S. chemical exports go to China. As such, any growth in chemical shipments will likely be capped in the near term. We thus forecast only a low-single-digit growth in the chemical shipment volume for Norfolk Southern. In Q1 2018, the company reported a 2% growth in chemical shipments, led by an increase in LNG shipments. Looking at pricing, we forecast a low-single-digit growth in the near term, led by fuel surcharge. The oil prices are trading at higher levels when compared to 2017. In fact, EIA  forecasts  Brent crude oil prices to average around $71 in 2018, reflecting a 30% growth from the 2017 average. Fuel surcharges are a component of Revenue Per Carload, and are linked to prices of WTI or U.S. On Highway Diesel. With oil prices expected to trend higher in 2018, higher fuel surcharge revenues will boost the Revenue Per Carload. Below are our core reference data for dashboards on Norfolk Southern’s volume metrics. Coal Carloads Intermodal Units Agriculture & Consumer Products Carloads Chemicals Carloads Metals And Construction Commodities Carloads Paper, Clay, And Forest Products Carloads Automotive Carloads   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 Pinterest Could Fuel Revenue Growth
  • By , 6/21/18
  • tags: FB SNAP TWTR
  • Pinterest is apparently looking to go public in 2019, and while the company has managed to attract a significant number of advertisers, its average revenue per user (ARPU) is still much lower compared to other players in the segment such as Snap and Twitter. Higher revenues are key to Pinterest’s valuation when it goes public, and the company is taking several steps to attract more advertisers to its platform. In 2017, Pinterest’s ARPU was around $2.4o, half of what Snap generated ($4.80) in the same year. While Snap has nearly 180 million daily active users, Pinterest also has a strong user base of 200 million monthly active users. However, the revenue per user is vastly different for both these companies.  We do not expect a significant increase in Pinterest’s ARPU in 2018, but if the company is able to catch up with Snap and Twitter’s ARPU it could see a very high valuation when it does go. Our recent analysis –  Can Pinterest Be A $ 30 Billion Company ? – provides insights on the factors that can drive Pinterest’s valuation. We have also created an  interactive dashboard analysis  to see the company’s key value drivers, and how changes would impact Pinterest’s valuation. Expanded Ad Offerings Last year Pinterest launched a pilot of “Shopping Ads,” an automated advertising product where brands can showcase their products – in line with the visual search of the user. For instance, if a user is looking for curtains, a home decor store can advertise in this search and display its own collection – which the user can buy right away. This pilot was successful, and Pinterest is now expanding this offering to hundreds of other brands. Pinterest’s users spend a significant amount of time on its platform – more than 30 minutes per visit – and are usually looking for a specific product. Average value of an order placed via a product found on Pinterest is $59 (higher than Facebook). The high level of user engagement, and potential revenues which brands can generate by advertising on its platform, should attract more advertisers to Pinterest as it expands its Shopping Ads. Pinterest is trying to leverage its visual uniqueness, and the fact that users on its platform are generally looking for something specific, to attract advertisers. Another unique feature of the site is that users can save ads just as “pins” and refer to them later. The company is actively marketing its differentiating features to brands as it competes for digital advertising dollars. Pinterest has a unique value proposition for advertisers and an engaged and strong user base. The company is now trying to market itself effectively to attract advertisers and help them generate a high return on their investments.  If it is successful, the company’s revenues should grow significantly in the next few years.
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    How Will The FIFA World Cup Impact American Airlines' 2Q'18 Traffic Numbers?
  • By , 6/21/18
  • tags: AMR DAL UAL AAL ALK LUV JBLU
  • As the FIFA World Cup 2018 kick-starts in Russia, millions of football fans across the world are expected to remain glued to their virtual screens to enjoy the game. However, the more loyal fans prefer not to stay home, and rather fly down to the venue to watch and support their favorite teams, live in action. While this promotes the spirit of the game, it is also a blessing in disguise for airline companies, who witness a surge in their traffic during such large scale sporting events. In this note, we compare American Airlines ‘ (NASDAQ:AAL) traffic growth during previous football World Cups (2006 onward) and estimate the impact of the current game on its 2Q’18 numbers using our interactive dashboard . An airline’s traffic is measured by its Revenue Passenger Miles, or RPM. It is the number of revenue-paying passengers multiplied by the distance traveled in miles. So, we compare American Airlines’ RPM figures in the quarters when the FIFA World Cup was being held. Since the event is held mostly in the second quarter of the calendar year, we look at the quarterly figures to understand the impact. In the last three games – 2006, 2010, and 2014 – we see that American Airlines’ second quarter RPM or traffic numbers have increased strongly compared to the previous year. To put things in perspective, AAL’s RPM rose 3%, 2.1%, and 2.4% on a year-on-year basis in the second quarter of the respective years. Now, given that American’s RPM, or traffic, rises sharply in the quarters in which the FIFA World Cup is conducted, we estimate its traffic to improve strongly in 2Q’18 as a result of the ongoing event. We anticipate an increase of 2.5% in AAL’s traffic based on the past trend, as well as the growing popularity of the game. Feel free to create your own forecast by changing the inputs (blue dots) in our dashboard and visualize its impact on American Airlines’ traffic numbers. Also view other key metrics for American Airlines – US Available Seat Miles, International Available Seat Miles, Passenger Yield, Load Factor, Fuel Expenses, Operating Income (EBITDA), Capital Expenditure .   Do not agree with our forecast? Create your own price forecast for American Airlines by changing the base inputs (blue dots) on our interactive platform .
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    Wells Fargo's Shrinking Net Interest Margins Despite Upbeat Interest Rates Are A Major Concern
  • By , 6/21/18
  • tags: BAC C JPM USB WFC
  • Wells Fargo got one step closer to putting its false account-opening scandal to rest recently after it agreed to a $142-million class-action settlement with all affected customers. But the bank’s operations are likely to reel in the after-effects of the scandal for several more quarters – especially because the Fed’s consent order prohibiting the bank from growing any further is likely to stay in place at least until the end of the year. And the impact of this will continue to be felt most prominently on Wells Fargo’s net interest margin (NIM) figure. The U.S. banking industry has seen net interest margins gradually improve from the all-time lows it reached in early 2015 thanks to the series of rate hikes implemented by the Federal Reserve since December 2015. And while all U.S. banks have seen their net interest margin figures improve steadily, Wells Fargo has reported a decline in this key metric for each quarter since Q2 2017. We capture the trends in net interest margin for each of the five largest commercial banks in the country – JPMorgan Chase,  Bank of America,  Wells Fargo,  Citigroup,  U.S. Bancorp  – through interactive dashboards, while also detailing the impact of changes in this metric on their share price. The NIM figures for individual banks are taken from their respective earnings releases, while the figure for the industry is as compiled by the Federal Reserve Bank of St. Louis here . The average figure shown here is the weighted average figure obtained by weighing the NIM figure for individual banks with their respective portfolios of interest-earning assets. Notably, there is a sizable variance in the NIM figure among these banks. This is primarily due to their varied business models, with JPMorgan and Citigroup having more diversified banking operations compared to their peers. Another important factor that impacts the NIM figure is the proportion of various loans in the total loan portfolios of these banks, as yields for some loan types like credit cards (which are unsecured) are inherently much higher than those for commercial loans (which are usually backed by collateral). The chart below captures changes in the NIM figure for all these banks as well as the overall industry over the last five quarters. The low interest rate environment that has been prevalent since the economic downturn of 2008 put considerable pressure on interest margins for all U.S. banks over 2012-2015. However, the NIM figure for the industry has been upbeat over the last couple of years, as the interest rate environment improved thanks to the Fed’s rate hike process. The average net interest margin (NIM) figure for the U.S. banking industry is now 3.23% – up from the record low of 2.95% in Q1 2015. The impact of improved interest rates on the largest U.S. banks is evident from the table above, with U.S. Bancorp, JPMorgan and Bank of America reporting a steady improvement in their quarterly NIM figures over the period (Bank of America’s Q1 2017 figure was unusually high because of a one-time interest gain). Among the remaining two banks which reported a decline in NIM figures, the trend for Citigroup can be explained by its geographically diversified business model, which makes its NIM figure less dependent on benchmark interest rates in the U.S. On the other hand, Wells Fargo’s operations are concentrated almost entirely in the U.S., and the declining NIM figure can be attributed primarily to poor loan growth in the wake of the account opening scandal, and the impact of the Fed’s growth restrictions on day-to-day activities. With the Fed taking a more hawkish view on interest rates for the near- to mid-term, the interest rate environment should continue to improve in the near future. However, Wells Fargo’s NIM figure is likely to remain under pressure in the near future as the banking giant works towards fixing the compliance issues pointed out by the Fed, while it focuses on regaining customer trust. This will continue to weigh on the banking giant’s results over the next few quarters at least. Details about how changes to key traditional banking parameters (like NIM) affect the share price of the five largest U.S. commercial banks can be found in our interactive model for  JPMorgan Chase  |  Bank of America  |  Wells Fargo  |  Citigroup  |  U.S. Bancorp What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    How Much Could Comcast Benefit From Acquiring Fox's Studio Business? 
  • By , 6/21/18
  • tags: CMCSA FOX DIS
  • 21 st Century Fox  (NYSE: FOX) has had a productive run over 2018 thus far, and the recent approval of the AT&T and Time Warner deal has opened up a bidding war for Fox’s assets between Disney (NYSE: DIS) and Comcast  (NASDAQ:CMCSA). Disney won the original bidding for the majority of Fox’s assets last December, with a  $52.4B all-stock deal . However, Comcast came in with a superior $65 billion all-cash bid after the approval of the AT&T-Time Warner deal. In response to Fox’s bid, Disney has now boosted its bid for the assets of Fox to $71.3 billion in cash and stock ($38 per share in cash and stock). Although the Fox board accepted Disney’s offer, the deal is still subject to shareholder approval and Comcast may well come back with a counteroffer. The assets being sold in this deal reportedly include Fox’s offerings on television – Fox’s Nat Geo, Star, and regional sports network – as well as a stake in Sky and Hulu, in addition to Fox Studios. In this article, we take a look at how much value Fox Studios could add to Comcast if it comes back with a counteroffer that is accepted by Fox. We have created an Interactive Dashboard which outlines our forecast for a combined entity’s Studio business. You can modify the revenue forecasts to see the impact these changes would have on the revenue total. Fox Studios A Good Fit For Comcast’s Portfolio Comcast owns Universal Studios, which owns the  Jurassic Park, Fast and Furious, Jason Bourne  and Despicable Me  franchises, to name a few. The Fox acquisition would add the likes of X-Men, Fantastic Four, Deadpool and Avatar to Comcast’s film portfolio. Per Trefis estimates, Fox’s studio operations contribute around 15% of the company’s value and almost 30% of its total revenues. Comcast could also use movie content from Fox to compete in the rapidly changing streaming space, where competition includes the likes of  Amazon  (NASDAQ: AMZN) and  Netflix  (NASDAQ: NFLX). Universal Pictures has the lowest market share among the top studios in the country, amounting to 8%  year-to-date. If a potential Fox-Comcast deal were to occur, the combined entity would have around a 20% market share, which would place it ahead of competitors such as Time Warner and Viacom, but still behind Disney. Our estimates are based on data from  Box Office Mojo, which we use to estimate the total movie releases and total gross per movie (limited to major studio releases). As shown in our dashboard, the combined Fox-Comcast company would collect around $81 million per movie, relative to Comcast’s standalone estimate of around $65 million on average. These figures lag far behind Disney, with an estimated $250 million per major release due to its massive franchises including the Marvel Cinematic Universe and Star Wars. 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 Like our charts? Explore  example interactive dashboards  and create your own.
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    Bank of America Regains Lost Ground To Become Second Largest U.S. Bank By Deposits
  • By , 6/21/18
  • tags: BAC C JPM USB WFC
  • Bank of America benefited from dwindling growth in deposits at rival Wells Fargo in the wake of the latter’s account opening scandal to regain the #2 position on the list of largest U.S. banks by total deposits. The diversified banking giant reported more than $1.3 trillion in deposits over the first quarter of the year – allowing it to inch ahead of Wells Fargo. Both banks, however, remain well short of market leader JPMorgan’s $1.45-trillion deposit base. Bank of America held the position of the largest U.S. bank in terms of deposits for two decades before being surpassed by JPMorgan Chase in late 2011. With Bank of America remaining focused on cleaning up its balance sheet over subsequent years, Wells Fargo’s deposit base also swelled to a larger size by the end of 2014. But with Bank of America putting its legacy issues behind it and reporting a steady growth in loans and deposits over recent years, it has done well to regain lost ground in the U.S. banking industry. We capture the trends in loans and deposits for each of the five largest commercial banks in the country – JPMorgan Chase,  Bank of America,  Wells Fargo,  Citigroup,  U.S. Bancorp  – through interactive dashboards, while also detailing the impact of changes in these key factors on their share price. Deposits across U.S. commercial banks have grown sharply since 2010 due to the prevailing low interest rate environment since the economic downturn. This is because the resulting lack of lucrative investment options led investors to shift some of their liquid assets into interest-bearing deposits – leading U.S. deposits to swell at well above 5% annually over 2012-16. With the Fed hiking benchmark interest rates since December 2015, the interest rate environment has improved – leading to a normalization in deposit growth rate over recent quarters. Notably, total deposits for the five largest U.S. banks grew by 2.7% over the last twelve months – less than the industry-wide growth figure of 3.3%. The below-average growth can be attributed to a decline in Wells Fargo’s deposit base year-on-year, as the Federal Reserve’s enforcement order prohibiting the bank from growing its balance sheet forced it to liquidate a chunk of its non-core deposits. This, in turn, led to the total market share of the five largest U.S. banks falling to below 40% of U.S. deposit market (which includes all domestic as well as foreign deposits held across U.S. commercial banks). Details about how changes to key Loan and Deposit parameters affect the share price of the five largest U.S. commercial banks can be found in our interactive model for  JPMorgan Chase  |  Bank of America  |  Wells Fargo  |  Citigroup  |  U.S. Bancorp What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    China Telecom Leads Chinese Wireless Growth In May
  • By , 6/21/18
  • tags: CHL CHA CHU
  • The Chinese wireless industry had a relatively strong May, with the three major carriers adding a total of about 10 million subscribers, marking an increase of roughly 2.5 million over the year-ago period. China Telecom  (NYSE:CHA) fared the best of the three carriers, adding a net of 5.3 million mobile subscribers, driven by its improved coverage and its promotion of larger data traffic products, which are increasingly popular with subscribers. China Mobile  (NYSE:CHL), the largest carrier, continued to underperform, adding just about 2.3 million subscribers over the month, likely due to more intense competition from the smaller two players and increasing saturation in the wireless market. Things were mixed on the 4G front, with the three players adding or migrating a cumulative 10 million subscribers to their 4G services over the month. This is down from levels of ~20 million in the year-ago period. We have created interactive dashboard analyses for  China Telecom,  China Unicom  and  China Mobile,  which allow users to view our forecasts and valuation estimates for the companies. You can modify any of the key drivers to see how changes would impact the companies’ valuations. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    What To Expect From Oracle's Fiscal 2019 After Disappointing Earnings?
  • By , 6/21/18
  • tags: ORCL ADBE AMZN VMW CRM IBM GOOG
  • Oracle (NYSE:ORCL)  announced its fiscal Q4 results on June 19. While the company reported a 6% annual increase in revenues to $40 billion through the fiscal year ended May, the company reported a slowdown in cloud services revenues. This is a worrying trend for investors, since cloud services has been the fastest growing revenue stream for Oracle with core on-premise software, hardware and services revenues slowing down in recent years. As a result of a slowdown in cloud services (SaaS, PaaS and IaaS) revenues, Oracle’s stock price has plummeted from $52-53 to around $43 in the last six months. Going forward, we forecast Oracle’s combined Cloud Services & License Support revenues (which includes SaaS, PaaS, IaaS and software support revenues) to increase 7% on a y-o-y basis to $28 billion for the current fiscal year. On the other hand, we forecast the company’s core on-premise software licenses, hardware and services revenues to witness modest declines. Resulting full year combined non-cloud revenues should be 5-6% lower over FY’17 levels at around $12.9 billion. We have summarized the company’s fiscal 2019 outlook, based on the company’s guidance and our own estimates, on our interactive dashboard  platform. If you disagree with our forecasts, y ou can change the key drivers – such as segment revenue and margins – for Oracle to gauge how changes will impact its expected earnings. In terms of margins, SaaS and software segments should help the company sustain high gross margins. On the other hand, hardware, services and the expansion in IaaS & PaaS is likely to weigh on company-wide margins. As a result, we expect the company’s operating profit margin to be roughly flat over FY’18 at 47%. As a result, we expect EPS to be up in 2-3% over the comparable prior year period to $3.20. Our EPS forecast is slightly lower than consensus estimates . 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 Like our charts? Explore  example interactive dashboards  and create your own
    PM Logo
    What Is Cronos Group Doing To Capitalize On Canada's Legalization Of Marijuana?
  • By , 6/20/18
  • tags: PM MO
  • Canada is moving closer to the legalizing the sale of marijuana for recreational purposes, with the country’s Senate recently voting in favor of new legislation. Canadian marijuana stocks have been soaring over the past year in anticipation of the legalization, as investors are likely anticipating a growth trajectory similar to that of tobacco stocks, such as in Philip Morris’ early days.  Cronos Group (TSE:CRON), a producer of dried cannabis and cannabis oils, saw its stock rise from CAD 1.80 in June 2017 to roughly CAD 9 currently. In this note, we take a look at the steps Cronos is taking to capitalize on Canada’s legalization of marijuana. View our interactive dashboard analysis which allows users to modify the company’s forward revenues and multiple to arrive at a valuation estimate for the company. We are valuing Cronos group at about CAD 9 per share, or CAD 1.6 billion, which is roughly in line with the market price. Legalization Will Open Up A Huge Market Canada will be the first G7 nation to legalize the use of marijuana by adult consumers for recreational purposes. The revolutionary law could open up a new and extremely lucrative market for cannabis companies in the country. The sales of Canadian marijuana is expected to go up by more than $4 billion during the first year of its legalization. Although there isn’t a definitive date as to when it will be legalized, Cronos has been preparing for the demand growth that would come from the legalization by scaling-up its production capacity.  For instance, the company is scaling up its Peace Naturals indoor facility, while building a greenhouse in Israel and another indoor facility in Australia via a joint venture. While the company only had about 6,650 kg of capacity at the end of last year, it has estimated that its annual production capacity will top 47,000 kgs by early 2019. Branding will also play a role in the influencing of consumers, as the market expands.  Cronos has been undertaking some re-branding to prepare for the 2018 changes and better distinguish between its medical and recreational platforms, which address different consumer targets. The company is also working with U.S-based company, MedMen, which will help it develop branded products and open stores across Canada for the sale of recreational marijuana, via a joint venture. MedMen is the largest cannabis retail chain in  California and the company’s retail expertise could be valuable to Cronos as it addresses new customer groups.        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 Are MetLife's Key Sources of Revenue?
  • By , 6/20/18
  • tags: MET
  • MetLife (NYSE: MET), one of the leading insurance companies in the world, is structured into five segments – U.S., Asia, Latin America, EMEA (Europe, the Middle East, and Africa), and MetLife Holdings. Below, we expand on these segments, their historical performance, and our expectations going forward. U.S., the largest segment, provides coverage to both businesses and individuals in the United States. The segment is divided into three businesses – Group Benefits, Retirement & Income Solutions, and Property & Casualty. Group Benefits offers solutions such as term, variable, and universal life insurance, disability coverage, and dental solutions. Retirement & Income Solutions includes pension risk transfers, and stable value products while Property & Casualty offers solutions for automobile, property, and small businesses. The U.S. segment contributes about 51% to MetLife’s total revenue and saw 8% growth in 2017, on account of higher pension risk transfers and structured settlement products sales. Moreover, core and voluntary products in the Group Benefits business did well in 2017. Asia Segment  offers life insurance, accident & health insurance, and retirement & savings plan to businesses and individuals. The company functions in 10 markets in Asia and has a strong footprint in Japan. The segment performance has remained fairly stable over the past few years, and while the earned premiums have been on a downward trend, the decline has been offset by improved results from universal life policy fees and investment income. Latin America Segment provides life insurance, accident & health insurance, retirement & savings, and credit insurance to businesses and individuals. The company operates in 7 jurisdictions in Latin America and has a strong footprint in Mexico and Chile. The 6.7% revenue growth in 2017 was driven by higher group accident & health and credit life product sales in Mexico. EMEA Segment offers similar products as the Latin America segment and has its largest base in the Gulf region, Poland, the UK and Turkey. Overall, the revenue growth remained fairly stagnant at 0.85%. However, the company’s products are doing well in Turkey and Egypt. MetLife Holdings comprises of products such as term, variable, and universal life insurance that the company has stopped marketing actively. This was primarily due to the separation and the U.S. retail advisor force divestiture . As a result, revenue from this segment has been on a downward trend, with 2017 experiencing an 8.9% decline. We have created an  interactive dashboard analysis  that shows MetLife’s key revenue sources and the expected 2018 performance. You can adjust the revenue drivers to see the impact on the overall revenues, EPS, and price estimate. P&C and Retirement & Income Businesses To Drive Growth In U.S. Segment The last two earnings releases have been a bit chaotic for MetLife. While the Q4’17 earnings announcement was postponed due to a material weakness in internal controls, a day before the Q1’18 earnings release, the company’s CFO was replaced as it was disclosed that the company failed to fulfill pension payments to about 13,500 people over a period of 25 years . However, MetLife managed to defuse the situation by posting decent numbers for both quarters. The Group Benefits business posted strong results in Q1, and we expect the business to continue its momentum and deliver solid growth on the back of efficient non-medical health underwriting. We expect big things from the company’s PRT business.  PRT is growing at an impressive rate and we anticipate the company to reap benefits from that. Moreover, increases in average premium per policy in both auto and homeowners policy should provide a boost to the P&C business. Meanwhile, the company has launched two InsurTech investment programs – MetLife Digital Ventures and Metlife Digital Accelerator. MetLife claims that the initiative will foster an innovative culture in the insurance space. Given that the company is striving hard to evolve in the InsurTech world, this seems to be a step in the right direction. Asia Business To Remain Stable; MetLife Holdings To Decline In the Asia business, emerging markets grew by 26% in 2017, mainly due to impressive agency growth in China. We expect this trend to continue in the upcoming year. However, business in Japan will likely experience some pressure and slightly offset the growth. Given that the company has introduced new products in Japan that essentially make customers the bearer of foreign currency risk and market risk, this trend could change in the future. For Metlife Holdings, the company has decided to stop marketing the life and annuity products. As a result, revenue from the segment has been declining over the past few years and will likely continue in the future. The company expects 5% declines per year going forward. We have a price estimate of $56 for MetLife, which is ahead of the current market price. This is based on revenue projections of $64.1 billion. Furthermore, we expect MetLife’s net margin to expand due to effective cost management. We forecast net income of about $5.3 billion, or EPS of about $5.08. Finally, using our estimated P/E multiple of 11 gives us $56 as a fair price estimate. Disagree? Detailed steps to arrive at MetLife’s price estimate are outlined in our  interactive dashboard,   and you can modify our assumptions to arrive at your own estimate for the company. 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 Are Johnson & Johnson's Key Sources of Revenue?
  • By , 6/20/18
  • tags: JNJ PFE MRK RHHBY BMY
  • Johnson & Johnson’s  (NYSE:JNJ) key sources of revenues are Pharmaceuticals, Medical Devices, and Healthcare. While the company’s Pharmaceuticals segment accounts for over 45% of the company’s overall revenues, it accounts for close to 60% of the company’s value, according to our estimates. This can be attributed to higher expected proportion of revenues and profits from Pharmaceuticals in the coming years. Within Pharmaceuticals, Immunology and Oncology are the largest divisions, which together account for over a quarter of the company’s overall revenues. We have created an  interactive dashboard analysis  that shows Johnson & Johnson’s key revenue sources, and the expected 2018 performance. You can adjust the revenue drivers to see the impact on the overall revenues, EPS, and price estimate. Expect Pharmaceuticals To Drive Growth Led By Oncology Drugs   We expect Oncology segment revenues to grow at a CAGR of 10.90% in the coming years led by Darzalex and Imbruvica.  Darzalex was approved by the FDA in late 2015. The company plans to expand the label, and it is testing the drug for 6 line extensions in phase 3 trials. Some of these are likely to make it through the FDA approval process and will aid the drug’s revenue growth. Imbruvica, which is used for the treatment of chronic lymphocytic leukemia and mantle cell lymphoma, was launched in 2014, and it generated revenues of $1.9 billion in 2017. The drug’s marketing rights are shared between J&J and Abbvie, and the expected peak sales are touted to be over $7 billion for Abbvie. This would translate into J&J’s share of peak sales reaching $4-$5 billion. Expansion to additional indications will aid the drug sales. Currently, the drug was being tested for 7 line extensions in phase 3. Apart from these two drugs, J&J also received the approval for Erleada in Feb 2018. Erleada is used for the treatment of non-metastatic castration-resistant prostate cancer. The drug’s peaks sales are estimated to be north of $1 billion, and it is also being tested for different prostate cancer types. One of the combination of Zytiga was also approved earlier this year for the treatment of earlier form of metastatic prostate cancer. Among other pharmaceutical divisions, Immunology is the largest revenue contributor. This can be attributed to its blockbuster drug Remicade, along with Stelara. Remicade generated over $6 billion in annual revenues for J&J over the past six years. However, it lost patent exclusivity in 2016, and now competes with biosimilars, especially Pfizer’s Inflectra, which has already gained a couple of FDA approvals. As such, we expect the drug revenues to decline in the coming years. However, other immunology drugs, Stelara and Simponi, may continue to grow in the near term. Also, Tremfya was approved last year for the treatment of moderate to severe plaque psoriasis. The company is testing these three drugs for line extension in phase 3. Looking beyond Pharmaceuticals, we expect both Medical Devices, and Consumer Healthcare to see steady growth in the coming years, led by new products, and continued growth in the Skin Care division. We currently have a $154 price estimate for Johnson & Johnson, which is more than 25% 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.
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    How Will Steel Tariffs Impact Deere?
  • By , 6/20/18
  • tags: DE CAT
  • President Trump in March  announced that the U.S. would levy a 25% tariff on steel imports and a 10% duty on aluminum. While Mexico, Canada, and the E.U. were exempted from this initially, this was also changed at the beginning of June. The implementation of these tariffs will no doubt increase the costs for companies like Deere (NASDAQ: DE), whose stock is down year-to-date given the negative sentiment. Deere’s Construction Industry segment, which is heavily reliant on steel prices, will be most vulnerable to these tariffs. Consequently, we expect the segment’s margins to fall roughly 120 basis points (1.2%) in the near term. Based on the tariffs, we expect the Construction segment’s EBITDA margin to fall from about 13% to 11.5% in 2018, as a result of increased costs. This could lead to a modest valuation downside for Deere. We have summarized our expectations on our interactive dashboard  platform. If you disagree with our forecasts, y ou can change the key drivers for Construction segment to gauge how changes will impact its expected revenue and margins. The Construction Industry segment generates revenue from sales of construction equipment and services. Construction spending is projected to remain strong in 2018, due to the strengthening of the U.S. economy, which should boost the U.S. Housing market and construction spending . The industry is expected to grow further in 2018 which, coupled with the Wirtgen acquisition, should boost Deere’s construction business. Moreover, the increase in raw material costs, as a result of the steel tariffs, should result in a hike in prices of the goods manufactured by Deere. As a result of these factors, i f the 2018 revenue rises to just under $8 billion, from an expected $7 billion earlier, it can help to offset the negative impact of falling margins. 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
    T Logo
    Why AT&T Wants To Buy AppNexus
  • By , 6/20/18
  • tags: T TMUS VZ S
  • AT&T  (NYSE:T) is reportedly in talks to buy digital ad exchange AppNexus for around  $1.6 billion, in a move that could allow the company to make deeper inroads into the digital advertising space while augmenting its advertising technology, following its acquisition of media behemoth Time Warner. In this note, we take a look at why AT&T is interested in this space. We have created an  interactive dashboard analysis   which outlines our expectations for AT&T (standalone) over 2018. Why AT&T Is Increasingly Interested In Digital Advertising  AT&T’s interest in the advertising space has been increasing ever since it became the largest pay-TV provider in the United States following its 2015 acquisition of DirecTV. Following its acquisition of Time Warner, the company noted that it would be operating a dedicated advertising and analytics segment, indicating that it is taking its advertising ambitions much more seriously. Digital distribution is likely to be a big part of AT&T’s strategy going forward, considering its recent subscriber declines in the pay-TV business and its emphasis on its new streaming platform, DirecTV Now. AT&T is also counting on advertising as a way to reduce prices for customers, shifting a part of the costs of content creation from customers to advertisers. AT&T is particularly interested in data-based advertising, including addressable TV ads (which play different TV ads for different households), digital ads and mobile ads. It’s possible that AppNexus, which operates one of the largest digital ad exchanges, could give the company a stronger position in this space. Unlike many ad technology companies, which only work for publishers and app developers to manage inventory, or for marketers who are looking to purchase ads, AppNexus carries out both tasks. Competition Will Be Intense, But AT&T Might Have Some Advantages The digital ad market is extremely competitive, with Silicon Valley giants Google and Facebook dominating the space. According to eMarketer, Google and Facebook are together projected to hold 57% of the digital ad market in the U.S. in 2018. AT&T’s wireless rival Verizon is likely to be a distant third place in this market, through its Oath subsidiary, which operates the erstwhile Yahoo and AOL brands. While AT&T will be a smaller player in this space, it could have some advantages. Firstly, the company could leverage its wireless data to better target ads. Within the digital ad market, mobile data is typically the most difficult to collect, as traditional browser cookies that advertisers use to  target customers on desktops don’t universally work on mobile phones. AT&T could potentially be able to circumvent this with data from its 130 million+ wireless customers. Moreover, considering AT&T’s reach across channels including mobile and TV, it could develop a buying platform that will include multiple ad formats including TV and digital video ads. 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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    Will 5G Really Drive A Big Upgrade Cycle For Nokia And Ericsson?
  • By , 6/20/18
  • tags: ERICSSON NOK ERIC MSI
  • Ericsson  (NASDAQ:ERIC) and Nokia  (NYSE:NOK), two of the world’s largest telecom equipment providers, are betting on next-generation 5G technology to drive growth, after posting mixed results over the last few years amid intense competition from Chinese equipment manufacturers and weaker spending by wireless carriers. However, telecom equipment companies can’t take the  5G cycle for granted, as the upgrade process could take time and the investments are unlikely to match the peak of the 4G cycle. Below we discuss further. We have created an  interactive dashboard analysis  which outlines our expectations for Ericsson over 2018. You can modify the key drivers to arrive at your own price estimate for the company. The 5G Opportunity  Operators across the world have started to outline plans for their 5G upgrades, with U.S. carriers planning for  commercial deployments of the technology as early as the end of this year. For instance, AT&T will launch its 5G wireless service in 12 cities by the end of 2018, while Verizon is bringing fixed 5G to homes in multiple U.S. cities. Other regions including South Korea, China, Japan and the Middle East are expected to commence their build-outs from 2019. Ericsson projects that there could be 3 .5 billion “internet of things ” connections on networks running 5G by 2023, with roughly 1 billion mobile customers, which translates to roughly 12% of total projected mobile subscriptions. European companies such as Ericsson and Nokia could also have a leg up over their Chinese rivals such as Huawei and ZTE in the 5G race. These Chinese companies face regulatory hurdles in Western markets, amid fears that they could give backdoor access to  the Chinese government. For instance, there have been reports that Huawei could be banned from supplying equipment for Australia’s 5G buildout. The Challenges That said, analysts remain skeptical that 5G spending will reach levels seen at the peak of the 4G deployments in 2015, as the use cases and business cases for the technology still need to be ironed out and there isn’t a so-called “killer app” for the technology as yet. While 5G technology is expected to be significantly faster than the older 4G network, the low latency (time delay) is likely to be the biggest differentiator. Although this could enable a host of new applications, ranging from autonomous driving to virtual reality, these applications still need to reach maturity from a hardware and software standpoint, with networking likely being a secondary concern at the moment.  Chinese telecom behemoth Huawei has also been somewhat circumspect about the prospects of 5G, indicating that customers may not notice a significant difference from 4G. The deployment of 5G could also be very expensive for operators, as it requires a denser set of base stations, considering its use of higher-band spectrum with weaker propagation characteristics. Ultimately, wireless carriers will decide on the scale of their deployments based on returns on investment.
    HIG Logo
    A Look At Hartford Financial's Key Sources Of Value
  • By , 6/19/18
  • tags: HIG
  • Hartford Financial  (NYSE: HIG), one of the leading property and casualty insurers in the U.S., operates four primary businesses – Commercial Lines, Personal Lines, Group Benefits, and Mutual Funds. Below, we delve into these businesses, their historical performances, and our expectations going forward. Commercial Lines, the largest segment, provides property and casualty insurance products and services to various industries across the world. The solutions include automobile insurance, workers’ compensation, property insurance, and general liability insurance solutions. In the U.S., this business is especially strong in the small commercial and middle market. The Spectrum policy, which combines both property and general liability coverage, has been doing well in the small commercial market. Commercial Lines contributes about 46% of Hartford’s revenue and saw 3.2% growth in 2017, on account of higher renewal written pricing, which provided a boost to the premiums generated per policy. Personal Lines  encompasses property, automobile, and personal umbrella coverage to individuals and households in the U.S. Furthermore, the company provides an exclusive program for the members of AARP. 2017 was a relatively weak year for this business, as the number of in-force policies went down by 13.3% and 11.7% in the Automobile and Homeowners categories, respectively. Meanwhile, fee income and investment income experienced moderate growth. As a result, segment revenue declined by 4.8%. Group Benefits covers group life insurance, short-term and long-term group disability coverage, and other products such as retiree health insurance, critical illness, and hospital indemnity. Over the last few years, this segment has been the standout performer for the company. The 9.5% growth in 2017 was driven by higher retention rates. The top-line growth was further boosted by the acquisition of Aetna’s group life and disability business. Mutual Funds  offer investment management and other related services to over 75 actively managed mutual funds, ETP traded on the NYSE, and life and annuity run-off business held for sale. The company’s smallest segment has been doing well over the past few years, with 2017 experiencing 13.5% revenue growth. We have created an  interactive dashboard analysis  that shows Hartford Financial’s key revenue sources and the expected 2018 performance. You can adjust the revenue drivers to see the impact on the overall revenues, EPS, and price estimate. Property & Casualty Business To Continue On Its Upward Trend Commercial Lines has been a strong contributor to the company’s top line in the past few years, and we expect this trend to continue in the upcoming year. Workers’ compensation contributes about 48% to the segment’s earned premiums and has been performing well over the past few years. With the declining unemployment rate and improving economic conditions in the U.S., we expect another strong contribution from this business in 2018.  Furthermore, we expect the top line to be driven by growth in the Small Commercial, Middle Market, and Specialty Commercial business. Given that the company recently landed foremost renewal rights, we expect the segment to flourish further into the year. Meanwhile, the company has made progress on the technology front by expanding the functionalities of the ICON quoting platform, which should help the company gain traction among its customers. Underwriting improvements, optimal pricing strategies will likely drive growth in the Personal Lines sub-segment. Moreover, HIG has access to Aetna’s customer base to cross-sell its P&C products.   Acquisition Of Aetna’s Group Life And Disability Business To Boost Group Benefits In 2017, Hartford executed two important deals that could shape the future of the company. It got rid of Talcott, a declining business, and acquired Aetna’s group life and disability business . The Aetna acquisition has made Hartford one of the biggest players in the Life and Disability business, and has deepened Hartford’s penetration in mid-size and large companies. With complete integration, we expect the company to realize the full potential of the deal in 2018, which will drive growth in earned premiums. Meanwhile, the deal includes a multi-year collaboration to sell Hartford’s life and disability products via Aetna’s medical sales team. This will deepen Hartford’s penetration in the market. Furthermore, Aetna’s expertise in the business should help the renewal retention rate. We maintain our $61 price estimate for Hartford Financial, which is ahead of the current market price. Disagree? Detailed steps to arrive at Hartford’s price estimate are outlined in our  interactive dashboard,   and you can modify our assumptions to arrive at your own estimate for the company. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    HAL Logo
    Some Trends That Could Drive Halliburton's Business In The Near Term
  • By , 6/19/18
  • tags: HAL SLB
  • Halliburton  (NYSE:HAL), the second-largest oilfield services provider, could be poised for better times after a relatively tough 2016 and 2017, as higher oil prices improve demand for oilfield services both in North America and abroad. The oil rig count in the U.S. is up by about 13% year-over-year as of June 15, while the international rig count is also up slightly, per data from Baker Hughes. Besides the broader improvement in the market, there also appear to be some specific trends that could drive Halliburton’s performance in the near-term. We have created an  interactive dashboard analysis  which outlines our expectations for Halliburton over 2018. You can modify the drivers to arrive at your own estimates for the company’s EPS. Higher Mix of Short Cycle Projects As Oil Remains Volatile While oil prices have been on the uptrend this year, price volatility has also been relatively high, making oil and gas companies somewhat circumspect about meaningfully expanding their CapEx plans. Short-cycle investments continue to drive much of the oil and gas activity this year, as many operators are refraining from making major investments in longer-term projects (which call for higher capital investments and risks, with higher potential reward), instead opting for projects that have shorter lifecycles. Unconventional operations, such as shale and tight oils, are likely to be favored by operators, as they generally entail smaller capital investments and help companies maintain their financial stability, while giving them some flexibility to scale up production quickly as oil prices improve. This trend could bode well for Halliburton, as it derives a significant portion of its revenues from unconventional operations such as pressure pumping in the North American market. Additionally, other countries are also expanding their unconventional activity. For instance, Halliburton recently won a contract for unconventional gas stimulation services in Saudi Arabia, as the country looks to reduce its crude consumption for domestic purposes. Higher Service Intensity For Unconventional Plays Service intensity for pressure pumping operations is also trending higher, for multiple reasons. For one, frackers are moving away from more expensive guar gum-based  fracs to slick-water fracs that are more economical from a consumables point of view. However, this method uses more water and sand and requires more horsepower and also puts more strain on equipment. Despite this, drillers appear to prefer this method to the guar-based fracking. Halliburton, being a fracking equipment supplier, could see more demand due to higher equipment degradation. For perspective, the company has indicated that close to 50% of the new capacity coming into the market would go towards replacing worn out capacity. Additionally, customers now have a large portfolio of economically viable projects, with Brent crude prices close to $70 a barrel, implying that service intensity could also increase further as operators move to more challenging plays.   View key data points for Halliburton Below are our core reference data for dashboards on HAL’s upstream metrics. North America n Rig Count  Halliburton Revenues Halliburton EBITDA – Historical Trend & Forecast Data Halliburton North America Revenue- Historical Trend & Forecast Data Halliburton Latin America Revenue- Historical Trend & Forecast Data Halliburton Capital Expenditures – Historical Trend & Forecast Data   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    MO Logo
    What Is The Key Factor That Will Drive Medical Marijuana Producer Aphria's Value Going Forward?
  • By , 6/19/18
  • tags: MO PM
  • As Canada comes close to legalizing recreational marijuana, cannabis stocks have witnessed a sudden surge in their valuation. Despite the vast upside opportunity for pot stocks, the opening up of the recreational marijuana market may be faced with regulatory hardships, just like the tobacco industry. However, the investors seem to be positive about these stocks, hoping these stocks replicate the growth trajectory of tobacco stocks, such as  Philip Morris   and  Altria . This trend has been witnessed lately with Aphria Inc. (TSX:APH), a low cost of producer of medicinal marijuana in Canada, gaining momentum over the last one month. In our previous analysis –  Here’s Why We Believe That Medical Marijuana Stock Aphria Is Undervalued  – we had talked about how we think that Aphria is undervalued compared to its peers based on a Price/Sales multiple basis. In this note, we aim to discuss the key driver that will drive its value going forward. You can view our valuation for the company on our interactive dashboard and create scenarios to suit your assumptions. International Expansion Will Drive Top Line Growth Australia As more and more companies are legalizing the medical use of marijuana, Aphria has aggressively entered into partnerships and joint ventures to supply its output to these international markets in the last couple of months. For instance, the Canadian company completed its first shipment of medical cannabis to its Australia-based partner Althea in late April of this year. The initial shipment, which is the first of the four shipments due in the next 12 months, included a mix of cannabis oil products and dried flower, which will be distributed to pharmacies for eligible medical cannabis patients in Australia. Australia serves to be a strategic market for Aphria and its branded cannabis products, and is expected to bolster its sales in the coming months. Africa Apart from Australia, Aphria also has plans to capture the South African market, since it has a vast potential for growth in the long term. Consequently, the company entered into a joint venture with South African company Verve Group of Companies (VGC) to form a new entity known as CannInvest Africa Ltd. The newly formed entity will acquire an interest in Verve Dynamics (Verve), which is a licensed producer of medical cannabis extracts in Lesotho, for a sum of CAD 4.05 million. With Verve Group’s resources and Aphria’s expertise and low cost of production, Verve will be able to supply high-grade low-cost cannabis isolates throughout the African continent and to markets across the globe using Aphria’s international distribution network. Wider reach in newer markets will boost Verve’s revenue and, in turn, complement Aphria’s valuation.   Do not agree with our forecast? Create your own price forecast for Aphria by changing the base inputs (blue dots) on our interactive platform .