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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 : ORACLE

Oracle reported its fiscal second quarter earnings on Monday, beating expectations on both revenue and EPS.

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FORECAST OF THE DAY : STATE STREET'S ETF ASSETS

State Street continues to see solid growth in its ETF assets despite heightened competition, as favorable market dynamics continue to drive inflows.

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RECENT ACTIVITY ON TREFIS

AVP Logo
How Much Will Avon’s Revenue Grow in the Next 2 Years?
  • By , 12/18/18
  • tags: AVP REV
  • Avon  (NYSE: AVP), is a globally recognized leader in direct selling of beauty and related products. During the latest quarter, its top line marginally increased to $1.4 billion, up by 1% on a y-o-y basis in Q3, as compared to the same period last year, due to recent growth initiatives taken by the Company. Its top line remained under pressure as the company continued to operate in challenging macro and competitive conditions, particularly in the largest markets. With the recent inductions made in Avon’s top management, the company is positive that injecting new talent and capabilities into the business will steer Avon toward the path of growth. The company is focused to generate efficiencies with a focus on execution capabilities by strategically redirecting investments to support underlying growth initiatives. Going forward, we are projecting revenues for all the 3 segments of the Company to grow as the company is working on developing their long-term strategic plan for sustainable growth. The company remains on track with the Transformation Plan that targets achieving cost savings of $65 million in 2018, of which $44 million was reached in the third quarter.  They also  completed the early redemption of their 2019 bonds to reduce their debt and further strengthen their balance sheet. We are therefore anticipating the company’s revenue to grow at a compound annual growth rate (CAGR) of 2.7%. We have built an  explanatory dashboard for Avon’s Growth in the Next 2 Years   to outline major drivers of revenue over the next two years. Estimating Avon’s Revenue Growth Total revenue for Avon is comprised of the Beauty Segment, Fashion Segment, and Home Segment.
    DWDP Logo
    What Are DowDuPont's Key Sources of Revenue?
  • By , 12/18/18
  • tags: DOWDUPONT DWDP
  • DowDuPont  (NYSE:DWDP) is a U.S.-based chemicals company, formed after a merger between Dow Chemical Company & Dupont in 2017. The company operates primarily into three verticals ~ Agriculture, Materials Science, and Specialty Products ~ and it plans to split these businesses into three different companies by 2019. The company’s key revenue and EBITDA sources are  Packaging & Specialty Plastics, which accounts for roughly 30% of the company’s total revenues, Agriculture (17%), Industrial Intermediates & Infrastructure (17%), and Performance Materials & Coatings with 11% contribution to the overall top line. We have created an interactive dashboard ~ What’s DowDuPont’s Revenue And EBITDA Breakdown? ~ which highlights the segment wise breakup of revenues and EBITDA for DowDuPont. You can also modify the revenue and EBITDA drivers to see the impact on the company’s overall revenues and EBITDA. Packaging & Speciality Plastics is the largest segment for DowDuPont. The business includes elastomers, polypropylene, and other products used in the electrical, telecommunication, and packaging industry. It also includes performance polymers, which delivers a broad range of polymer-based high performance materials, that includes elastomers and thermoplastic and thermo-set engineering polymers. The segment revenues have grown from $18.4 billion in 2015 to $22.4 billion in 2017, and we forecast it to grow to north of $25 billion by 2019. This can be attributed to higher demand for elastomers, and the benefits from the company’s increased capacity in Sadara. Most of the elastomers demand comes from Asia-Pacific, and Sadara unit will aid the supply. The market size of elastomers is estimated to grow in the mid-single digits to $92 billion by 2021. The overall expansion of the market will bode well for DowDuPont. Agriculture segment revenues are generated from wide variety of agricultural chemicals such as herbicides, insecticides, and fungicides for farmers. Also included in this division’s sales are genetically modified (GM) seeds/traits for corn, soybean, and cotton crop. The segment revenues saw low single digit growth in 2017 to $14.3 billion. We forecast the growth rate to remain moderate in the near term, due to expected headwinds from Brazil. While the company is positioned to benefit from corn plantations over soybean in Brazil, the country is seeing higher demand for soybean plantation, and this will likely result in lower corn planted area. This will likely impact the segment’s overall performance in the near term. Industrial Intermediates & Infrastructure segment includes functional materials that consists of a portfolio of products which find application in pharmaceuticals, personal care, and industrial specialty industries. The segment revenues have increased from a little under $11 billion in 2016 to $12.6 billion in 2017, and we forecast them to grow to a little under $16 billion by 2019,  primarily led by volume gains. The added capacity at Sadara is aiding the overall sales, especially in the Asia-Pacific. Also, the polyurethane market is expected to grow at a  CAGR of 8%  in the coming years, and this should aid the sales for DowDuPont, given it is one of the largest players in the polyurethane market. Looking at Performance Materials & Coatings, the segment includes amines, chlorinated organics, epoxy, among others. Adhesives and sealants, construction materials, cellulosic-based construction additives, raw materials for architectural paints and industrial coatings, and technologies used for water purification are also part of this segment. The segment revenues have seen strong growth in the recent past, and stood at $8.7 billion in 2017. We forecast them to grow north of $10.5 billion by 2019, primarily led by pricing gains. These four segments combined account for roughly three-fourths of DowDuPont’s overall EBITDA, which has grown from less than $10 billion in 2015 to over $16 billion in 2017, and we forecast it to grow to a little under $20 billion by 2019. Higher revenues, and growth in margins led by price increases, along with cost synergies will likely drive the overall 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.
    ORCL Logo
    How Does Oracle Look Post-Q2 Results?
  • By , 12/18/18
  • tags: ORCL AMZN GOOG MSFT ADBE IBM CRM VMW
  • Oracle (NYSE:ORCL) reported its fiscal Q2 results on December 17, beating market expectations on revenue and EPS. Despite the impact of forex headwinds, Oracle’s results point towards potential acceleration, and the company’s management continued to exude confidence about its full-year revenue growth exceeding that of the previous fiscal year. The database giant’s Q2 results seem to have ignited hopes of its cloud momentum picking up steam going forward. We maintain our price estimate of $58 per share for Oracle, which is around 20% higher than the current market price. Our interactive dashboard on Oracle’s Price Estimate  outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.   Oracle registered its seventh consecutive quarter of double-digit EPS growth, with non-GAAP EPS of $0.80 (+19%y-o-y). The company reported total Q2 revenue of $9.56 billion, which was flat year-over-year, or up about 2% on a constant currency basis. Oracle noted that ERP and HCM have reached annualized revenues of $2.6 billion, representing annual growth of over 20%. How Is The Cloud Business Progressing?  In terms of traction, Oracle saw nearly 200 of its ERP customers move to the cloud. On the autonomous database, the company is witnessing over a thousand trial activations per month. The company claims to have a 50% share of the database market and aims to migrate all Oracle database customers to the Oracle cloud, while expanding its share of the database market. The company’s previous lack of sufficient cloud infrastructure to support its industry-leading database technology appeared to have been holding it back. However, with the Gen 2 Cloud, Oracle now has the tools to not only compete but also win in the market. As an anecdotal example, the company notes that it takes around 15 minutes to have the Oracle cloud up and running versus the traditional timeline of 15 days. Furthermore, the company believes that the uptake towards Oracle Database and Oracle Public is likely to accelerated from the next fiscal year. The company’s Q2 results, Q3 revenue guidance of 2-4% y-o-y growth, traction in cloud and autonomous database uptake point towards Oracle positioning itself for steady growth moving forward. However, it will be important to continue looking for incremental data points around traction to ensure that the current quarter was indeed the start of an acceleration towards a much larger cloud presence. Do not agree with our forecast? Create your own price forecast for Oracle by changing the base inputs (blue dots) on our interactive dashboard .
    LB Logo
    How Much Will L Brands' Revenue Grow in the Next 2 Years?
  • By , 12/17/18
  • tags: L-BRANDS LB
  • L Brands  (NYSE: LB) has seen decent growth in sales and steady profits the past several years. During the latest quarter, net sales of the company rose to $2.77 billion, compared with $2.61 billion a year ago, up 6% from the prior-year quarter, with adjusted earnings per share at $0.30. This was driven by growth across its Bath and Body Works segment, a well-positioned customer strategy,   international diversification, and rising online sales. L Brands has been continuously revamping business by improving the store experience, localizing assortments, and enhancing direct business. These measures have facilitated it to generate incremental sales and increase store transactions through higher conversion rates.  A sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiatives has kept L Brands afloat in a competitive environment. Also, L Brands is seeing very strong momentum in online sales growth with online revenue for VS and Bath & Body Works going up. Going forward, we are projecting revenues for all the 4 segments of the Company to grow as the company is working on developing their long-term strategic plan for sustainable growth. Overall, we anticipate the company’s revenue to grow at a compound annual growth rate (CAGR) of 3.8%. We have built an  explanatory dashboard for L Brands Inc’s Growth in the Next 2 Years   to outline major drivers of revenue over the next two years. Estimating L Brands Inc Revenue Growth Total revenue for L Brands is comprised of  Victoria’s Secret Segment, Bath & Body Works Segment, Victoria’s Secret and Bath & Body Works International and Others Segment.  
    NSC Logo
    What To Expect From Norfolk Southern’s Coal Freight Business In The Near Term?
  • By , 12/17/18
  • tags: NSC CSX UNP
  • Norfolk Southern’s (NYSE:NSC) coal freight business accounts for over 15% of the company’s value, according to our estimates. The business is dependent on macro trends in the coal industry, primarily the coal as well as natural gas pricing. In the recent quarters, the company has seen a decline in utility and domestic coal shipments, while export coal has seen strong gains, led by a rise in global benchmark coal prices. Natural gas prices have seen a strong up move over the last couple of months, and this could bode well for coal demand in the near term. We expect higher shipments and pricing gains to drive a mid-single digit growth in coal freight revenues for Norfolk Southern in 2018 and 2019. We have created an interactive dashboard analysis ~  How Is The Coal Freight Business Trending For Norfolk Southern ~ highlighting the company’s coal freight segment. You can adjust revenue and margin drivers for 2018 and 2019. Below we discuss our expectations and forecasts for the coal freight business. Expect Coal Freight Revenues To Grow In Mid-Single Digits Led By Both Volume And Pricing Gains Norfolk Southern’s coal freight revenues grew in high teens to $1.7 billion in 2017. We forecast them to grow in mid-single digits in 2018 and 2019. In terms of volume, we forecast low single digit growth in the near term, as an expected decline in utility and domestic coal shipment will be offset by strong export volume growth. In fact, utility coal tonnage was down 7% while export tonnage was up 13% in the nine month period ending September 2018. This resulted in 2% decline in overall coal tonnage for Norfolk Southern during the same period. The decline in utility coal tonnage can partly be attributed to the trends in natural gas prices. The benchmark Henry Hub natural gas price was at $3 levels by the end of Q3 2018, more or less similar to what it was in the prior year. The general trend in recent years has been that attractive natural gas prices resulting in lower dependency on coal as an energy source. Note that the U.S. coal consumption in particular has been falling, and as per the  latest EIA estimates  of 652 million short tons (mst) coal consumption in 2019 will mark the year with the lowest coal consumption over the last 40 years. However, since September 2018, natural gas prices have seen a sharp move upward with the Henry Hub natural gas price moving over 50% to $4.69 by early December. This can be attributed to concerns over supply shortages in the near term. Coal prices have also inched higher with  NYMEX coal futures  moving up 10% during the same period. Over the last week or so oil prices have stabilized with Brent trading around $60 levels, and this has pushed natural gas price down. While this volatility could continue in the near term, global benchmark coal prices are expected to remain strong. Coal prices could inch higher in the long run as well, given the introduction of tough environmental protection laws in several countries, which will make it difficult to develop new mines, thereby limiting the supply. With coal prices remaining higher, the U.S. coal exports could continue to see strong growth, thereby aiding the export volume for railroad companies. Also, the overall U.S. coal exports stood at  87 mst  for the nine month period ending September 2018, as compared to 69 mst, during the prior year period. Despite strong trends in export, there are certain concerns looming over the U.S. coal exports given the trade tensions. China has already imposed a 25% tariff on imports of U.S. coal in August, as part of its retaliation against tariffs on its exports implemented by the U.S. While Netherlands, Japan, and India currently remain the top buyers of U.S. coal, continued war over tariffs could slow the export growth for Norfolk Southern in the near term. Looking at the margins, we forecast Norfolk Southern’s EBITDA margins to grow by 150 basis points to around 47% by 2019. This can be attributed to higher average revenue per carload, which will likely see mid-single digit growth in the near term, aided by higher fuel surcharges. Also, the company’s effort to bring down its operating ratio will further aid the margin expansion. While a strong decline in crude oil prices over the last two months could impact the near term revenues for the company, they will likely trend higher for the full year.   Don’t Agree With Our Forecast? Feel Free To Create Your Own By Making Changes To Our Model     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.
    ATVI Logo
    Activision Blizzard: How Much Can Activision's Gaming Segment Grow By 2020?
  • By , 12/17/18
  • tags: ATVI EA ZNGA
  • Activision Blizzard’s  (NASDAQ:ATVI) Activision segment accounts for roughly 30% of the company’s overall value, according to our estimates. The segment has been facing headwinds in the recent past due to lower sales for its games, primarily Destiny: Forsaken. As such, we forecast the segment revenues and EBITDA to decline in low-mid single digits in 2018, but grow in subsequent years, primarily led by continued growth in the Call of Duty franchise, and in-game offerings. Overall, we forecast the segment revenues and EBITDA to grow at a CAGR of 1.3% and 1.8% respectively till 2020. We have created an interactive dashboard ~  How Much Can Activision Blizzard’s Activision Gaming Segment Grow By 2020? ~ on the segment’s performance in the coming years. You can adjust the revenue and margin drivers to see the impact on the segment revenues, and EBITDA. Why Do We Forecast Slow Growth For Activision Segment? Activision revenues are a product of Average No. of Monthly Active Users (MAUs), and Average Revenue Per Active User (ARPU). Activision MAUs have remained more or less stable around 50 million over the past few years. However, ARPU has declined from $61 in 2014 to $52 in 2017. We forecast MAUs and ARPU to decline in the low single digits in 2018. This can be attributed to lower demand for Destiny: Forsaken. Note that Destiny: Forsaken is an expansion to Destiny 2, which was released in 2017. However, both the metrics should see growth in 2019 and beyond, primarily due to higher engagement of users in existing franchises, primarily Call of Duty, and longer shelf life of games. The segment continues to see strong sales for its most popular franchise ~ Call of Duty. The latest release of Call of Duty: Black Ops 4 has seen strong sales over the past couple of months. In fact, it was the top selling game for October 2018, according to NPD . However, the November top grosser title might go to Take-Two Interactive’s Red Dead Redemption II, which is seeing strong demand. The Call of Duty franchise will likely boost the segment revenues in the near term, which were down in the high teens for the nine month period ending September 2018. Also, the new season of Call of Duty World League kicked off earlier this month. The league provides a unique platform for gamers to connect. Also, live streaming of the game generates additional advertising revenue, which should augment the overall segment revenues. The company also plans to offer more in-game purchases, which should bode well for the segment growth. Overall, we believe that the Call of Duty franchise will continue to do well for the company, and aid the overall segment revenue and EBITDA growth over the next few years. However, any significant growth is unlikely, given the high reliance on a single franchise. A moderate increase in Activision’s revenue will also account for a slight uptick in EBITDA over the next few years. EBITDA growth will also be aided by an increase in digital sales. In order to ensure freshness in the game content, the company launches regular updates of the existing games, which are essentially extensions of the game, and could offer better 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 Like our charts? Explore  example interactive dashboards  and create your own.  
    ORCL Logo
    What To Expect From Oracle's Q2 Results
  • By , 12/17/18
  • tags: ORCL AMZN GOOG MSFT ADBE IBM CRM VMW
  • Ever since Amazon  publicly announced  that it will be moving off of  Oracle ‘s (NYSE:ORCL) databases moving forward, there has been some negative sentiment surrounding the company. Oracle’s business is largely expected to show some signs of peaking out when the company reports its Q2 earnings on December 17 after market close. Given the modest expectations, any positive surprise on the back of Oracle’s cloud architecture could provide some upside. We currently have a price estimate of $58 per share for Oracle, which is around 20% higher than the current market price. Our interactive dashboard on Oracle’s Price Estimate  outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.   In November, we discussed  the company’s Gen 2 Cloud and management’s expectations of Gen 2 beating the competition by way of superior price and performance. Earlier this year, some experts had opined that Gen 2 may still be a skeletal structure which needed more refinement to become a commercial-grade platform. It will be interesting to hear Oracle’s commentary around traction in the cloud business given management’s prior claims. In addition to the uptake of Oracle’s cloud, we will be looking at tax benefits and cost control contributing to earnings. Further, we will be watching for the impact of forex and color on how the core database business has been benefiting from the introduction of Oracle’s own cloud. Do not agree with our forecast? Create your own price forecast for Oracle by changing the base inputs (blue dots) on our interactive dashboard .
    BBRY Logo
    BlackBerry Q3 Preview: Focus On The Emerging Automotive Business
  • By , 12/17/18
  • tags: BBRY AAPL
  • BlackBerry  (NYSE:BB) is expected to publish its Q3 fiscal 2019 results on December 20. While the company’s core enterprise mobility management business has stabilized, posting significant recurring revenues (81% as of Q2), we will be closely watching the progress of the Technology Solutions business, which has been witnessing strong growth driven by sales of QNX embedded software. Our interactive dashboard analysis on  What Will Drive BlackBerry’s Performance Over The Next Three Years  outlines our expectations for BlackBerry in the near term. Updates On The QNX Auto Business BlackBerry’s Technology Solutions business saw revenue rise by 29% year-over-year during fiscal Q2, driven primarily by the QNX business. The company has been focusing on expanding the applications of QNX beyond the automotive infotainment market, focusing on Advanced Driver Assistance Systems (ADAS), which essentially help the driver in the driving process, and in other areas such as instrument cluster. BlackBerry has been working with both tier-1 suppliers and OEMs in this regard, and the shift could be very lucrative for the company. For instance, in the infotainment sector, the company is only estimated to charge between $1.50 to $5 per vehicle currently. In comparison, BlackBerry previously indicated that it could garner between $5 to as much as $25 per vehicle as it expands into more sophisticated auto technologies. BlackBerry has been taking multiple steps to bolster the business. As of Q2, the company increased the number of qualified worldwide channel partners for  QNX to 48, which represents a 20% increase  from the start of the fiscal year. BlackBerry also indicated that it was going to step up its investments in the QNX space, recruiting more engineers across locations. We will be looking for updates on how this business is faring over the quarter. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    LB Logo
    Is The Market Pricing L Brands Fairly?
  • By , 12/14/18
  • tags: L-BRANDS LB
  • L Brands  (NYSE: LB) engages in the retail business of women’s intimate and other apparel, personal care, and beauty categories. During the latest quarter, net sales of the company rose to $2.77 billion, compared with $2.61 billion a year ago, up 6% from the prior-year quarter, with adjusted earnings per share at $0.30. This was driven by growth across its Bath and Body Works segment, a well-positioned customer strategy,   international diversification, and rising online sales. Store only comparable sales had also increased 4% year over year.  Even though the BBW segment continues to perform well, the results have been slightly disappointing for Victoria’s Secret. On the other hand,  VS Stores still continue to be the most important segment for the company as it derives close to 50% of its revenues from this segment and it is striving to get it back on track. Detailed steps to arrive at our price estimate are outlined in our  interactive dashboard Is L Brands Inc. Fairly Priced .  You can modify the key value drivers to see how they impact the company’s revenues, bottom line, and valuation. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs
    UNP Logo
    What To Expect From Union Pacific's Coal Freight Business In The Near Term?
  • By , 12/14/18
  • tags: UNP CSX NSC
  • Union Pacific Corporation’s (NYSE: UNP) coal freight business accounts for 13% of the company’s value, according to our estimates. The business is dependent on macro trends in the coal industry, primarily coal as well as natural gas price movements. In the recent past, the company has seen a decline in coal shipments, as it lost some of the business. However, other railroad companies are seeing strong growth in export coal shipments, led by a rise in global benchmark coal prices. We expect this trend to continue in the near term, and result in higher shipments in 2018 and 2019. However, looming trade tensions could impact the growth rate in the near term. We forecast coal freight revenues to grow in mid-single digits in the near term, driven by both volume and pricing gains. We have created an interactive dashboard analysis ~  How Is The Coal Freight Business Trending For Union Pacific  ~ highlighting the company’s coal freight segment. You can adjust revenue and margin drivers for 2018 and 2019. Below we discuss our expectations and forecasts for the coal freight business. Expect Coal Freight Revenues To Grow In Mid-Single Digits Led By Both Volume And Pricing Gains     Union Pacific’s coal freight revenues grew in high single digits to $2.6 billion in 2017. We forecast them to grow in mid-single digits in 2018 and 2019. In terms of volume, we forecast low single digit growth in the near term, as an expected decline in domestic coal shipments will likely be offset by strong export volume growth. However, any significant growth is unlikely, given that the company is facing pricing headwinds of late. In fact, coal shipments were down 3% in the previous quarter. Also, the company has lost some of the coal business, which is impacting the overall segment performance. The decline in domestic coal shipments for the industry can largely be attributed to the trends in natural gas prices. The benchmark Henry Hub natural gas price was around $3.02 by the end of Q3 2018, similar to what it was in the prior year. With gas prices being more attractive, the dependency on coal as an energy source continues to come down. In fact, as per the  latest EIA estimates  of 652 million short tons (mst) coal consumption next year will mark the year with the lowest coal consumption over the last 40 years. However, since September 2018, natural gas prices have seen a sharp move upward with the Henry Hub natural gas price moving over 55% to $4.69 currently. This can be attributed to concerns over supply shortages in the near term. Coal prices have also inched higher by 10% during the same period. Higher prices will bode well for the U.S. coal exports. Thermal coal in particular is seeing strong growth with exports up  44%  y-o-y for the nine month period ending September 2018. Also, the overall U.S. coal exports stood at 87 mst for the nine month period ending September 2018, as compared to 69 mst, during the prior year period. Despite strong trends in export, there are certain concerns looming over the U.S. coal exports given the trade tensions. China has already imposed a 25% tariff on imports of U.S. coal in August, as part of its retaliation against tariffs on its exports implemented by the U.S. While Netherlands, Japan, and India currently remain the top buyers of the U.S. coal, continued war over tariffs could slow the export growth for Union Pacific in the near term. Looking at the margins, we forecast Union Pacific’s EBITDA margins to remain stable around 50%. Average revenue per carload will likely see low single digit growth in the near term, aided by higher fuel surcharges. While a strong decline in crude oil prices over the last two months could impact the near term revenues for the company, they will likely trend higher for the full year.     What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    ADBE Logo
    What Is Adobe's Outlook Post-Q4 Earnings?
  • By , 12/14/18
  • tags: ADBE GOOG MSFT AMZN ORCL SAP
  • Adobe (NASDAQ:ADBE) reported its fiscal Q4 earnings on Thursday, December 13. While the company delivered a beat on revenues, non-GAAP EPS missed expectations slightly (though it did come in higher than expectations after adjusting for the Marketo acquisition). Not only did the company see solid growth in Q4, but management also expects this growth momentum to continue in fiscal 2019. That said, the company’s stock traded down following the earnings, as management’s guidance came in below expectations. We currently have a price estimate of $276 per share for Adobe, which is around 10% higher than the current market price. Our interactive dashboard on Adobe’s Price Estimate  outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation. Adobe reported Q4 revenue (ex-Marketo) of $2.44 billion versus management target of $2.42 billion. Adobe acquired Marketo in October 2018, and it contributed to $21 million in Q4, bringing the total Q4 revenue for Adobe to $2.46 billion (+23% y-o-y). Q4 non-GAAP EPS came in at $1.83, diluted by around $0.70 due to the Marketo acquisition. Adjusting for the Marketo acquisition, EPS of $1.90 was also higher than management’s target of $1.87. For the full fiscal year 2018, the company’s revenue grew to $9 billion (+24% y-o-y) and non-GAAP EPS was $6.76. Interestingly, Adobe’s Document Cloud revenue grew to $5.34 billion (+28% y-o-y) much faster than Experience Cloud revenues, which reached $2.44 billion (+20% y-o-y). The addition of Magento (exceeding revenue target of $30 million) and Marketo ($21 million) are likely to help fuel the company’s growth going forward. Based on management’s expectation of the momentum from Q4 spilling over into 2019, Adobe’s guidance calls for solid growth, though it was below analyst expectations. The guidance calls for: Q1 2019: Revenue of $2.54 billion, non-GAAP EPS of about $1.60 Fiscal 2019: Revenue of $11.15 billion, non-GAAP EPS of $7.75 In addition to the underlying strength in business, Adobe’s growth outlook across metrics also appear to have taken into account the company’s deepening ecosystem capabilities (through Marketo and Magento) and GTM partnership with Microsoft. Adobe also mentioned having made solid progress on the open data alliance that the company has formed with Microsoft and SAP. Do not agree with our forecast? Create your own price forecast for Adobe by changing the base inputs (blue dots) on our interactive dashboard .
    COST Logo
    An Overview Of Costco's Q1 Earnings and Beyond
  • By , 12/14/18
  • tags: COST WMT AMZN
  • Costco ‘s (NASDAQ: COST) fiscal first quarter earnings per share came in below market expectations on an adjusted basis, while revenues saw a slight beat. In Q1, Costco’s total revenue increased 10% year-over-year (y-o-y) to around $35 billion, driven by growth in membership fees and a 9% increase in comparable sales. The retailer reported net earnings of $1.73 per share, up 20% y-o-y. The results were driven by a tax benefit related to stock-based compensation and to the implementation of the tax regulation act. Also, the quarter included a charge for an adjustment to its estimate of breakage on rewards earned prior to the fiscal year 2019 for the Citi/Visa co-branded credit card program. Our  $236 price estimate for Costco’s stock  is slightly ahead of the current market price. We have created an interactive dashboard on What T o Expect From Costco’s Fiscal Q2 Earnings, which outlines our forecasts for the company’s next quarter.  You can change expected revenue, operating margin and net margin figures for Costco to gauge how it will impact expected EPS for the fiscal second quarter. We expect Costco’s revenue and earnings to grow in Q2, primarily due to the company’s value offerings and high membership renewal rates, coupled with cost and productivity savings. Growth In Comparable Sales, Membership Fees Costco reported that its comparable store sales increased 9% during the fiscal first quarter, including the impact of gasoline prices and currency effects, largely driven by 11% comparable sales growth in the U.S. and 2% in Canada. Excluding gasoline and currency fluctuations, combined comparable sales increased by 8%, driven by 8% growth in the U.S. and a 6% rise in Canada and other international markets. The top growth categories in this quarter were grocery, consumer electronics, hardware, health and beauty aids and automotive. Additionally, Costco’s growth was driven by both traffic and average transaction size growth. The company’s fiscal first quarter traffic was up 4.9%  worldwide and 5.2% within the U.S. Overall, the company’s continued growth momentum confirms that it should be able to continue to see healthy traffic at its brick and mortar warehouses despite stiff competition in the grocery sector. Costco’s membership revenue grew 10% y-o-y to $758 million, due to new sign-ups and increased penetration of the company’s higher-fee Executive Membership program. Currently, Costco’s member renewal rates are 90.5% in the U.S. and Canada and 88% worldwide. Meanwhile, on the e-commerce front, Costco’s online sales increased 32.3% y-o-y in the quarter. And on the cost side, the company’s selling, general and administrative (SG&A) expenses increased 8% y-o-y to around $3.5 billion due to increased payroll expenses, higher IT expenditures and growth in e-commerce initiatives. Costco mentioned that it plans to open its first Chinese location, in Shanghai, next September. Consensus estimates for the company’s fiscal second quarter call for earnings of $1.72 per share and revenues of $35.5 billion, implying growth of about 8% and 10%, respectively. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    What Is TripAdvisor's Fair Value?
  • By , 12/14/18
  • tags: TRIP CTRP BKNG EXPE TZOO
  • TripAdvisor  (NASDAQ: TRIP) has delivered a solid performance so far this year, driven by a turnaround in its Hotel business and solid demand for its Non-Hotel business, particularly the Restaurants and Experiences segment. In fact, the company’s Non-Hotel segment has continued to deliver operational and marketing efficiencies, which has resulted in a strong improvement in its profitability. In the first nine months of 2018, the company’s revenues grew 3% year-over-year (y-o-y) to $1.3 billion. In addition, the company’s adjusted EBITDA grew 25% during this period, largely due to increased investments, notably to enhance technological capabilities in order to improve customer engagement. TripAdvisor has experienced a more than 75% surge in its stock price since the beginning of the year. We have maintained our price estimate for TripAdvisor at $64, which is slightly ahead of the current market price. We have created an interactive dashboard on What Is Driving Our $64 Price Estimate For TripAdvisor, which details our key forecasts and estimates for the company. You can modify the interactive charts in this dashboard to gauge the impact that changes in key drivers for TripAdvisor can have on our price estimate. Overview of Forecasts Segment Overview TripAdvisor has two reportable segments: Hotel and Non-Hotel. The Hotel segment accounts for almost 80% of the company’s revenues. The company’s revenues declined moderately in its core hotel-booking segment, even as profitability spiked in the division in the first nine months of fiscal 2018. However, management expects that the hotel business will return to growth in Q4 following several consecutive quarters of declines, largely on the back of its lower cost base and more restrained spending. On the other hand, TripAdvisor’s Non-Hotel segment is broken down into Experiences, Restaurants, and Rentals. In the first nine months of fiscal 2018, the segment’s revenue jumped 25% to $350 million. The segment has been profitable, but is still substantially in growth mode as management focuses on adding to its portfolio of bookable products in hopes of  capturing a dominant position  in this high-growth market. We expect the Hotel segment to generate about $$1.2 billion in revenue in 2018 from Click-Based and Transaction revenues, Display-Based Advertising and Subscription revenue, and Other Hotel revenues. The company has witnessed increased visitors (or hotel shoppers) on its primary website, Tripadvisor.com, over recent years, where direct suppliers and Online Travel Agencies (OTA) place their advertisements. Additionally, the company also generates commissions from its travel partners for its instant booking feature. Increased visitors on the TripAdvisor website have driven more clicks and partnerships with advertisers (hotels and OTAs). However, declining revenue per hotel shopper, amid increased competition, has put pressure on revenues. We expect this metric to further decline, putting further pressure on the company’s revenue growth. Although we expect TripAdvisor’s Hotel revenues to decline for full-year fiscal 2018, the segment’s revenues should rebound over the long run as the company is focusing on three major areas – brand advertising, product experience, and marketing mix. In addition, the company continues to capitalize on the significant supply and demand advantages in the Non-Hotel offerings and remains focused on driving market share gains in the segment. Also, TripAdvisor plans to globally expand its platform by using Viator’s tech base to support multiple languages and points of sale. Going forward, the company plans to continue investing in long-term core growth initiatives that should drive a solid growth in its revenue and adjusted EBITDA. 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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    Samsung Electronics: What Lies Ahead In 2019?
  • By , 12/14/18
  • tags: SSNLF AAPL INTC
  • Samsung Electronics  (OTC:SSNLF) had a relatively good 2018, driven primarily by continued strong pricing for DRAM, which helped to more than offset weakness in the company’s mobile and NAND memory business. In this note, we take a look at the year that was for Samsung’s smartphone and semiconductor operations – which together account for over 85% of its profits- and what could lie ahead for the company in 2019. Our interactive dashboard analysis outlines  our expectations for Samsung  in 2019. You can modify any of our key drivers or forecasts to gauge the impact of changes on its earnings and valuation. DRAM Business Could See Headwinds After A Stellar Run Operating profits from Samsung’s semiconductor division grew by about 51% year-over-year over the first nine months of 2018, coming in at about 37 trillion won ($33 billion). Although NAND prices have seen significant declines this year, as major vendors largely completed the transition from planar NAND to 3D NAND, thereby boosting bit supply, DRAM prices remained robust. DRAM pricing increased over nine consecutive quarters, driven by cautious capacity expansion by major manufacturers and soaring demand from the mobile and cloud computing markets, helping Samsung’s margins and revenues. However, this bull run appears to be coming to an end, with DRAMeXchange projecting that the price of DRAM could  decline by 5% or more in Q4 2018, with prices likely to fall by 15% to 20% year-over-year in 2019. That said, we believe Samsung should fare better than the broader industry, on account of its more advanced process technology as well as its focus on higher value high-density server and mobile products. Smartphone Business Could See Major Launches In 2019 Samsung’s smartphone business had a relatively challenging year, with revenues declining by about 6% year-over-year during the first nine months to 74.32 trillion. This was largely due to a fairly lackluster performance of the Galaxy S9 flagship – which was perceived as being too similar to its predecessor, the S8 – and also due to mounting competition from Chinese vendors, who have been offering high-end devices at affordable prices. As of Q3’18, Samsung’s smartphone market share declined to 18.9% from 22.3% in the year-ago quarter, per Gartner . 2019 could prove to be an interesting year for the business. Samsung is slated to launch the Galaxy S10 device, which is expected to feature a significant redesign compared to the S9. While the company is also likely to launch its first 5G device as well as a foldable smartphone, it’s unlikely that either of these products will drive meaningful growth in 2019, due to potentially high prices which could limit their uptake to just early adopters. 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 Will Old Navy Contribute To Gap Inc.'s Top Line Growth In The Next 3 Years?
  • By , 12/14/18
  • tags: GPS URBN AEO ANF
  • Gap Inc.  (NYSE: GPS) has performed modestly over the past couple of years. The company saw its revenue fall by nearly 4% between 2015-2016, largely due to a 2% decline in comparable sales. The tepid performance was mainly due to a 3% and 7% decline in comparable sales for Gap Stores and Banana Republic Stores respectively. After, a poor 2016, Gap Inc.’s recovery started in Q3 2017, helping the company post a slight improvement in sales (under 1% year-on-year). This recovery was led by better-than-expected comparable sales for Old Navy stores. The Old Navy segment contributes nearly 47% of the company’s overall revenue, and the segment’s revenue grew by nearly 4% annually between 2015 and 2017. Below we take a look at what to expect from Gap Inc.’s Old Navy segment in the next three years. Based on recent market trends, store optimization strategy, and the activewear potential, we forecast Gap Inc. to report 3-4% annual revenue growth in the next three years, from $15.8 million in FY 2017 to about $17.3 million in FY 2020. We have summarized  our expectations on our interactive dashboard, Gap Inc’s Revenue Outlook For the Next 3 Years . If you disagree with our forecasts, you can change the key drivers for the segment to gauge how changes will impact its expected revenue. Below we take a look at the key drivers for this revenue stream. 1. Brand Positioning: This segment generates about 47% of the overall revenue, and has been the fastest growing business of late, with revenues witnessing around 4% annual growth between 2015-2017, reaching just under $7.24 billion in 2017. The brand has consistently delivered comps growth and has increased its market share over recent years. Old Navy is currently the eighth-largest apparel retailer, and the second-largest apparel brand in the United States. The brand’s focus on the value segment has worked in its favor, driving its strong growth in recent years, and should continue to benefit the segment in the medium term. 2. New Store Openings: As a result of the solid performance, Gap has accelerated Old Navy store openings, with over 50 opened in 2018 so far, along with 85 remodels. The brand remains under-penetrated compared to its peers, and we expect the company’s increasing store count should not help improve its market share and revenues. 3. Introduction Of Women’s Plus Size Collection: The women’s plus-size market is well over $20 billion and is growing at a higher rate than the overall apparel market. Old Navy currently falls within the top 10 women’s plus-size brands and is expected to launch its plus collection, previously only available online, in 75 select stores. The expansion of the category in the stores represents a significant growth opportunity. 4. Strength Of The Digital Business:  The online and mobile business is an area of focus for retailers 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 more recognition than they would have if they had had a separate web presence. This has helped the company deliver strong growth from its online and mobile channels in recent quarters. The company has also focused its investments into native mobile apps and improving site speeds. These factors should result in strong growth for Old Navy’s digital sales in the next few years. As a result of the above-mentioned factors, we estimate Old Navy segment revenues to grow just under 6% annually in the next few years, reaching about $17.3 billion in fiscal 2020. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    Can Intel Be A $65 Stock By Next Year?
  • By , 12/13/18
  • tags: INTC AMD NVDA
  • Intel’s  (NASDAQ:INTC) stock reached $57 levels in June 2018, before a slight pullback to $48 levels currently. While we estimate the fair stock price to be around $58, it is worthwhile to explore what would it take for the company’s stock to go even higher and hit $65. Assuming that the market multiple doesn’t change meaningfully over the course of the next year, Intel will likely need to push its 2019 EBITDA per share beyond $8.00, much of which will have to come from margin improvement. We have created an interactive dashboard ~ How Intel Can Be A $65 Stock ~ that shows our base case estimates, and a scenario where Intel’s stock price can touch $65 levels. You can adjust drivers to see the impact on Intel’s EBITDA and price estimate. Intel Will Have To Reach $8.00 In EBITDA Per Share Next Year To Be a $65 Stock We forecast Intel’s price to EBITDA multiple of a little under 8x, and its EBITDA to be $7.50 per share in 2019 to arrive at our price estimate of $58. Assuming the multiple to be around 8x, Intel will need more than $8.00 in EBITDA per share, in order to be worth $65 per share. This is feasible if the company can successfully compete against AMD’s Ryzen and EPYC processors, and improve its margins. EBITDA Per Share Expansion Opportunity 1: Ramp Up In Xeon Scalable Processor Sales And Thwarting EPYC Threat Intel will need to thwart AMD’s advancement in the CPU market with new Ryzen processors. AMD has reportedly gained share in the CPU market over the past few quarters. We forecast the Client Computing Group to see mid-high single digit revenue growth in the near term, primarily led by higher notebook sales, given an expected modest growth in the overall PC TAM. Intel also saw low double digit growth in notebook sales in Q3 2018. Also, while we don’t see a lot of room for growth beyond what we currently forecast for Intel’s server business, the company can push for higher server processor pricing while it still enjoys market dominance. Note that Intel accounted for roughly 99% of the server market in 2017, and it may lose some of the market share this year to AMD, but it will still dominate with over 90% share. The segment is benefiting from its cloud business, as well as high performance products, primarily Xeon Scalable. Growth in cloud computing will result in higher demand for faster and high performance servers, and this will bode well for Intel. These factors can potentially add an incremental $800 million each in its Client Computing and Data Center group revenues to our current forecast. However, any significant revenue growth is unlikely for the Client Computing group in the coming years, given the overall computing devices market is expected to remain relatively stable. EBITDA Per Share Expansion Opportunity 2: Margin Expansion Driven By Price Increases Intel’s Client Computing group margins will need to increase by 200 bps, and any significant expansion beyond this is unlikely, given the growth in AMD’s Ryzen sales. Data Center Group margins have opportunity to rebound considering historical performance, with EBITDA margins as high as 62% till a few years back. Intel will need to add nearly 300 bps to margins here. This is possible, as average selling price support from higher priced chips could continue to aid Intel’s margin. The demand for high-performance PCs has increased, which has helped Intel and AMD see growth in average processor pricing. While there is a delay in the launch of Intel’s new 10nm chips, any update on this, especially a H1 2019 launch,  could impact AMD’s sales and aid Intel’s margin 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.
    AEO Logo
    Aerie Momentum Continues For American Eagle, Future Looks Bright Despite A Slightly Weak Guidance
  • By , 12/13/18
  • tags: AEO ANF URBN GPS
  • American Eagle Outfitters ‘s (NYSE:AEO) stock fell in the aftermath of its third quarter earnings release which was likely a result of its weak earnings guidance for Q4 rather than Q3 performance. The company expects the earnings to come in between $0.40 and $0.42 per share ($0.07 of reduced earnings per share as a result of operating with one less week), based on comparable sales growth of mid-single-digits and revenue increase in the low single-digits. Though the apparel retailer posted strong comparable sales growth of 8% in Q3, driven by an impressive 32% increase in Aerie, it slightly missed on consensus estimates for revenue, but met the earnings expectations. It marked the 15th consecutive quarter of positive comps growth for AEO, with an increase reported both in the store comps (6%) and the digital segment (double-digit increase). The company continues to focus on leveraging its leading brand position to expand its market share for the American Eagle brand, accelerating growth and expansion of Aerie, and elevating the customer experience. These factors should bode well for the company in the future, ensuring strong growth in the years to come. We have a $25 price estimate for American Eagle, which is considerably higher than the current market price. The charts have been created using our new, interactive platform. You can click here for our interactive dashboard on American Eagle’s Performance In Q3 And Estimating Its Fair Price  to modify the different drivers, and arrive at your own price estimate for the company. Factors That May Impact Performance 1. Impressive Jeans Performance:  A significant amount of market share in the jeans market is up for grabs as a result of bankruptcies and store closures in the apparel retail space in the U.S.  According to Statista, AEO’s market share was approximately 3.7% in the 2010-2015 time period. However, as per an update provided by the company, its share has risen to 7% by brand and by retailer. Moreover, the company is the second biggest denim retailer in the country, and in the 15 to 25 age group among specialty jeans, American Eagle jeans occupy the top spot with a 31% market share. There is scope for further improvement in this metric as more and more retailers fall prey to bankruptcies. In the third quarter, AE jeans continued to set record volumes, delivering its 21st consecutive quarter of positive comps, and best ever sales in both men’s and women’s bottoms. 2. Strength of Aerie:  American Eagle’s lingerie and activewear brand, Aerie, has gone from strength to strength, driving sales growth for the company. It posted a 16th consecutive quarter of double-digit comps in Q3 2018, at 32%, building on the 19% seen in the prior year period, driven by strong traffic trends, reduced promotions, and new launches. In addition to impressive growth in core intimates, the company has seen strength in apparel and active wear. The company expects the brand to cross $1 billion in sales in the next couple of years, with a lot of this growth coming from its digital channel, which grew double-digits in the quarter. Looking ahead, the brand remains poised for long-term growth as it continues to push through new ideas and fabrics. Moreover, since only 50% of women who shop at the AE brand are Aerie shoppers, it presents the brand with plenty of room to grow. Aerie is also expanding its store count, with 60 to 70 openings planned for FY 2019. 3. Growth of Digital Segment:  In Q3, AEO noted a 15th consecutive quarter of double-digit growth in its digital segment, with digital penetration expanding to 27% of revenue . The company saw the biggest improvements coming from its app and mobile channels, which together represent roughly half of the retailer’s digital business. AEO continues to invest in technology and its omnichannel capabilities, which should ensure sustained growth from this segment. 4. Opportunity for Margin Expansion:  While the gross margin continued to slide throughout 2017, as a result of the increase in promotions, higher shipping costs, and a rise in compensation, the rate of deceleration improved as the year carried on, with the 270 basis points of gross margin erosion in the first quarter reduced to 80 basis points in Q4. The company had anticipated the sequential improvement in margins to continue in FY 2018, and consequently, we had expected the gross margin in Q1 2018 to be higher than that in the corresponding quarter of FY 2017 . AEO was able to deliver on this, with the gross margin rate increasing 50 basis points in the first quarter, 170 basis points in Q2, and 80 basis points in Q3, with flat or slightly improved gross margins expected in the fourth quarter. This has been driven by higher merchandise margins, rent leverage, reduced promotions, and investments undertaken to improve margins in the digital space, including automation of the pick and pack processes in the distribution centers and implementation of a shipping optimization software. We expect these trends to continue to drive an improvement in this metric, helping the company improve its earnings. 5. Lower Tax Rate: As a result of the lowering of the corporate tax rate in the U.S. from 35% to 21%, effective January 1, 2018, the apparel retailer can be expected to benefit substantially. The company has had an effective tax rate averaging 36% over the past five years. In FY 2018, we estimate the metric to be 24.4% for the company, resulting in a significant improvement in the net income margin.   See our complete analysis for American Eagle Outfitters   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 Look At Alphabet's Non-Search Businesses
  • By , 12/13/18
  • tags: GOOG BIDU AMZN FB AAPL BABA MSFT
  • While Alphabet (NASDAQ:GOOG) has seen tremendous success with its search business, the company’s other consumer initiatives have gone largely under the radar. The rise of cloud computing, coupled with Google’s technological prowess and increasing focus on the Google cloud, could make it the company’s next major growth driver. Below we discuss the potential of Google’s non-search businesses going forward. We currently have a price estimate of $1,143 per share for Google, which is around 10% higher than the current market price. Our interactive dashboard on Google’s Price Estimate  outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation. Google has a virtual monopoly in the online search market, with over 90% market share across searches conducted through mobile and desktop. The company’s powerful search algorithm has helped Google become a dominant force across the online search value chain – from advertiser marketing budget allocation to SEO optimization focus. Google’s continued investment in enhancing its algorithms and the cumulative reinforcement throughout the search value chain has made the company the primary default search option, which has helped it deliver billions of dollars of cash flows despite solid competition. Other Businesses Have Seen Mixed Success However, beyond search, most of Google’s projects ranging from social networking (Orkut, Google Plus) to wearables have been far from spectacular. Undoubtedly Android has been one of company’s successes, but of late it has been mired in controversies around fair play and privacy, with the EU slapping a ~$3 billion fine on Google. The company has also had many other ambitious projects such as Pixel (the Google phone), Waymo (self- driving technology of vehicles) and others. While Pixel has been fairly popular and Waymo has generated a lot of hype, many of its ambitious projects have yet to see the light of day. As a consumer tech play, Google was never seen as much of an enterprise business. However, despite hiccups, the Google Cloud is now ranked third (behind AWS and Azure). The recent hiring of an Oracle veteran to lead Google’s cloud program appears to further demonstrate the company’s seriousness about building out its own enterprise business as a major source of revenue. Additionally, Google’s partnership with Salesforce and increasing focus on multi-cloud developments could help the company reduce its reliance on the search business over the long run. While Alphabet does not break out its cloud revenues in its filings, in April 2018 Citi estimated that Google’s cloud revenues could reach $17 billion by 2020. This compares with expectations of AWS and Azure at $44 billion and $19 billion, respectively. Do not agree with our forecast? Create your own price forecast for Google by changing the base inputs (blue dots) on our interactive dashboard .
    IBM Logo
    Is IBM Undervalued?
  • By , 12/13/18
  • tags: IBM HPE MSFT AMZN ORCL SAP ACN
  • After shaking up the cloud market with its $34 billion acquisition of Red Hat, IBM (NYSE:IBM) has seen sideways movement in its stock. The market seems to be discounting the potential of the Red Hat deal, IBM’s focus on newer technologies and the company’s overall portfolio approach towards its various businesses. We currently have a price estimate of $146 per share for IBM, which is around 15% higher than the current market price. Our interactive dashboard on IBM’s Price Estimate  outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation. In October, IBM’s stock fell from $150 to levels of around $120, at which the stock has largely remained since then. Post the Red Hat announcement, the stock has been fairly stagnant. In addition to the broader market sell-off, there could be a few reasons for the indecisive stock price movement, which we discuss below. Impact From Red Hat The growth in cloud adoption has led to several paradigms to enable use of data across diverse requirements, which has led to the concept of hybrid and multi-cloud architecture. This has led to increasing demand for middleware. While the Red Hat acquisition may not be sufficient for IBM to break into a leadership position in the cloud space alongside Amazon, Microsoft and Google, the acquisition is likely to help it achieve a strong position in the overall middleware space. IBM already has had a longstanding relationship with Red Hat, so exploiting many of the potential synergies should be fairly straightforward. Additionally, Linux (and especially Red Hat Linux) is increasingly becoming the operating system of choice. Further, Red Hat’s Openshift (middleware offering) is likely to drive growth in the cloud space. IBM believes that the overall impact of this growth could be a CAGR of 200 bps of incremental growth over the next five years. Advances In AI, Blockchain While IBM continues to scale AI across enterprise and consumer-grade applications, the company has also been able to ramp up blockchain usage for shipping and retailers. While the potential of these technologies is fairly large, IBM has stated that the potential within just shipping for blockchain could be as much as $30 billion. Notwithstanding the recent divestiture of certain software assets to HCL for $1.8 billion, IBM’s strategy increasingly seems to be moving towards portfolio balancing to drive growth. Irrespective of the state of IT spending, integration of existing and new cloud resources is likely to become the new legacy work. Additionally, the company’s focus on incubating next-gen technologies while shedding non-core pieces should drive some longer-term upside for the company. Do not agree with our forecast? Create your own price forecast for IBM by changing the base inputs (blue dots) on our interactive dashboard .
    TMUS Logo
    Sizing Up Potential Synergies Of The T-Mobile And Sprint Merger
  • By , 12/13/18
  • tags: S TMOBILE TMUS SPWR T
  • The merger between T-Mobile  (NASDAQ:TMUS) and Sprint  (NYSE:S) is expected to come to fruition by Q2 2019, as the U.S. Department of Justice and FCC complete their review of the transaction (related:  Sprint T-Mobile Merger: A Look At Some Of The Recent Developments ). The cost synergies stemming from a merger are expected to be significant, coming in at about $6 billion per year within four years. In this note, we take a look at the key areas where the companies are looking to cut costs, and how this could impact the valuation of the combined entity. Our interactive dashboard on  what’s driving T-Mobile’s valuation  details our expectations for the company through the rest of the year and the factors driving our valuation estimate. Network-Related Savings Operating a wireless network entails significant fixed costs relating to capital expenditures as well as operating expenses such as switch and cell site costs that include rent, network access costs, utilities, and maintenance. The companies expect their annual network related cost savings to come in at about $4 billion a year, with the entire network integration process likely to take three years. However, the joint entity is expected to incur about $10 billion in costs towards the network integration process, which will include the decommissioning of as many of 35k towers, mostly from Sprint Network. The net present value of these synergies, net of integration costs, discounted at 8% would come in at about $26 billion. SG&A Savings There are likely to be significant savings in selling, general and administrative (SG&A) costs as well. For instance, the combined entity is expected to see run-rate synergies relating to sales, service, and marketing of roughly $1 billion, with back-office related savings – which include IT, billing, back office costs – to come in at $1 billion. However, the integration process could take as long as four years. Net of the costs of integration, which are projected at about $5 billion, the present value of the SG&A-related synergies are expected to come in at about $17 billion. Overall, the present value of the cost synergies relating to the deal is likely to come in at about $43 billion, pre-tax. Separately, there could be scope for meaningful revenue synergies as well, considering that the joint entity will have a deep spectrum position, which could allow it to enter other areas with minimal incremental spending. 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
    ANF Logo
    How Much Will Abercrombie & Fitch's Revenue Grow In The Next 3 Years?
  • By , 12/12/18
  • tags: ANF AEO GPS URBN
  • Abercrombie & Fitch (NYSE:ANF) has had a mixed couple of years. The company saw its revenue fall by nearly 5% between 2015-2016, mainly due to a 5% decrease in comparable sales. The poor performance was largely due to an 11% decrease in comparable sales for Abercrombie. However, robust comparable sales for Hollister helped boost its top line in 2017, with revenue growing at just under 5%. Further, A&F’s sustained efforts in growing its global footprint, coupled with the potential of Gilly Hicks, digital, and omnichannel capabilities should provide for decent medium term opportunity. Below we take a look at what to expect from Abercrombie & Fitch in the next three years. Based on recent market trends and the activewear potential, we forecast Abercrombie & Fitch to report 2-3% annual revenue growth in the next three years, from $3.5 billion in FY 2017 to about $3.7 billion in FY 2020. We have summarized  our expectations on our interactive dashboard, Abercrombie & Fitch’s Revenue Outlook For the Next 3 Years,   through FY’18 and FY’20. If you disagree with our forecasts, you can change the key drivers for the segment to gauge how changes will impact its expected revenue. Below we take a look at the key drivers for this revenue stream. Factors That May Impact Future Performance 1. Robust Digital Sales:  The growth of e-commerce highlights the basic shift from brick-and-mortar stores to the online platform, and retail companies have to welcome this trend in order to remain relevant. ANF has embraced this change by ensuring local and regional fulfillment capabilities across the U.S. and around the globe. As a result, the company has consistently invested to grow its DTC (Direct To Consumer) segment, and has been rewarded as a result. Additionally, mobile plays a huge part in the digital growth, representing over 75% of the total DTC traffic. Further, ANF’s sustained efforts to improve its omnichannel capabilities, store-centric functionalities, and inventory optimization should not only drive more traffic to the stores but also ensure increased purchases. Moreover, these efforts should ensure a sustained growth in digital sales. 2. Potential For Global Growth: While A&F has been focusing on optimizing its store footprint in North America, it expects growth from international markets through expansion. The company sees a $1 billion opportunity across all channels in the EU. At present, A&F has 120 stores in the region. Consequently, its focus in the region is on improving penetration, moving to smaller and more productive stores, and building a more local customer base. Further, its partnership with wholesalers, like ASOS, NEXT, and Zalando, should boost online sales growth. The company estimates about a $500 million opportunity in China. The company currently has only 28 stores in the country, and wishes to address this opportunity by focusing on growing its digital business, through its partnership with Alibaba and improving its store count. 3. Gilly Hicks Potential:  Abercrombie has witnessed robust growth in its Swim and Intimates line ever since it was relaunched globally at the beginning of 2017. The Gilly Hicks brand continues to attract new customers to the Hollister brand, and seems poised for success in the future. As competitor American Eagle’s lingerie and activewear brand, Aerie, has been its best-performing segment for a while now, we believe the market has strong growth potential. 4. Hollister Brand To Drive Growth:  The brand has been the only bright spot for the company in recent years with an increase seen across genders and channels. Further, the brand also launched several marketing campaigns and programs to not only better understand the ever changing trends and preferences, but also remain close to its core audience. We expect these initiatives to benefit the brand and drive solid medium term growth. As a result, we expect revenue from this brand to grow by nearly 5% annually to about $2.4 billion in 2020.   What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    How Much Will Paychex's Revenue Grow in the Next 2 Years?
  • By , 12/12/18
  • tags: PAYX
  • Paychex, Inc  (NASDAQ: PAYX) has seen decent growth in sales and steady profits the past several years. During the latest quarter, net sales of the company increased by 9% y-o-y to $862.8 million, driven by growth across all major human capital management (“HCM”) product lines and professional employer organization (“PEO”) services. In particular, the company’s comprehensive human resource (“HR”) outsourcing solutions, retirement services, insurance services, and time and attendance solutions performed well. The service delivery also remained strong as the company continued to experience favorable client retention results. The benefits of tax reform and the enhanced product solutions continued to strengthen the company’s market-leading position. The acquisitions of HROI, PEO, and Lessor Group in FY2018  also contributed to the total revenue growth for the company and the management remains enthusiastic about the further growth opportunities these are likely to offer. Going forward, we are projecting revenues for both the segments of the Company to grow as the company is working on developing their long-term strategic plan for sustainable growth. Overall, we anticipate the company’s revenue to grow at a compounded annual growth rate (CAGR) of 6.9%. We have built an  explanatory dashboard for Paychex Inc’s Growth in the Next 2 Years   to outline major drivers of revenue over the next two years. Estimating Paychex Inc Revenue Growth Total revenue for Paychex is comprised of Service revenue and Interest on funds held for clients.  
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    Improvements in Operational Efficiency To Drive Petrobras Stock
  • By , 12/12/18
  • tags: PBR XOM APC
  • Petrobras ADR (NYSE:PBR)  Since the previous oil drop in 2016 where the price of Brent dropped to ~$26, oil companies have been increasing moving towards making their operations more efficient. Petrobras, in recent times, has seen a fall in volume, as it looks to consolidate operations. While there is little expectation oil prices will see previous lows, major oil companies such as Petrobras have actively taken steps to ensure they do not find themselves in a situation that they faced during 2016. Therefore Petrobras has taken steps to reduce its onshore oil assets, while focusing on its deepwater wells. With the company looking to consolidate its assets, Petrobras sold various assets for $473 million. This should help it recover its bottom-line in coming quarters. The company paid $853 million dollars in fines last quarter due to breaking anti-corruption laws in the United States. We have a price estimate of $15 per share for Petrobras, which is in line with its current market price. View our interactive dashboard – How Will Petrobras Perform  and modify the key drivers to visualize their impact on its valuation.     With production falling by 9% during recent quarters, this fall weighed on earnings with production from the key Campos Basin making up almost 50% of the fall, and, as a result, production fell to its lowest levels since the year 2000. Regardless, Petrobras expects volumes to recover over the coming quarters as it looks to develop new fields. Furthermore, Petrobras, according to company sources, plans to divest $15 billion of assets, allowing it to free up key working capital and weather volatility in the price of oil better in the coming years. With improved earnings and cash flow in the previous quarter, Petrobras’ stock rose on the back of better realized price per barrel. This allowed for improved cash flows and reduction in the company’s debt. Investors rewarded the company with the stock rising by a significant amount. With improved cash flows, and steady oil prices, Petrobras has used the tailwind provided by higher oil prices in the previous quarters to solidify its operations. We therefore expect the stock to continue rising on the back of improved cash flows and earnings per share in the coming quarter.   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 Oil Prices Will Affect Airline Stock Performance Going Forward
  • By , 12/12/18
  • tags: DAL JBLU LUV AAL
  • Oil prices have fallen from a 52-week high of 76 dollars per barrel to almost 54 dollars per barrel in recent times.  This represents around a 28% fall.  With this fall airlines such as American, Delta, and Southwest have all seen their stocks rise in recent weeks as investors have taken a liking to the airline industry once more. You can use our interactive dashboard How Oil Will Affect Airline Margins   to modify key drivers and visualize the impact on Airlines. Airlines have increasingly been tightening their cost structures over the past quarters as oil prices have risen. This helped them weather the price increases from oil far better than expected, leading to margin declines being relatively benign. Furthermore, with improved routes and improved logistical efficiencies airlines should increasingly see improved margins as the tailwind from falling oil prices help the industry, during the coming quarters, with the recent decline in the price of oil. A key part of why airlines have done so well in recent times is consumers have been opening up their wallets on the back of increased consumer confidence. With the falling prices and the coming holiday season, you could see the increased travel translate into higher earnings for the coming quarter. Issues still remain with aging fleets, and what many consider bloated networks, which are still considered inefficient, despite consolidation. Should airlines decide to reform these aspects of the business they will increasingly have to take on debt, which they may not want to take on. Alternatively, many of these airlines are carrying large amounts of debt already on their balance sheet. These structural problems certainly are weighing down  margins and should continue to do so in the future. Furthermore it should be noted that oil prices may head back up in the coming months with lower oil prices increasingly threatening shale drillers and OPEC showing signs of production cuts. With an overall improving macro-economic scenario, the airline stocks certainly offer better value than previously.     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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    Is The Recent Baidu Sell-Off Justified?
  • By , 12/12/18
  • tags: BIDU GOOG NFLX YELP AMZN BABA SINA
  • The ongoing China – U.S. trade dispute has caused most Chinese stocks to fall, and Baidu (NASDAQ:BIDU) is no exception. The company’s stock has traded down nearly 10% since December 3, and is down nearly 35% in the past six months. Given the company’s strong market position and diversified revenue streams, we believe that the fall in Baidu’s stock is more a result of the geopolitical situation than a company-specific issue. We currently have a price estimate of $200 per share for Baidu, which is over 10% higher than the current market price. Our interactive dashboard on Baidu’s Price Estimate  outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation. Baidu continues to be the largest search engine in China with around a 70% market share, and the company’s content delivery platform (iQIYI, also known as the Netflix of China) continues to witness strong growth momentum. Baidu’s other projects – such as voice assistant and self-driving, among others – have also been seeing promising traction: Baidu’s DuerOS Voice Assistant Install base has eclipsed 100 million, and the company has also roped in over 100 partners in its Apollo self-driving project. While the company’s Q4 revenue guidance of $3.71-3.89 billion was lower than the consensus expectation of $4 billion, despite Baidu’s growth momentum, the company’s prudence may have been misconstrued by the markets. Although geopolitical tensions have the ability to derail economic growth, we still believe that the company’s scale and business model should allow it to withstand any prolonged trade disputes. Do not agree with our forecast? Create your own price forecast for Baidu by changing the base inputs (blue dots) on our interactive dashboard .