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COMPANY OF THE DAY : APPLE

Apple has introduced a new iPad with a starting price of $329. In a recent note we discuss how it could impact the company's financials.

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FORECAST OF THE DAY : JPMORGAN'S CREDIT CARD LOANS OUTSTANDING

JPMorgan has seen significant growth in its credit card loans outstanding, driven largely by improved consumer spending. We expect further growth going forward.

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RECENT ACTIVITY ON TREFIS

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Purchase Volumes For U.S. General Purpose Cards Crossed $3 Trillion In 2016
  • By , 3/23/17
  • tags: AXP DFS MA V MC
  • Purchase volumes for general purpose credit cards issued in the U.S. reached an all-time high of $3.06 trillion for 2016 – an 8% increase from the figure in 2015. Visa continues to dominate the industry with a market share of almost 51%. The figures above are based on data compiled by the Nilson Report in issue #1103 (February 2017). Notably, Visa’s credit card purchase volume for 2016 grew by more than 15% compared to 2015 – well above the 8% growth figure for the overall industry. This helped the payments giant increase its market share for the seventh consecutive year. On the other hand, American Express witnessed a 3% reduction in purchase volumes year-on-year. Costco’s decision to switch its partnership from American Express to Visa in mid-2016 was the single biggest reason behind this discrepancy in growth rates for the companies. The chart below captures Visa’s GDV per transaction over the years as well as our forecast for it. You can see how changes to this metric affects our estimate for the company’s stock price by modifying this chart. Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment/ ask questions on the comment section 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to the full Trefis analysis for  Visa  | MasterCard  |  American Express | Discover View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    SBUX Logo
    Two Key Initiatives Which Can Drive Sales For Starbucks
  • By , 3/23/17
  • tags: SBUX MCD DNKN
  • Starbucks ‘ (NYSE:SBUX) Mobile Order & Pay app has been immensely successful, leading to higher volumes through the convenient app. However, this success has been causing some congestion at its stores, and long lines of customers waiting to pick up their orders (placed via the app) have actually been driving some customers away. The company partially attributed its slower comparable sales in Q1 2017 to this issue. (Read Here’s How The Success Of Mobile Order and Pay Is Negatively Impacting Starbucks )  However, Starbucks is working aggressively to resolve this issue, and it appears that the company has found a solution: it has started sending text notifications to customers when their orders are ready in order to reduce the congestion at the pick-up point. While this adds a step to the order process on the app, it is likely to reduce store congestion to an extent. The company is also considering other measures, such as adding more employees to its stores and redesigning the store layout to resolve the congestion issue. As Starbucks looks to address this issue swiftly, the mobile app can become a key driver of sales for the company. Through the convenience of the app and shorter wait times, Starbucks can serve more customers in its stores, thereby driving revenue growth going forward.
    GM Logo
    Why GM's Early Sales in China In 2017 Are Worrying
  • By , 3/23/17
  • tags: GM F TM HMC
  • General Motors (NYSE:GM) saw its new vehicle sales drop by 15% in the first two months of 2017 in China . 2016 was a strong year for the company, with annual sales growth of 7.1% as full year sales reached 3.87 million units. A major driver of that growth was a reduction in the sales tax on vehicles with engine displacement of less than 1.6 liters, from 10% to 5%. This sales tax reprieve expired in December, and likely had a strong effect on GM’s sales in the January-February period as consumers opted to make car purchases in November and December to save on their purchases. Here are GM’s year-over-year sales comparisons for the last four months in China: China is GM’s biggest market, and we estimate that its China business is the most valuable division for the company, given the enormous potential for growth in the region. One way GM can capture this growth is by capitalizing on the boom in SUV sales in the region. Somewhat surprisingly, GM has been slow to catch onto the SUV sales boom in China. However, when the company introduced models in this segment — Buick’s Envision, Cadillac’s XT5, and Baojun 560 — they have all been big hits. Now the company is planning to add to its SUV lineup in China, with the 2018 version of the Chevy Equinox and potentially Chevy Traverse and Buick Enclave. The addition of these vehicles can help reverse the trend in GM’s China sales and boost profits as well, since these models are generally more profitable than passenger vehicles. Both of these factors provide significant upside for GM’s results in China. Have more questions about auto companies? Click on the links below: How Do Automotive Luxury Brands Compare In Their Performance In China? How Does GM’s performance vary across geographies? How Do Auto Luxury Brands Compare In The US? How Much Has GM Been Investing In Growth Opportunities? How Ford’s Unit Pricing Differs Across Geographies? How Much Has Ford Been Investing In Growth Opportunities Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis for General Motors See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    Chief Scientist's Departure Is A Setback For Baidu
  • By , 3/23/17
  • tags: BIDU BABA GOOG
  • Baidu  (NASDAQ:BIDU) has been increasing its focus on its artificial intelligence (AI) initiatives of late. The company has been experimenting with this technology in several business lines such as “smart restaurants” and autonomous cars. However, Andrew Ng, Baidu’s Chief Scientist leading its AI group, recently announced t hat he will be leaving the company. This will be a setback for the company’s AI initiatives, which were being led by Mr. Ng for the past three years. The company is looking at AI as a key revenue driver in the long term, and losing an established leader in the business could impact the segment’s fortunes in the short term. According to our estimates, search services account for more than 70% of Baidu’s valuation, but the company is now focusing on other segments to diversify its revenue streams and drive growth. AI is one of the pillars of Baidu’s future growth, and the company is taking several initiatives to drive revenues from this segment. Recently it introduced new AI and Big Data offerings for business customers who use Baidu Open Cloud in China. The company is positioning its expertise in AI as the key differentiator in its Big Data offerings.  Baidu is also working on AI-based home voice assistants – developing a product similar to Amazon’s Echo. To further this initiative, it recently acquired Raven Technologies, a startup developing a voice-assisted hardware device for homes. Andrew Ng was driving many of these initiatives. Baidu is also working on AI projects which will support its existing search, advertising and maps business, giving it a competitive edge in these segments. Mr. Ng is a renowned data scientist, recognized as one of the key authorities on AI. Losing a key leader of its AI team, who is also a known expert in the field, will impact Baidu’s efforts in the segment. The company’s AI initiatives could slow down markedly in the short term, until it is able to find an appropriate replacement. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    MRK Logo
    The Outlook For Merck's Diabetes Drug Business
  • By , 3/23/17
  • tags: MRK PFE RHHBY
  • Diabetes drugs are important to  Merck  (NYSE:MRK) and constitute nearly 15% of its value, according to our estimates. Most of this value can be attributed to Januvia and Janumet, with the rest coming from the phase 3 pipeline. Our analysis indicates that Merck’s diabetes franchise will remain strong through 2022, at which point competitive pressure will likely outweigh the incremental growth from new drugs expected to be launched in the coming years. So does this put Merck at a significant disadvantage? We don’t believe so, considering that its main rival J&J will see its patent on Invokana expire by 2024, and some of the other big firms such as Pfizer, Roche and Bristol-Myers Squibb are not particularly strong in the diabetes market. Additionally, the potential advancement of drugs from phase 1 and phase 2 could offset the value loss from the patent expirations of Januvia and Janumet. Below we take a look at what will drive the sales trajectory of Merck’s diabetes franchise in the next five years. Our price estimate  of $67 for Merck is slightly above the market. Januvia & Janumet Are Growing, But May Top Out Soon Global sales of Januvia, Merck’s inhibitor for the treatment of type 2 diabetes, increased from $2.39 billion in 2010 to $3.91 billion in 2016. The growth was visible across the U.S., Europe and Japan. While we believe that the Januvia franchise will remain strong, the recent weakness is a cause of concern. Januvia’s growth has flattened in recent years, largely due to competition from J&J’s Invokana in the U.S. and currency movements. Overall we believe that incremental growth will become difficult, but the drug should manage to sustain its annual sales in the coming years. Worldwide sales of Janumet stood at nearly $2.21 billion in 2016 compared to $954 million in 2010. We expect the drug’s annual sales to peak at around $2.37 billion. The incidence of diabetes has been growing globally. According to the International Diabetes Foundation, there were over 400 million people living with diabetes in 2015. This figure is expected to reach 640 million by 2040. Phase 3 Pipeline Could Help Drive Growth Merck currently has two new compounds in its phase 3 pipeline as far as its alimentary and metabolism business is concerned –  Ertugliflozin and MK-1293. Ertugliflozin is an SGLT2 inhibitor being evaluated for the treatment of type 2 diabetes. This is the same class of drugs to which J&J’s Invokana belongs. It is being developed in collaboration with Pfizer. MK-1293 has already been filed for EU review, and is aimed at treating type 1 and type 2 diabetes. We estimate combined peak sales of these drugs at around $2.7 billion, with nearly 65% of it achievable by the end of our forecast period. Competitive Concerns We expect generic versions of Januvia and Janumet to hit the market by 2022, thus affecting their sales for that year and beyond. Also, Januvia and Janumet belong to a class of drugs called DPP-4 inhibitors, and face competition from a new class of drugs called SGLT2 inhibitors. One such example is J&J’s Invokana, which put pressure on Januvia’s growth and took away some market share. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    What Is Harley-Davidson’s Fundamental Value Based On Expected 2017 Results?
  • By , 3/23/17
  • tags: HOG
  • Have more questions on Harley-Davidson? See the links below. Harley-Davidson Wraps Up A Slow 2016 With Weaker-Than-Expected Financials Reliance On The Slow Domestic Market Is Weighing Down Harley-Davidson’s Performance Harley-Davidson Reports Q3 Results In Line With Estimates; Plans For Reorganization International Sales-Lift Could Offset Harley’s Anticipated Drop In Domestic Sales In Q3 Harley-Davidson Earnings Review: Market Share Gain In The U.S. Overshadows Retail Sales Decline What Is Harley-Davidson’s Revenue And Gross Profit Breakdown? By What Percentage Have Harley-Davidson’s Revenues And Gross Profit Grown Over The Last Five Years? How Has Harley-Davidson’s Revenue And Gross Profit Composition Changed Over 2012-2016E? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Decline? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Accelerate? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    How Has Harley-Davidson’s Revenue And Gross Profit Composition Changed Over 2013-2017E?
  • By , 3/23/17
  • tags: HOG HMC PII TM
  • There hasn’t been a huge shift in  Harley-Davidson ‘s (NYSE:HOG) revenue and gross profit composition in the last five years, but the trend is telling. The U.S. alone forms approximately two-thirds of the motorcycle shipments for the company, and the decline in demand in the country’s heavyweight motorcycle market (601+cc) last year was detrimental to Harley’s overall performance. Harley’s retail sales declined 1.6% year-over-year in 2016, despite a 2.3% growth in international sales, due to a 3.9% decline in U.S. retail sales. Harley has looked for growth in international markets, whose contribution to Harley’s overall revenue is ostensibly rising. The U.S. heavyweight motorcycle market hasn’t filled up to the peak levels of 2005-2006, and it might not in the near future as well. This is primarily as the millennials are typically more price-conscious, especially after the recession, and are looking to hold off on making discretionary expenditures, which includes luxury heavyweight motorcycles. Customer spending also took a hit due to the growing uncertainty regarding the political scenario in the country. The company aims to add 150-200 international dealerships by the end of this decade, with 40 added during last year. This increase in reach and availability could help Harley replace the decline in the home market with more international sales. Have more questions on Harley-Davidson? See the links below. Harley-Davidson Wraps Up A Slow 2016 With Weaker-Than-Expected Financials Reliance On The Slow Domestic Market Is Weighing Down Harley-Davidson’s Performance Harley-Davidson Reports Q3 Results In Line With Estimates; Plans For Reorganization International Sales-Lift Could Offset Harley’s Anticipated Drop In Domestic Sales In Q3 Harley-Davidson Earnings Review: Market Share Gain In The U.S. Overshadows Retail Sales Decline What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Decline? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Accelerate? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    JPM Logo
    Chase Credit Cards Account For Almost 18% Of All Credit Card Purchases In The U.S.
  • By , 3/23/17
  • tags: AXP BAC COF C DFS JPM
  • JPMorgan Chase reported total purchase volumes of $545 billion across all credit cards issued by it in the U.S. over 2016 – representing a nearly 18% share of the industry. This is largely because the banking giant is also the largest issuer of credit cards in the country . Notably, the six largest card issuers accounted for just over 60% of the total credit card purchases for the year. The credit card purchase volume for individual issuers is taken from their respective quarterly earnings releases. Figures for American Express and Discover represent purchase volumes only for cards issued by them, with purchases made on AmEx or Discover-branded cards issued by other banks included in the total figure for the issuing bank. The total U.S. card purchase volume is as detailed by us in our previous article . You can see how changes to JPMorgan’s total card purchase volumes affects our price estimate for the bank by modifying the chart below. See full Trefis analysis for  JPMorgan Chase |  Bank of America | Citigroup | Capital One |  American Express | Discover View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    AAPL Logo
    Why Apple Is Going Downmarket With Its New iPad
  • By , 3/23/17
  • tags: AAPL aapl GOOG SSNLF AMZN
  • Apple  (NASDAQ:AAPL) has introduced a new low-cost iPad to replace the aging iPad Air 2 tablet, which was launched in 2014.  The new device will have a starting price of $329, down from $399 for the Air 2, marking Apple’s lowest price point for an iPad with a 9.7-inch display. The device – which is aimed squarely at casual users – sports an improved processor compared to its predecessor, although Apple appears to be cutting costs by using an older design borrowed from the original iPad Air, along with less advanced display technology.  Below we take a look at how the new device fits into Apple’s iPad product line and its potential impact on the company’s financials.
    SLW Logo
    Silver Wheaton's Q4 2016 Earnings Review: Elevated Precious Metal Prices Drive Earnings Improvement
  • By , 3/23/17
  • tags: SLW ABX FCX NEM VALE
  • Silver Wheaton reported a significant improvement in its fourth quarter earnings, driven by elevated levels of precious metal prices in Q4 2016, as compared to the corresponding period of the previous year. In addition, the signing of an additional streaming deal earlier on in 2016 translated into a sharp increase in shipments in Q4. Macroeconomic uncertainty created by the surprise outcome of the UK’s June 23 EU referendum drove investors towards safe-haven assets such as gold and silver, translating into a rise in the prices of these commodities. Though precious metal prices declined in Q4 in anticipation of a rate hike by the Federal Reserve, they still averaged higher as compared to the corresponding period of the previous year, translating into higher realized prices for Silver Wheaton. Furthermore, a streaming deal for an additional 25% of the gold produced at Vale’s Salobo mine signed in Q3 2016, added to Silver Wheaton’s shipments from its existing deal with Vale. This resulted in a sharp increase in gold shipment volumes for the company. Despite the positive earnings result, the company management did not give any additional information pertaining to its ongoing tax-related dispute with the Canada Revenue Agency (CRA) during the earnings conference call. The ongoing tax-related dispute raises questions about the company’s high-margin business model, which relies upon operations subject to tax haven jurisdictions such as the Cayman Islands. A swift resolution of the tax dispute with CRA will certainly be in the company’s best interests. Have more questions about Silver Wheaton? See the links below. What Are The Factors Driving Gold Prices This Year? Gold Prices To Remain Under Pressure Despite Latest Fed Reprieve Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    WBA Logo
    Why Fred's Is A Key Player In The Walgreens – Rite Aid Deal
  • By , 3/23/17
  • tags: WBA RAD
  • Walgreens Boots Alliance  (NASDAQ:WBA) is still awaiting regulatory approval for its proposed acquisition of  Rite Aid  (NYSE:RAD). The merger couldn’t be completed by January 27, 2017, the earlier proposed deadline, so the merger deadline was extended to July 31, 2017, albeit with revised conditions with an aim to meet FTC requirements. Per the revised terms, Walgreens will pay $6.50 to $7 per share, compared to the $9 it proposed earlier. Under the new proposal, Walgreens will divest between 1,000 and 1,200 stores, as the earlier plan of divesting 865 stores and certain assets (to Fred’s) for $950 million attracted regulatory scrutiny. The final price per share of the deal will depend on the number of stores Walgreens divests. Per recent reports, Walgreens is actively pursuing the deal and is planning a host of measures to expedite the process. The company is planning to declare “ certified compliance ” for its pending merger, which would ensure that regulatory authorities decide on the merger within 30 days from the date of issuance. The company is in talks with Fred’s for a sale of an increased number of stores and assets, which should meet regulatory requirements. The addition of 1,000 to 1,200 new stores would significantly boost Fred’s presence in the country and help it establish itself as a national chain competitive with CVS and Walgreens. What Would Fred’s Gain? Per its third quarter SEC filing, Fred’s operates 648 discount general merchandise stores and 3 specialty pharmacy locations in the Southeastern U.S. The addition of at least 1,000 stores would significantly increase Fred’s store count, giving Fred’s a significant presence across the country, especially on the west coast, and make it the third largest pharmacy retailer in the country. In order to prepare itself for the challenges it will face in integrating more than 1,000 new stores, Fred’s is undertaking a slew of measures including hiring experienced professionals from the retail sector. Going forward, Fred’s expects healthcare to drive growth for the company. If Fred’s manages to get the divested Rite Aid stores under its umbrella, it can expect to benefit from the high prescription business from existing stores since it would be able to use the Rite Aid brand name for an extended period.. At the same time, additional pharmacy revenues could help the company stem its  decline in comparable sales . The delay in completion of the merger has severely impacted Rite Aid’s stock price, which is currently trading almost 40% lower than the levels seen at the beginning of 2017. Moreover, Walgreens has stated that it doesn’t have a Plan B in place in case the transaction fails to go through. Accordingly, a swift conclusion to the ongoing negotiations is likely to benefit all parties involved. View Interactive Institutional Research (Powered by Trefis): Global Large Cap   |   U.S. Mid & Small Cap   |   European Large & Mid Cap More Trefis Research
    HOG Logo
    By What Percentage Have Harley-Davidson’s Revenues And Gross Profit Grown Over The Last Five Years?
  • By , 3/22/17
  • tags: HOG HMC TM PII
  • Have more questions on Harley-Davidson? See the links below. Harley-Davidson Wraps Up A Slow 2016 With Weaker-Than-Expected Financials Reliance On The Slow Domestic Market Is Weighing Down Harley-Davidson’s Performance Harley-Davidson Reports Q3 Results In Line With Estimates; Plans For Reorganization International Sales-Lift Could Offset Harley’s Anticipated Drop In Domestic Sales In Q3 Harley-Davidson Earnings Review: Market Share Gain In The U.S. Overshadows Retail Sales Decline What’s Harley-Davidson’s Fundamental Value Based On Expected 2017 Results? What Is Harley-Davidson’s Revenue And Gross Profit Breakdown? How Has Harley-Davidson’s Revenue And Gross Profit Composition Changed Over 2012-2016E? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Decline? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Accelerate? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    GM Logo
    Why Investors Need To Pay Attention To GM's Maven Reserve and Cadillac BOOK Programs
  • By , 3/22/17
  • tags: GM F TM HMC
  • General Motors (NYSE:GM) launched its car sharing service, Maven, last year. Using the service, customers can rent a GM vehicle using a mobile phone in exchange for a membership fee and a fee charged depending on the vehicle used and the neighborhood of the customer. Recently, the company launched a deluxe service under Maven in which customers can get full use of a Chevrolet vehicle for 4 weeks with insurance, $100 gas, and parking fees taken care of by the company. This service has been rolled out in San Francisco and Los Angeles, and is likely to be launched in other cities, too. The Maven Reserve service is not too dissimilar to the Cadillac BOOK service GM launched earlier this year. Under that program, the U.S. auto maker allows customers to get access to a Cadillac brand vehicle with insurance and other costs taken care of for a flat monthly fee. The added feature BOOK has compared to Maven Reserve is that customers can exchange their vehicle for another Cadillac vehicle up to 18 times a year using their mobile phone app. Both these programs are interesting and hint that the company is seriously reconsidering the economics of the auto business. Currently the way the business functions is as follows: auto makers design and manufacture a car, out sourcing much of the manufacturing to third party suppliers of various parts. The finished vehicles are shipped to dealerships who handle the sales of vehicles to end customers and are also licensed to handle the after sales service for these products. From the customer’s perspective, they have to cover a portion of the manufacturing costs of the vehicle and also pay a cost to maintain ownership of the vehicle. These costs are spread out over the life time of ownership in the form of a purchase price (or a loan fee), registration fee, insurance fees, fueling costs, maintenance costs, parking fees, and depreciation. At the end of the period of ownership, customers can make the difference between purchase price and depreciated value by selling the car on the used vehicle market. What these new programs can do is change the way things are done by tinkering with various sub parts of this life cycle of vehicle ownership. Both these programs take away the initial expenditure on the purchase of the vehicle. Instead customers can pay a portion of that price for whatever period they need the vehicle. Secondly, they take away expenditures from the cost of ownership by taking care of registration fees, insurance fees, fueling costs, parking fees, and maintenance costs by transferring these costs from the car owner to the vehicle manufacturer. This raises the question of where auto companies are going to get the money to sustain these programs. As we know, the auto industry is a really low margin business. If auto companies decide to pay out a portion of the cost of ownership to increase ownership, they need to free up that cash from some other part of the car manufacturing-to-ownership life cycle. One possible place where these cost reductions could come from is reducing the total number of vehicles manufactured. If vehicles aren’t going to be owned full time and aren’t going to stay idle in a garage or a parking lot for 90% of the time they are owned, and instead are rented out to someone who pays for that use, car companies can manufacture far fewer vehicles. The upshot of this will be that these vehicles will depreciate a lot faster than the cars currently do, which will require car companies to change their manufacturing processes to keep up a steady supply. This will probably require them to move away from the current sheet metal manufacturing process to injection molding or carbon fibers or tubular frames or something entirely new. Either way, these are the kinds of changes an industry as old as the auto industry requires and will probably need to survive the impact of technological changes brought about by the advent of cheap lithium ion batteries, autonomous driving capabilities, and on-demand ride sharing services. Have more questions about auto companies? Click on the links below: How Do Automotive Luxury Brands Compare In Their Performance In China? How Does GM’s performance vary across geographies? How Do Auto Luxury Brands Compare In The US? How Much Has GM Been Investing In Growth Opportunities? How Ford’s Unit Pricing Differs Across Geographies? How Much Has Ford Been Investing In Growth Opportunities Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis for General Motors See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
    FDX Logo
    FedEx Q3 Earnings: TNT Acquisition, Holiday Season Drive Growth
  • By , 3/22/17
  • tags: FDX UPS
  • FedEx  (NYSE: FDX) continued its strong growth into the second half of its fiscal 2017, with its third quarter revenues increasing 19% year over year (y-o-y) to $15 billion, primarily driven by the acquisition of TNT Express. In the same period, the company’s bottom line improved marginally, though at a lower pace than its revenues. This is primarily due to integration-related costs from the TNT Express acquisition, higher transportation and fuel expenses. The company’s net income per share increased 13% y-o-y to $2.07. In the third quarter, FedEx continued to witness strong revenue growth in its product categories, primarily driven by growth in the e-commerce sector. FedEx Freight and FedEx Express grew a moderate 3.1% and 3.4%, respectively. The company’s acquisition of TNT Express, which was completed in May 2016, added an additional $1.8 billion to the company’s top line. Excluding the revenues of TNT Express, FedEx’s top line witnessed organic growth of 4%. The growth in the company’s top line has outpaced its expenses, leading to noteworthy growth in the company’s operating income. FedEx Ground continued its strong performance, largely due to e-commerce growth. In the third quarter, FedEx Ground’s revenues increased 6% on a y-o-y basis, primarily due to a 7% rise in FedEx Ground revenues and a modest 2% rise in FedEx Supply Chain’s revenues, partially offset by one less working day in the quarter. However, the company took a slew of measures – such as increasing the workforce by 50,000 – in order to cater to increased demands of the holiday season, and that impacted the segment’s operating margins, which declined 1.6 percentage points y-o-y to 11%. The segment’s average daily volume rose 2% y-o-y due to higher e-commerce demand, while the revenue per package increased 6% over the same period. FedEx Express In Focus FedEx continues to make significant investments to improve its facilities, which bodes well for the company’s future. In the first nine months of the fiscal year, the company’s capital spending of $3.8 billion, an increase of 6.4% over the same period last year, was focused on expansion of its existing facilities, improving transportation facilities, both ground and air, and integrating TNT Express’ operations into FedEx Express. The company’s capital expenditures as a percentage of revenue were 8.5%, 100 basis points lower than last year. Going forward, FedEx expects its capital expenditure as a percentage of revenue to decline from the current levels. The company plans to focus most of its capital expenditures on completing its existing projects and improving the operations at FedEx Express. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    HOG Logo
    What Is Harley-Davidson’s Revenue And Gross Profit Breakdown?
  • By , 3/22/17
  • tags: HOG HMC TM PII
  • Harley-Davidson ‘s (NYSE:HOG) revenue rose only 1% year-over-year in 2016, mostly hurt by a 1.6% decline in motorcycle shipments during the year. The decline in the U.S. was mostly behind the weaker-than-expected results for the iconic manufacturer, as the home market forms roughly two-thirds of the net shipments for the company. Total shipments for Harley have a strong correlation with its U.S. shipments. Harley’s retail sales declined 1.6% year-over-year in 2016, despite a 2.3% growth in international sales, due to a 3.9% decline in U.S. retail sales. To grow its business more, Harley is looking for growth in international markets, and by increasing its reach to the outreach segment (young adults (aged 18 to 34), women, African-Americans, and Hispanics). Harley is also looking to extract the growth opportunity in the used-bike segment, with which the company is reaching new and returning customers. Have more questions on Harley-Davidson? See the links below. Harley-Davidson Wraps Up A Slow 2016 With Weaker-Than-Expected Financials Reliance On The Slow Domestic Market Is Weighing Down Harley-Davidson’s Performance Harley-Davidson Reports Q3 Results In Line With Estimates; Plans For Reorganization International Sales-Lift Could Offset Harley’s Anticipated Drop In Domestic Sales In Q3 Harley-Davidson Earnings Review: Market Share Gain In The U.S. Overshadows Retail Sales Decline What’s Harley-Davidson’s Fundamental Value Based On Expected 2017 Results? By What Percentage Have Harley-Davidson’s Revenues And Gross Profit Grown Over The Last Five Years? How Has Harley-Davidson’s Revenue And Gross Profit Composition Changed Over 2012-2016E? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Decline? What Will Be The Impact On Harley-Davidson’s Valuation If Motorcycle Sales In The US Accelerate? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    NKE Logo
    Nike Q3 Earnings: Shares Fall Despite Strong Quarter
  • By , 3/22/17
  • tags: NKE
  • In what was deemed to be a make or break quarter for the company, Nike  (NYSE:NKE) performed exceedingly well, surpassing earnings expectations by a large margin. Despite facing tough competitive conditions and overall weak demand in the market, the company has managed to stand its own and produce strong results this time around. That said, the sports apparel giant missed marginally on sales, driving the stock down in after hours trading by just under 2%. Nike reported fiscal third-quarter net income of $1.14 billion, or $0.68 a share, on sales of $8.43 billion. Analysts expected earnings per share to come in around $0.53, on sales of about $8.47 billion. Revamping a Tried and Tested Method Nike has always been a leader in sports apparel innovation and consumer experience. However, over the next few quarters, the company is changing things up a bit. In the earnings call, CEO Mark Parker laid out three important strategies for future growth, in what he dubbed the “triple double.”  Essentially, the management has made it clear that aligning all its firepower against the consumer experience is the key to long term growth. To meet consumers rising expectations, the company is driving core changes in three fundamental areas of the business: innovation, supply chain, and direct interaction with customers. Basically, the company hopes to double its momentum and scale of innovation through performance and sports style,  double  the speed from product insight to delivery in the market place, and  double  its direct connections with consumers through digital membership and personalization. We will highlight the details of these strategies in a future article. DTC Continues to Play an Integral Role In the quarter, Nike brand DTC revenues increased by about 13%, driven primarily by an 18% growth in digital commerce and new store expansion. With continued growth cited in DTC over the last few quarters, the company has decided to employ certain strategies to maintain this momentum into the long term, as mentioned before. It is, now more than ever, committed to increasing the customer experience through enhanced digital commerce and membership, and specialty stores. In this respect, the sportswear giant opened massive stores in New York City’s prime Soho neighborhood and in Miami over the last two quarters. These stores have since generated considerable buzz and pushed strong traffic growth. In January, the company opened a Nike and Jordan store in Beijing and is seeing a similar success there. In the coming quarters, Nike hopes to open more such stores in key markets across the world. Apart from selling merchandise, these stores sell consumers the complete Nike experience. It allows consumers to get product trials with experts, elevated personalized experiences, and heightened member engagement, all the while seamlessly combining digital and physical retailing. These stores offer a powerful look at what Nike believes is the future of retailing, and something that can drive growth in the long term.   View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    How Twitter Could Be Impacted By News That 48 Million Users May Be Bots
  • By , 3/22/17
  • tags: TWTR FB
  • A recent research paper published by professors at the University of Southern California and Indiana University have established that 9-15% of all Twitter  (NYSE:TWTR) user accounts exhibit bot-like behavior or are controlled by algorithms. The researchers used 1,150 features to differentiate between human users and bots in the study. The 9-15% figure translates to about 28-48 million accounts, and is much higher than Twitter’s own estimates of 5-8.5%. The existence of bots is not necessarily bad news for the company on its own, as such accounts can be used to break news or publish important real-time information. However, many of these accounts are increasingly being used to spread propaganda and abuse, which is a cause for concern. Another important factor is advertiser interest. With user growth slowing to mid-single digits over the last two years, advertiser interest has visibly waned and the presence of such a large number of software-controlled accounts is bound to negatively impact ad spending on the platform going forward. Unsurprisingly, the company’s stock slumped about 4% on the news and is now trading at under $15 per share, down from $25 in October last year. Twitter’s struggle to grow its active user base has been the primary investor concern for the past two years, and that is unlikely to change in the near term. However, with the company redirecting its focus from user expansion to profit generation, the key metrics in focus are likely to become user engagement and average revenue per user going forward.  Another trend we are watching closely is growth in video. Video consumption has been growing tremendously over the past few quarters on Periscope as well as the Twitter platform with the launch of auto-play videos. It will be interesting to see if this also translates into higher advertising revenue growth going forward. Have more questions about Twitter? Please refer to  our complete analysis for Twitter See More at Trefis | View Interactive Institutional Research (Powered by Trefis)  
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    Why Did 3M Acquire Johnson Controls' Scott Safety?
  • By , 3/22/17
  • tags: MMM JCI HON
  • Last week  3M  (NYSE:MMM) announced that it has inked a deal with  Johnson Controls  (NYSE:JCI) to acquire its  Scott Safety business for $2 billion . Scott Safety is a manufacturer of equipment such as self-contained breathing apparatus (SCBA) systems, respirators, thermal imaging cameras, escape equipment, communications gear, and other protective instruments. Scott Safety’s products provide protective solutions in industries such as fire services, chemical, construction, petroleum, industrial, and emergency services. The deal, which will be accretive to 3M’s business, is expected to close in the second half of the year. It also marks the second-largest acquisition in 3M’s history, and will make the company the largest player in the personal protection market in the U.S.
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    Here’s Why Costco Is Expanding Its Home Delivery Service
  • By , 3/22/17
  • tags: COST WMT TGT AMZN
  • Recently, Costco  (NYSE:COST) partnered with online grocery delivery service Shipt to expand the test of its grocery delivery service. Costco already offers home delivery in some locations via Instacart, and its partnership with Shipt is an indication that the company is looking to expand the scope of this service. As customers look for convenience in grocery shopping, a home delivery service (at an additional cost) can benefit Costco. Both Shipt and Instacart are online platforms through which consumers can place orders and choose Costco as the store. Personal shoppers from these companies then pick up the groceries from Costco and deliver them to the customer within a specified time period. While Costco has been slow in rolling out its e-commerce initiatives, we believe that by expanding its home delivery network the company can offer a high degree of convenience to its customers, building a competitive edge over players such as Wal-Mart and Amazon Fresh. Combining Convenience With Quality And Value Costco’s membership-based business model differs from most grocery stores, and its target customers are generally more affluent than those of Wal-Mart, spending heavily at its warehouses by buying items in bulk. Accordingly, Costco’s average revenue per square foot is much higher than Wal-Mart’s. Despite very thin margins, Costco’s profitability per square foot is also higher compared to Wal-Mart as a result of its strong revenue per square foot (see  The Key Difference Between Costco And Wal-Mart ). Due to this business model, Costco does not need a strong online presence to increase the efficiency of its business. However, it does need to provide convenience to its customers to retain its loyal member base in the face of significant competition, and the partnership with Shipt should do just that. While many shoppers prefer to buy fresh produce in person so they can hand pick the products to ensure quality, Shipt’s personal shoppers aim to maintain that desired quality. Expanding its home delivery service through partnerships with Shipt and Instacart should ensure that Costco provides convenience, quality and value to its customers. As more and more consumers prefer the convenience of e-commerce, it is vital for Costco to refine its online presence in order to remain competitive. We believe the strategy to partner with grocery delivery companies can help the company maintain and grow its loyal customer base. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap |  More Trefis Research
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    Making Sense Of Roche's Recent Settlement With Mylan And Aphinity Trial
  • By , 3/22/17
  • tags: RHHBY BMY JNJ
  • Roche ‘s (NASDAQ:RHHBY) stock rallied by nearly 7% earlier this month when the company announced the results from its much awaited Aphinity trial, which tested the combination of Herceptin and Perjeta for ‘after surgery breast cancer’. The results were positive and put the recent settlement with Mylan in perspective. The two companies recently settled a dispute which will allow Mylan to launch a biosimilar version of Roche’s blockbuster Herceptin. However, the results from the Aphinity trial indicate that Roche has positioned itself fairly strongly to defend the franchise’s revenue by expanding further in combination therapy, and reducing direct competition with the upcoming biosimilar. However, it must be noted that the EMA has already given the green light to a biosimilar version of another one of Roche’s blockbuster drugs, Rituxan. We have incorporated the expected competition from these two, and other potential biosimilars, in our analysis for Roche. Overall, we believe that Roche will continue to grow its cancer franchise’s revenues, but it is critical to understand the value risk in a bear case scenario. The Risk In A Bear Case Scenario  Our forecast assumes that biosimilars will be priced roughly 30% below the regular prices for patented biologics, and that Roche will be able to defend its primary franchises to some extent (Rituxan and Herceptin) by targeting adjuvant therapies. But it is possible that we are underestimating the future impact from biosimilars and overplaying Roche’s competitive position, which is very strong right now. The evolving competition may bring the prices down further. In fact, some competitors are offering discounts of as much as 70%. If the discounts eventually extend to as much as 50% and doctors switch their patients to biosimilars faster than expected, Roche’s sales could fall nearly $5 billion below our current forecast by 2023, which would imply a downside of about 10% to our price estimate for the company’s stock. Why Roche May Feel That It Is Protected At The Moment Avastin is expected to lose its EU patent in 2018 and U.S. patent in 2019. While Herceptin’s EU patent expired in 2014, its patent exclusivity ends in the U.S. in 2019. Similarly, Rituxan (MabThera) lost its EU patent in 2013 and will lose its U.S. patent in 2018. So far, sales of these drugs have been relatively well-protected due to a lack of biosimilars in the market, as well as Roche’s strategy of using combination therapies to maintain a pricing edge. Several companies, including Pfizer’s Hospira, are already developing and testing biosimilar versions of blockbuster cancer biologics Avastin, Herceptin and Rituxan. While we expect these biosimilars to eat away at sales beyond 2019, the shift may be slower compared to that for small molecule drugs. Currently, the price discount for biosimilars in the U.S. is just 15%. However, we expect this to increase as competition in the biosimilar market increases. This is already happening in Europe. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology  
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    Here’s Why Tesla Will No Longer Produce The Cheaper Variants Of Model S
  • By , 3/21/17
  • tags: TSLA GM F
  • As Tesla Motors  (NYSE:TSLA) gears to deliver its first mass vehicle – Model 3 later this year, the company is discontinuing the low end models of its luxury car Model S. This move is aimed towards simplifying the company’s order process. Also, with the launch of Model 3, these versions might lose customer interest as a high end version of Model 3 would be priced similar to these low end luxury versions, shifting customer preferences towards a higher end Model 3. We believe as the company streamlines its production process and gears up to meet the high demand for Model 3, discontinuation of these models should work in its favor, since it will lead to a simplified order and production process and allow the company to focus on Model 3 production. See our full analysis for Tesla Motors Model 3 Key Value Driver Once Model 3 deliveries begin in 2017, we expect this vehicle to be the key revenue and valuation driver for Tesla. According to our estimates, by 2019, Model 3 will contribute more than 50% towards Tesla’s revenues and EBITDA. According to our estimates, Model 3 accounts for nearly 50% of Tesla’s valuation and we expect this car to command a nearly 20% market share by the end of our forecast period. The success of this model is critical for Tesla and while the company has received an overwhelming number of bookings for this car, production and delivery are critical. As it works towards streamlining its production process to meet the growing demand for Model 3, discontinuing the lower end luxury models will ensure that the company remains focused on its popular models. Before the launch of Model 3 a lower end luxury car made sense for Tesla’s customers who were unable to afford the higher end versions. However, with Model 60 and 60D priced around $60,000 which is close to the estimated price of $50,000 of a high end Model 3, Tesla believes that these versions are no longer needed. We believe this strategy should simplify Tesla’s order process and allow the company to focus on the success of Model 3 which is critical for its valuation. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Here’s How Ralph Lauren Can Benefit From Its Foray Into India
  • By , 3/21/17
  • tags: RL COH LULU NKE
  • Reports suggest that Ralph Lauren  (NYSE:RL)  is in advanced negotiations with an Indian company, Aditya Birla Fashion and Retail, to launch its own franchise in the country. In an economy which is growing at more than 7% per year, the luxury market is witnessing tremendous growth. This market is estimated at $18.5 billion in 2016, up from $14.7 billion in 2015. With economic growth and higher purchasing power, experts estimate that the luxury market in India will blossom in the next two or three decades. This makes it an opportune time for high end brands such as Ralph Lauren to establish a retail presence in India to tap into this huge growth potential. See Our Complete Analysis For Ralph Lauren Here Tapping The High Income Local Shoppers According to a survey by Kotak Wealth Management, 59% of wealthy Indians purchase luxury apparel and accessories locally, instead of shopping for them while traveling.  This has encouraged several luxury brands to set shop in the region including Gucci and Louis Vuitton who currently dominate the luxury retail market in the country. These brands are tapping the small section of wealthy individuals in the country whose total net worth exceeds billions of dollars.  However, this consumer base is likely to widen in the coming years since the luxury retail market in India is still at a nascent stage and Ralph Lauren appears to be looking to tap into this growth potential. The base of ultra-high net worth households in India is likely to grow at a rate of 27% till 2017-2018. As Ralph Lauren moves ahead with its turnaround plan, it is expecting a decline in revenues and store closures. Looking at emerging markets such as India where there is a growing consumer base of luxury shoppers can help the company chalk out a future growth plan. These consumers already shop for luxury brands while traveling, however the preference is shifting to local shopping as an increasing number of foreign brands build a store network in the region. We believe through a foray into India, Ralph Lauren can tap into a high potential market which should drive revenues for the company in the long term.   View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Here’s Why Wal-Mart Is Continuing To Build Its E-Commerce Empire
  • By , 3/21/17
  • tags: WMT AMZN TGT COST
  • After acquiring Jet.com for around $3 billion last year, Wal-Mart  (NYSE:WMT) appears to be on an acquisition spree in the e-commerce space. The company recently acquired ModCloth, an online fashion website known for its vintage-inspired patterned dresses. This comes after Wal-Mart’s acquisition of online footwear retailer ShoeBuy.com and outdoor gear company Moosejaw. The company acquired Jet to give its e-commerce business a boost, especially with the e-commerce expertise of Jet’s team. Wal-Mart now appears to be augmenting its online presence by acquiring smaller e-commerce companies to take on Amazon. ModCloth’s customer base is primarily millennial women, and we believe Wal-Mart is looking to tap into this section of the population to grow its online user base. As e-commerce grows at faster pace compared to the overall retail market, this focus on online growth can become a key revenue driver for Wal-Mart in future.
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    GameStop Earnings Preview: Weak Holiday Season Likely To Impact Results
  • By , 3/21/17
  • tags: GME
  • GameStop  (NYSE: GME) is scheduled to post its fourth quarter and full year results on Thursday, March 23. The changing landscape in the gaming industry, with companies focusing more on digital sales compared to hardware sales, has negatively impacted the company’s performance. In the first nine months of the last year, the company’s net sales declined almost 5% over the prior year period to $5.6 billion while net income per share declined 4% on a year-over-year (y-o-y) basis. This trend is likely to continue, and impact both the company’s top line and bottom line performance in its Q4 results. The table below shows consensus expectations for GameStop in the quarter ended December. The company is expected to report revenues of nearly $3.12 billion, which would signify an 11.3% y-o-y decline, and non-GAAP earnings per share of $2.29, which would be a decline of 5% over the same period last year. In January, GameStop reported a 16.4% decline in global sales during the holiday season (November and December). Total comparable store sales declined almost 19% in the same period. This is likely to impact the company’s results in the fourth quarter, which is traditionally the most important period for the company due to the seasonal strength provided by the holiday season. GameStop attributed the weaker-than-expected comps to weak sales of Call of Duty: Infinite Warfare and Titanfall 2.  The holiday season also witnessed declines in hardware and software sales. New hardware sales decreased 30% over the prior year period, primarily due to weak sales of PlayStation 4 and Xbox One. In the same period, software sales declined 23% due to a reduced number of game launches and lower average selling price. GameStop has been diversifying its business portfolio by acquiring technology brand stores to cater to a larger audience with different needs. The company operates a number of tech brand stores selling non-game electronics such as mobile phones and Apple devices, as well as pop culture collectibles. The segment has been performing well and we expect that to continue, primarily due to strong sales of Apple and Samsung phones. See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    Price Taker Versus Price Maker: The Perils Of Being An Iron Ore Producer
  • By , 3/21/17
  • tags: CLF RIO VALE MT
  • Iron ore is the second most traded commodity in the world after crude oil. However, despite an extensive seaborne iron ore trade totaling around 1.5 billion metric tons annually, it is dominated by a small number of large mining companies. As a result of high supplier concentration, large iron ore producers such as Brazil’s Vale and Australia’s Rio Tinto, BHP Billiton, and Fortescue Metals Group play a pivotal role in determining the scale of the global supply of iron ore and, consequently, can significantly influence pricing. In contrast, smaller producers such as Cliffs Natural Resources do not have much of a say in influencing global iron ore supply, and therefore are “price takers” in the market. Thus, to a large extent, the fortunes of smaller iron ore miners such as Cliffs can be determined by production decisions made by the larger producers. High Supplier Concentration  Brazilian and Australian iron ore producers taken together account for close to 80% of the iron ore traded in the seaborne market. As a result, changes in the output of these companies significantly impact the global balance of demand and supply and consequently, iron ore prices. Further, all of these companies have access to low-cost iron ore deposits in Brazil and Australia, which translates into profitable operations even at relatively low prices. The breakeven price for these producers ranges from $30-40 per metric ton. China constitutes the largest market for iron ore, accounting for close to two-thirds of the imports of the world’s seaborne iron ore. China is also the major market for the big iron ore suppliers in the seaborne iron ore trade. Accordingly, production decisions at these companies are made keeping Chinese demand in mind, which results in a uniformity in terms of production decisions at the big iron ore miners. All of these producers bet big on growth in Chinese demand for iron ore in recent years, investing heavily to scale up production capacity. However, as illustrated by the chart shown below, these production increases translated into a sharp decline in prices in 2014 and 2015. Iron Ore Spot Prices, Source: Y Charts The big producers collectively overestimated the growth in Chinese demand, translating into an oversupply situation and an extended period of weak prices. The decline in prices adversely impacted the profitability of all iron ore miners, but more so that of smaller producers such as Cliffs.   Cliffs Natural Resources Stock Price, Source: Google Finance As illustrated by the chart shown above, Cliffs’ stock is trading at less than half of its levels from the beginning of 2014. The downturn in the company’s fortunes was largely due to external factors, due to the production decisions made by the larger producers. Decoupling From Seaborne Trade In order to lessen its dependence on the seaborne trade, Cliffs’ management decided to focus on its U.S. iron ore operations following a management change in 2014. The pricing contracts for Cliffs’ Australian operations, which cater to clients in Asia, are closely linked to spot prices determined by the seaborne trade, thus exposing the company to the vagaries of seaborne iron ore prices. The company’s management has decided not to invest further in its Australian operations, and its Australian mines should cease production in the next three years. Though the pricing contracts for the U.S. iron ore operations do have adjustments linked to international iron ore prices, they are more closely linked to the demand-supply dynamics in the U.S. market. Thus, with its U.S.-centric strategy, Cliffs has partially decoupled itself from the seaborne iron ore trade. Cliffs’ fortunes will still be influenced by international iron ore prices, and therefore production decisions of the large producers, but the extent of the dependence will be much smaller. Have more questions about Cliffs Natural Resources? See the links below. Here’s Why We’re Raising Our Price Estimate For Cliffs To $10 Iron Ore & Crude Oil: The Similarities & Differences In The Market Dynamics Of These Commodities Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology