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COMPANY OF THE DAY : BED BATH & BEYOND

Bed Bath & Beyond's stock fell after the company reported weak Q2 earnings and disappointing guidance.

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FORECAST OF THE DAY : COMCAST'S PAY TV MARKET SHARE

Despite the threat from cord cutting and streaming services, we expect Comcast to maintain its strong market share due to its innovative product offerings.

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Why Are We Bullish On Coach Inc.?
  • By , 9/20/17
  • tags: COH RL
  • Shares in  Coach  (NYSE:COH) took a nosedive once the company released its fourth quarter and full year (year ended June 2017) earnings. Mixed fourth quarter results, coupled with a disappointing FY 2018 guidance can be said to be the cause for the stock declining 15%. In a bid to boost its luxury image, the company has pulled back its level of merchandise from department stores and cut back on its discounting. This factor pressured the sales of the company, but improved comparable sales and increased e-commerce revenues in the US helped to offset it. However, excluding the additional week in Q4 2016, the revenues for the company would have actually increased by 6% as reported, and 7% at constant currency. Below we’ll highlight some factors that we feel provide an upside to Coach Inc. Acquisition Of Kate Spade The acquisition of Kate Spade is expected to give a nice bump to Coach’s revenues in FY 2018, with a modest organic growth of low single digits to be boosted by $1.2 billion of revenues from the newly acquired company. Kate Spade has had great success with the millennial customers, who have been the driving force behind the high growth rates the company has achieved. Approximately 60% of Kate Spade’s clientele are millennials, compared to just over 30% for Coach. Hence, this acquisition would give Coach access to a younger clientele. Furthermore, the brand has significant potential to grow internationally, where it does not have much of a presence. One key market identified has been Japan, where the brand is present currently but is underpenetrated. Growth opportunities also exist in markets such as China and Europe, and consequently, Coach expects 20 to 25 net openings for Kate Spade in FY 2018. Coach will be curtailing the number of surprise sales and pulling back on its wholesale channel for the Kate Spade brand, similar to the steps it has taken for its eponymous brand. However, this good news is accompanied by the fact that operating margins of Coach are expected to be pressured as the company carries on with the integration in the short term. Looking ahead, the acquisition of this brand should be accretive to Coach’s earnings. Coach Brand Elevation Coach has been working hard to transform its brand in recent years, in the wake of market share loss to Michael Kors and other rivals, who also employed Coach’s strategy of selling luxury products at affordable prices. The company hired a new designer, Stuart Vevers, who introduced higher-end products and undertook to remodel the stores into a new luxury format, ending the year with just over 720 store renovations. The retailer has also recruited Selena Gomez to be their new face, in order to appeal to younger shoppers. Coach’s decision to pull the company’s handbags and leather goods out of 25% of department stores, or by over 250 locations, has also been a positive step, as the heavy discounting in this channel has hurt its luxury brand image. Furthermore, the company intends to reduce the markdown allowances to the channel, citing a highly promotional environment embraced by such stores. The heavy discounts offered in this channel makes it harder for consumers to spend more on a similar bag at the company’s own stores or its e-commerce websites. All these steps undertaken have helped to drive brand elevation. This is reflected in the penetration of the above-$400 price bracket products, which increased to 45% of the handbag sales in the June quarter, up from about 40% in the prior year period. Growth Opportunities For Coach Despite the sluggish macroeconomic environment affecting the handbag industry and consumer spending in general, Coach has delivered positive sales growth in North America. Looking ahead, however, we expect a bulk of the growth for the company to come through its international operations. One of the positive highlights of the fourth quarter (ended July 2017) was the solid international sales, particularly in China and Europe. Greater China sales increased 3% versus the prior year in dollars and 7% in constant currency on a 13-week basis, driven by double-digit growth and positive comparable store sales on the Mainland.  This was offset, in part, by softness in Hong Kong and Macau.  Europe was also very strong on a 13-week basis, driven by double-digit growth in the directly operated channels and benefiting from the planned shift in wholesale shipment timing. Another avenue of growth for Coach is its men’s line, which in FY 2016 and FY 2017 (year ended June) grew at a faster rate than the women’s in North America. In the fourth quarter of FY 2017, the men’s segment accounted for almost one-fifth of the Coach brand sales, and for the full year, the sales from this segment reached $840 million at POS (point of sale). Given this impressive growth trend, the company believes the men’s segment is an over $1 billion opportunity for the Coach brand. Seeing the strong momentum in the men’s segment, Coach intends to continue its expansion across all categories. Furthermore, with the addition of Kate Spade’s men’s line, Jack Spade, there can be an additional boost to the company’s sales. See our complete analysis for Coach here Have more questions on Coach? See the links below: Consolidation Continues In The Luxury Retail Industry Cutback On Discounts Results In Bottom Line Improvement For Coach Inc. Coach Among M&A Speculation Yet Again Could Coach Inc. Be A Takeover Target? See our complete analysis for Coach
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    Can India Become A Key Market For Electric Vehicles?
  • By , 9/20/17
  • tags: DAI F TM TTM
  • According to IHS Markit, “India will become the world’s fourth largest market in domestic car sales in 2017,” with an estimated sales of 3.8 million passenger vehicles — higher than the 3.64 million figure for Germany. The country now has nearly 35 car manufacturers/sellers and this number is likely to increase to 55 by 2020. Increasing population and economic development are the key factors driving car sales in the region. The country is also focusing on electric vehicles to tackle the pollution problem in its urban areas and has committed to have only electric cars by 2030 . This makes the region a very lucrative electric car market, after China, given the growth potential of passenger cars and two wheelers. Several automakers are looking to introduce electric versions of their models in the region and recently Daimler AG announced that it could introduce electric trucks in the country . However, the company was skeptical that India did not have the necessary infrastructure to support electric vehicles. Given the government’s ambitious plan to go “all-electric” for cars by 2030, the infrastructure is likely to be put in place in the next decade and this could make the region a strong market for other electric vehicles. Infrastructure, Value For Money Likely To Be Key Drivers While the Indian government is working on a policy for electric vehicles which is likely to be announced by the end of this year, the country does not have the necessary infrastructure in place to support a large volume of electric cars. India has only 100 charging stations currently, most of which are in Bangalore, one of the key cities in the country.  A much larger network of charging stations, spread out geographically, is crucial for the success of the government’s goal to achieve 100% electric cars by 2030.  Further, Indian consumers are value conscious and there might not be takers for electric cars if they are more expensive compared to petrol and diesel versions. The market for budget cars is likely to grow in the region, forcing foreign players to build cheaper versions of their models. India’s largest auto manufacturer Maruti-Suzuki, recently announced that it would be setting up a lithium-ion battery manufacturing unit in India to support production of its electric vehicles.  The company is expected to launch electric versions of its models by 2020, however it is not very optimistic about the government’s target. Maruti Suzuki offers “value models” for Indian consumers and the company believes that cost will be an important factor in adoption of electric vehicles in the region.  Another local player – Mahindra and Mahindra (which recently tied up with Ford Motor Company (NYSE: F)) — has been manufacturing electric vehicles in the country for more than a decade, however does not generate significant revenues from this segment. For foreign auto manufacturers to succeed in India, a focus on building budget electric cars will be crucial. India’s growing economy and increased government focus on electric vehicles can make it a key market for this segment. However, the necessary infrastructure needs to be in place and auto makers need to adapt to the unique customer preferences in the region to capture this growth potential. Get Trefis Technology
    MCD Logo
    McDonald’s Vs. Burger King: A Closer Look At Two Burger Giants
  • By , 9/20/17
  • tags: MCD QSR DNKN SBUX
  • McDonald’s  (NYSE:MCD) and Burger King (which is operated by Restaurant Brands International  (RBI) (NYSE: QSR)), compete closely with each other in the fast food segment. However with its much bigger size and larger market share ( 19% vs. 5% according to 2015 estimates ), McDonald’s is clearly the leader. A couple of years ago, it appeared that Burger King was threatening McDonald’s after it was taken over by Restaurant Brands International (RBI) which pursued an aggressive expansion strategy and focused on cutting down costs. However, with its All Day Breakfast and focus on healthier food items along with a renewed focus on McCafe, it now appears that McDonald’s is better positioned to compete with Burger King (BK) and Tim Hortons – the coffee chain run by RBI. In the past two years, McDonald’s has been aggressively refranchising its restaurants and as both burger giants move towards a nearly 100% franchised model we expect a similar rate of growth in the franchised restaurants of both players.  However, since McDonald’s has a larger base, its restaurant growth in absolute terms would be higher in the next few years: *Numbers from 2017 onward are Trefis estimates. The average royalty revenue per McDonald’s franchisee restaurant is significantly higher compared to Burger King, since the former serves more customers per restaurant, given its higher market share. *Numbers from 2017 onward are Trefis estimates. While the royalty rate of the franchisee offered by both burger giants is similar (around 4.5%), Restaurant Brands International is offering remodel incentives to its Burger King U.S. franchisees in 2017. These limited period incentives are likely to negatively impact the company’s royalties until 2024. We expect McDonald’s royalty revenues to increase at a faster rate compared to Burger King, as the company is driving higher traffic on the back of its menu innovation, technology initiatives, and better branding.  A comparison between the comparable sales growth numbers for the past six quarters of both burger giants indicates that McDonald’s is currently in the lead: McDonald’s is also piloting its “Experience Of The Future” stores where orders can be placed via kiosks, saving time and making it easier for customers to personalize their orders. While both Burger King and McDonald’s are likely to launch their mobile ordering platforms this year, Restaurant Brands International faced several issues with its franchises to launch this platform for its Tim Hortons segment. Further, as Burger King is managed by RBI which also has Tim Hortons and Popeyes Louisiana Kitchen under its umbrella, it might not get complete management focus for growth, which is not an issue with McDonald’s. The latter is aggressively experimenting with several initiatives such as gourmet burgers, fresh patties, and technology initiatives which are key to attract the millennial population. The company also has an aggressive expansion plan in China which can be a key long term growth driver. Restaurant Brands International, on the other hand, appears to be lagging behind in menu innovation, introduction of healthier menu options, and technology initiatives. Burger King is much smaller in size compared to McDonald’s (the latter has nearly double the number of restaurants compared to the former) and thus has a greater growth and expansion potential. However, it appears that the company is not able to keep pace with McDonald’s menu and technology innovations and hence is unlikely to gain market share and grow at a faster pace in the next few years. See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    Where Is The DRAM Market Headed?
  • By , 9/20/17
  • tags: SSNLF MU
  • The DRAM market is booming, with prices more than doubling over the last 12 months, allowing major memory manufacturers like Samsung Electronics  (OTC:SSNLF) to post record quarterly profits. The near-term outlook also remains positive, amid growing demand and relatively tepid supply growth. In this note, we take a look at some near-term factors that could impact the DRAM markets. See our complete analysis for  Samsung  and  Micron Strong Demand From Mobile, Cloud Vendors Demand for DRAM has been strong, with smartphone manufacturers increasing DRAM content on their high end devices. For instance, Android vendors now offer as much as 8 GB of DRAM on devices (as much as mid-range laptops) and both of Apple’s premium iPhones offer 3 GB of DRAM. Demand from the cloud computing market is also growing, as major Internet players such as Amazon and Google build big data centers. Trends such as machine learning, AI (artificial intelligence) and self-driving cars are also likely to boost memory demand over the medium term. DRAM Demand Is Relatively Inelastic DRAM is a commodity product, and its prices are largely governed by demand and supply factors. Unlike NAND chips, which see some price elasticity of demand, meaning that customers scale back on NAND memory content on their devices when prices rise, DRAM chips are relatively inelastic. This is because device manufacturers need a certain amount of DRAM to meet performance requirements for systems that they may have worked on developing several quarters ago. This forces companies to buy DRAM irrespective of higher prices, without being able to meaningfully scale back. Consolidation In The DRAM Market Has Improved Pricing Power The DRAM market has essentially become a three player game with Samsung, Micron and SK Hynix controlling much of the industry supply. The three players grew their combined market share from just under  60% in 2007 to 95% in Q2’2017 on account of multiple acquisitions and some bankruptcies in the industry. This has significantly improved the pricing dynamics of the industry, and has also moderated the extent of the DRAM cycles, with the peak-to-trough declines in the memory market moderating. DRAM Players Are Being Circumspect About Scaling Up Production  Major players have also been more disciplined with their capital investments . Per Goldman Sachs, estimated DRAM capital expenditures for 2017 will grow by 24% year-over-year, well below their 2015 peak, despite the fact that prices have been trending up significantly.  Moreover, companies are focusing their investments on technology transitions rather than outright capacity expansions. This could keep DRAM supply in check in the near term, potentially boding well for pricing. For instance, Micron expects DRAM supply growth to remain around 15% to 20%, with DRAM demand growth ranging from between 20% to 25%. Will China Double Down On Memory Production? That said, there are longer-term risks. Two years ago, the Chinese government announced plans to invest about $160 billion over the next decade to bolster the country’s semiconductor industry – a key area in which it has lagged behind its Asian peers. This has raised concerns that China could flood the market with cheaper memory chips, much like it has done in industries such as LED lights and solar panels. That said, China currently lacks the intellectual property required to produce chips at scale in a cost-efficient manner. 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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    Adobe Earnings: Cloud Services Boost Revenues Across Divisions Yet Again
  • By , 9/20/17
  • tags: ADBE
  • Adobe  (NASDAQ:ADBE) posted its fiscal Q3 results on Tuesday after market close, and its revenues increased by 26% to $1.84, once again above its guidance range. As a result, the stock price rose by close to 5% in after-market trading. The company continued to report growth in its cloud revenues with Creative Cloud (CC), registering 35% growth in revenues during the quarter. Furthermore, Adobe’s annualized recurring revenue (ARR) reached nearly $4.87 billion for its digital media business, which includes creative and document cloud products. The net ARR increase in Q3 was $308 million and was driven by continued strength in its Creative Cloud and Document Cloud businesses. Digital Cloud Marketing revenue also grew by 26% year over year. Its waning LiveCycle software revenues declined by 15% to $21.7 million, while the revenues for print and publishing business declined by 7% to $41.4 million. In this note, we examine some of Adobe’s key drivers and its outlook for fiscal Q4. Outlook For Q4 2017 Adobe has guided for revenues of $1.95 billion for the fourth quarter of fiscal 2017. It expects that GAAP EPS to be around $0.86, and non-GAAP EPS to be around $1.15. The company expects to achieve approximately $330 million of net new Digital Media ARR. It expects digital media and digital marketing cloud revenues to grow by 25% and 17%, respectively. Strong CC Subscriptions Boost Revenues In Q3 According to our estimates, the Creative Cloud division is the biggest of Adobe’s operating segments and contributes approximately 55% of its value. The company reported that it added a record number of new subscribers for CC during the quarter. The company also stated that it was witnessing a strong uptick in the video category with strong     adoption for its Creative Cloud video solutions. With the rise of Augmented Reality (AR) and Virtual Reality (VR), Adobe is deploying its resources to fill the gap in its video solutions portfolio. Recently, it acquired 360-degree and virtual reality software from Mettle to supplement Adobe Creative Cloud’s existing 360/VR cinematic production technology. We believe that this will bode well for the company in the future. The growth in CC subscriptions continued, as licensing revenues from all three segments (i.e. individual, team and enterprise term licensing agreements (ETLA) grew. Growth was also fueled by strong performance in the SMB segment and international growth. Furthermore, a continued migration of the Creative Suite installed base bolstered subscription numbers. As a result, Adobe achieved record Creative revenue of $1.79 billion in Q3, which represents 59% of overall revenues. The company also reported that Creative Cloud ARPU grew quarter-over-quarter across all its product offerings in Q3. Revenue For Marketing Platform Grows, Booking Disappoints The Experience Cloud platform, which is encompasses Adobe Marketing Cloud, Adobe Analytics Cloud and Adobe Advertising Cloud, is the company’s second-biggest division and makes up 30% of its value. The company has scaled up the functionality and product offering of its marketing platform through organic and inorganic growth. While the company continues to integrate TubeMogul into its Marketing Cloud offering, it is adding Artificial Intelligence and Machine Learning functionality of its Sensei platform to the Marketing Cloud and analytics platform. In Q3, this division reported a 26% year-over-year increase in revenue to $508 million. The company said that in the trailing four quarters, data transactions for its Marketing Cloud solutions exceeded 150 trillion. Furthermore, the company is driving larger, multi-year and multi- solution customer contracts. As a result of larger engagements and longer implementation cycles, it is witnessing strong growth in deferred revenue and unbilled backlog for its Cloud divisions, which has lowered the booking amount in the current quarter. Deferred revenue grew to a record $2.20 billion, up 9% year-over-year. As such, this division will likely report incremental growth in revenues going forward. Document Cloud Services Buoys Revenues At Acrobat Family Division The Adobe Acrobat family is the third largest division for Adobe, and makes up around 10% of its value. In the past few quarters, revenues from this division have grown, primarily due to the adoption of Document Cloud services that have subscription fees spread over the period of usage. Q3 Document Cloud services revenue grew by 10% to $206 million and the Document Cloud ARR grew to $556 million in the quarter. We expect Document Services’ ARR to drive revenue growth in the Acrobat family division in the future as it continues to add new functionality in Adobe Sign. We are in the process of updating our Adobe Model. At present, we have a  $141 price estimate for Adobe, which is marginally lower than the current market price. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    iPhone 8 Could Be More Lucrative For Apple Than The iPhone X
  • By , 9/20/17
  • tags: AAPL aapl GOOG
  • Last week, Apple  (NASDAQ:AAPL) launched a trio of new iPhones called iPhone 8 and 8 Plus – essentially upgraded versions of last year’s iPhone 7, priced starting at $700 and $800 respectively – as well as an all-new smartphone called the iPhone X, priced from $1,000 onwards. While it might appear to be in Apple’s best interest to maximize sales of the iPhone X, given its higher price points, the iPhone 8 could actually be the most lucrative phone in the company’s lineup currently. Below we take a look at some reasons why Apple could look to steer customers towards the iPhone 8. Trefis has a $164 price estimate for Apple, which is slightly ahead of the current market price. See our complete analysis for Apple here Gross Margins On iPhone 8 Should Be Thicker There is a strong possibility that margins on the iPhone 8 will be significantly higher than margins on iPhone X, despite the fact that the X is priced at a premium of about $300. Apple is utilizing the iPhone 6’s basic design for the fourth consecutive year on the iPhone 8 (albeit with a glass back) implying that manufacturing yields on the device should be good, with casing related costs kept to a minimum. Moreover, Apple has actually bumped up base pricing by about $50, despite the fact that the upgrades over the iPhone 7 are fairly incremental (more storage, better display, camera enhancements). If we assume that the components cost for iPhone 8 is about the same as the iPhone 7, which cost about $248, the bill of materials cost as a percentage of retail price would stand at ~35%.  The costs of manufacturing the iPhone X, on the other hand, are expected to be significantly higher, as Apple is using many new and high-end components such as OLED displays and depth-sensing cameras. Per Susquehanna International Group, the components on the device could cost Apple about $581 .  This implies that components costs as a percentage of the devices price would come in at 58%, translating into thinner margins versus prior iPhones. Apple Will Have Much Better Supply Of The iPhone 8 Apple also appears to have much better supply, relative to demand, of the iPhone 8 compared to previous iterations of the iPhone. It typically takes multiple weeks to ship new iPhone models after they are made available for pre-order, as demand outstrips supply. However, waiting times for the new iPhone 8 are significantly shorter, with most models shipping in under a week. The iPhone X, on the other hand, is likely to remain significantly undersupplied, even after its delayed launch date (November 3), as Apple’s contract manufacturers iron out early manufacturing issues and improve yields. KGI Securities estimates that Apple’s suppliers are currently only able to  build about 10k  units of the iPhone X per day. View Interactive Institutional Research (Powered by Trefis):
    BBBY Logo
    Bed Bath & Beyond Misses Estimates in Q2, Lowers Full-Year Guidance
  • By , 9/20/17
  • tags: BBBY WMT AMZN
  • Bed Bath & Beyond  (NASDAQ: BBBY) reported weak fiscal second-quarter results on Tuesday, September 19, as both its revenues and earnings fell short of consensus estimates, and as a result, the company’s stock fell slightly after reaching a 52-week intraday low. In the second quarter, the company’s revenue declined 2% year-over-year (y-o-y) to $2.93 billion, primarily due to an increase of 0.9% in non-comparable sales including PMall, One Kings Lane, and new stores, largely offset by a 2.6% decrease in comparable sales. This decline in comparable sales reflected a decrease in the number of transactions in stores, partially offset by an increase in the average transaction amount. Additionally, comparable sales from the company’s customer-facing digital channel continued to have strong growth in excess of 20%, while comparable sales from its stores declined in the mid-single digit percentage range. Online sales represented roughly 15% of the company’s total sales in this quarter. On the cost side, Bed Bath & Beyond’s selling, general and administrative (SG&A) expenses increased 8% year-over-year (y-o-y) to around $900 million due to payroll and payroll-related items, advertising expenses, restructuring charges, technology-related expenses, and other costs. In terms of capital expenditures, the company spent $96 million in the quarter, of which more than 40% was spent on technology projects including investments in digital capabilities and the development and deployment of new systems and equipment in the stores. The retailer also posted diluted earnings of 67 cents per share, which declined 40% y-o-y. Bed Bath & Beyond’s gross margins continued to face pressure in the quarter. The company’s gross margin declined by approximately 100 basis points (bps) from 37.4% in Q2 2016 to 36.4% in Q2 2017. The company identified an increase in net direct-to-customer shipping expenses as the primary reason for this decline, which resulted from more promotional shipping activity. In addition, a decrease in merchandise margin and an increase in coupon expense also reduced the company’s gross margins in the quarter. Bed Bath & Beyond revised its full-year guidance after the weaker-than-expected fiscal first half of 2017. Accordingly, it now expects net sales to be relatively flat, as it plans to spend on organizational changes and transformational initiatives going forward. The company also expects comparable sales to decline compared to the slightly positive previous guidance. In addition, the company expects net earnings per diluted share for the full-year to be around $3. The company did not publish guidance for the current quarter, but consensus estimates for the company’s fiscal third quarter call for earnings of 71 cents per share and revenues of $3 billion, implying growth of about (-16)% and 1%, respectively. Have more questions about Bed Bath And Beyond? Please refer to  our complete analysis for Bed Bath & Beyond   See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    F Logo
    Here’s Why Ford Motors Is Entering Into A Strategic Partnership With Mahindra Group In India
  • By , 9/19/17
  • tags: F GM TM
  • As foreign automakers look to navigate the fast growing Indian automotive market, collaborations with local players are becoming increasingly popular to develop a competitive edge. Recently, Ford Motor Company (NYSE: F) announced that it is exploring a strategic alliance with the Mahindra group in India in the areas of mobility, electrification, and product development. Under this agreement the two companies would leverage their strengths collaborating and working together for a period of three years. This will give Ford a better handle over the Indian market and help the Mahindra group to expand into other emerging global markets. This announcement comes after Volkswagen was exploring a partnership with Tata Motors in India and General Motors announced that it won’t be selling any vehicles in the region. While the Indian automotive industry is expanding rapidly, demand for budget cars from first time buyers is increasing. Ford is looking to capture the demand for affordable electric vehicles and the growth potential in the sports utility segment and a partnership with the Mahindra group, which is the leading utility vehicles manufacturer in the region, can help in achieving this goal.  See our complete analysis for Ford Motor Collaboration To Build A Competitive Edge Ford Motors and the Mahindra Group have entered into partnerships earlier, too, however the changing landscape of the automotive industry makes this collaboration more critical. Ford has a 3% market share in India and a partnership with Mahindra can help the company expand its distribution network and lower its distribution costs. Further, fast growing markets such as India and China are looking for cheaper and clean energy vehicles, where Mahindra’s designs can benefit Ford. With its mobility initiatives, Ford can extend its technology expertise to Mahindra and both companies can work on products which are useful for emerging economies. Ford is also setting up production units in China and India and the collaboration can help the companies build manufacturing synergies. With technology disrupting the automotive landscape, companies are looking at ways to build a competitive edge with players such as Apple and Google looking to enter the autonomous car segment. Partnerships and collaborations can ensure that companies bring their expertise together to navigate this changing landscape better. See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    Why Cliffs’ U.S.-Centric Strategy Makes Sense
  • By , 9/19/17
  • tags: CLF RIO VALE MT
  • Cleveland Cliffs Inc.  (NYSE:CLF) was historically a U.S.-centric company before its expansion into the Asia Pacific region, which largely enabled the company to cater to customers in Asia through the seaborne iron ore market. However, the APAC operations experienced an extended period of declining revenue from 2012-2015 as a result of declining prices amid a supply glut on the seaborne market. As a result of a change in management in 2014 amid the period of declining prices, the company decided to focus on the more predictable US market going forward.   The recent change of the company’s name from Cliffs Natural Resources to its historical name of Cleveland-Cliffs Inc. is indicative of the change in the company’s priorities geographically. Favorable business prospects in the U.S. Cliffs APAC operations face heavy competition from iron ore giants such as Rio Tinto, Vale, and BHP which have access to low-cost iron ore deposits and operate at large economies of scale. The supply side of the iron ore market in the APAC region is dominated by the production decisions of these mining giants, in contrast to Cliffs which is a relatively small producer in the APAC region. Large production increases by these companies adversely affected international iron ore prices between 2012 and 2015, with Cliffs’ Asia Pacific operations reporting losses over this period as a result of subdued pricing. Thus, Cliffs is largely at the mercy of its competitors in the seaborne iron ore market, particularly as concerns its ability to influence supply and pricing in the market. In contrast to Cliffs’ position in the APAC region, the company has established a dominant position in the US market accounting for roughly 54% of the total U.S Iron Ore Pellet production capacity. The company derives close to 72% of its revenue from its U.S Iron Ore operations. Further, in contrast to the pricing situation in the APAC region, Cliffs’ U.S. operations are characterized by pricing contracts that are more closely linked to demand-supply dynamics in the U.S. and are less influenced by international seaborne prices. These contracts are of longer duration which provides the company more stability in terms of pricing, in contrast to the APAC region where pricing is closely linked to spot prices. Cliffs’ recent announcement of a planned $700 million investment in a Hot Briquetted Iron plant (HBI) plant, which is expected to make the company the dominant supplier to the 3 million metric ton Electric Arc Furnace (EAF) steel market in the Great Lakes region by 2020, is further evidence of the company’s commitment to the US market. The EBITDA margins and cash flows generated by this planned capacity addition would most likely match the EBITDA margins and cash flows of the company’s Australian operations. Greater Upside Probability of Iron Ore Prices in the U.S. Steady recovery in the U.S. economy coupled with the possibility of the legislative enactment of $1 trillion infrastructure plan by President Trump could give a significant boost to the demand for steel. This would also translate into an improved demand and pricing outlook for iron ore in the region since iron ore is used as a raw material for steel production. In addition, the outcome of the investigation pertaining to steel imports under Section 232 of Trade Expansion Act of 1962 initiated by the Trump administration could further boost the prospects of the domestic iron and steel industry. Given the favorable business environment in the U.S., focusing on the company’s U.S. operations is a sensible decision made by the company management. Since Cliffs has decided against developing its APAC reserves any further, the company’s APAC operations are most likely to cease operations by 2020 with the depletion of the company’s existing reserves, as illustrated by the chart shown below. Revenue share by segment ($ million) Thus, Cliffs is well on its way to becoming a pure-play U.S. iron ore producer. Have more questions about Cliffs Natural Resources? See the links below. Cliffs Natural Resources’ Q2 2017 Earnings Review: Favorable Business Conditions In The U.S. Drive Earnings Growth Price Taker Versus Price Maker: The Perils Of Being An Iron Ore Producer Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    PepsiCo: Focusing On The Healthy Snacks Business
  • By , 9/19/17
  • tags: PEP KO DPS
  • Giving a huge push to its “health” initiatives, recently  PepsiCo (NYSE:PEP) announced its new targets to reduce calories and sugar in its beverages, and salt and fat in its snacks, by 2025. As it adapts to changing consumer preferences, PepsiCo believes that healthier products will be key for long-term growth and the company is looking at several ways to make its portfolio of products healthier. From organic Gatorade to offering probiotic health drinks and lowering sugar in its beverages and salt in its snacks, all these initiatives are aimed at driving sales amid a growing base of health-conscious consumers. According to the company, its “everyday nutrition” products will witness the fastest rate of sales growth by 2025. See Our Complete Analysis For PepsiCo Here Key Driver Of Growth A key driver of PepsiCo’s revenues in Q2 2017 was its portfolio of healthy snacks and beverages. As PepsiCo works towards transforming itself to adapt to the changing customer preferences of healthier lifestyles and aims to limit its environmental footprint, the company has adopted a motto of “Performance with Purpose.”  In order to meet the evolving needs of customers globally, the company is shifting its portfolio to a wider range termed as “Everyday Nutrition Products.”  These products contain nutrients such as grains, fruits, vegetables, or protein. This portfolio falls under a broader category of “Guilt Free Products”. The company now derives approximately 45% of its revenues from these “Guilt Free Products” indicating that it has transformed its portfolio towards healthier products according to the new customer preferences. These products include “diet and other beverages that contain 70 calories or less from added sugar per 12-ounce serving and snacks with low levels of sodium and saturated fat,” as well as “everyday nutrition products” – products with nutrients like grains, fruits and vegetables, protein, unsweetened tea, and water. These latter products constitute 28 points of the 45.  LIFEWTR, a product in its water portfolio, performed particularly well. In just five months since its launch in the first quarter, the product has already generated sales to the tune of $70 million and is on track to reach $200 million in sales on an annualized basis. With the growth of its beverage business slowing down, as a result of sluggish soda sales, this segment will be a focus for the company in the future to drive its sales. Frito-Lay is also pushing towards a premiumization of its products to fuel its revenue and margin growth. Consumers have been moving away from eating unhealthy products, which has put pressure on the volumes. Hence, by concentrating on premium brands, there can be a shift from low-priced, high-volume products to the high-priced, low-volume range, which may result in top and bottom line growth. Expansion Into Whole Foods According to a report by Bloomberg, Frito-Lay, PepsiCo’s snacks division, is aiming to break into organic stores, such as Whole Foods, with its new line of products without artificial ingredients, marketed under the name ‘Simply.’ These include organic versions of 11 core chip brands, including Doritos, Lay’s, Cheetos, and Tostitos. According to PepsiCo executive Jonathan McIntyre, these products meet the stringent requirements needed to be sold in Whole Foods. Such a move is part of a concerted effort taken by the company to improve its unhealthy image, given the shift in consumer preference towards natural and organic products. The acquisition of Whole Foods by Amazon could not have come at a better time for PepsiCo, as the former would have never accepted the presence of brands such as Doritos into its stores in the past. This is not only due to the junk food image of Doritos, but also due to Whole Foods’ aversion to products sold by big consumer packaged goods companies. However, the acquisition may change things in the future. The Simply line of products is already sold on Amazon’s website. Moreover, Amazon may be more comfortable cozying up to CPG behemoths, as it is only such companies that are capable of meeting the high volumes demanded. Smaller brands, which are more easily found in Whole Foods, may actually face a tough time keeping up with Amazon’s requirements. While the packaging of Simply products such as Doritos and Lay’s is different from its traditional counterparts, most consumers would still have reservations regarding its organic image. Hence, for PepsiCo, a presence in Whole Foods would go a long way towards convincing health-conscious customers to consume its products. The company’s other health-conscious brands such as Stacy’s and Naked Juice are already available in Whole Foods, but making greater inroads into Whole Foods would do PepsiCo’s business a whole lot of good. Have more questions on PepsiCo? See the links below. Price Increases Help PepsiCo. Beat Consensus Estimates Here’s How PepsiCo Can Benefit From Acquiring Vita Coco Home Market And Healthier Options Boost PepsiCo’s Q1 Results Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Imbruvica And Darzalex Are of Key Importance For J&J's Future Growth
  • By , 9/19/17
  • tags: JNJ PFE BMY
  • Johnson & Johnson  (NYSE:JNJ) derives around 55% of its value from its Pharmaceuticals business, according to our estimates. Within pharma, the oncology segment is of key importance and we expect that it will continue to drive growth for the company in the coming years. The company’s key oncology drugs include Darzalex, Imbruvica, Valcade and Zytiga. J&J collaborations with AbbVie for Imbruvica and with GenMab for Darzalex are paying off well.  The chart below shows the oncology drug revenue growth over the last 6 years.
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    Here’s How Volkswagen Plans To Grow In Emerging Markets
  • By , 9/19/17
  • tags: VLKAY TM TTM F GM
  • As it looks to capture a greater market share in the fast expanding emerging markets, Volkswagen AG  (OTCMKTS:VLKAY) is looking to manufacture economical vehicles in India, using the expertise of its Skoda brand. Reports suggest that the company is planning to design, develop, and engineer a low cost version of its modular platform MQB and this model would be ready for a 2020 launch.  Earlier this year, Volkswagen was looking to enter into an “emerging markets” partnership with Tata Motors as the company looked to expand its base in India. However, these talks did not materialize as Volkswagen could not identify any cost savings from the tie-up.  The company is now looking to go solo in its quest to build a volume oriented business for India and other emerging markets. A recent PWC report suggests that China and India, along with South East Asia and North Africa, would be the key regions driving growth in the light vehicle market in the coming years. Emerging markets are likely to contribute nearly 93% to the growth of this segment and Volkswagen is looking at making India its production hub to serve these emerging economies.  Strategy To Build Cheaper Cars, Focus On Volume Based Business With economic development, demand for automobiles in countries such as India is likely to increase rapidly. However several “new” consumers looking to buy their first vehicle would be entering the market, leading to a higher demand for cheaper vehicles. Volkswagen is working on a strategy to capture this trend by building budget cars in India, which could also be used to service regions such as Brazil and Iran . The company is likely to introduce its MQB (Modular Querbaukasten) platform in India to achieve economies of scale. The MQB kit consists of 15 individual modules that can be used for products across multiple platforms, thus offering greater economy of scale. A modified version of this platform designed to suit Indian requirements is likely to be used. Volkswagen was looking to expand in India and other emerging markets, through partnership with a local player, which could have fast-tracked launch of new “budget” models in the region, allowing the company to take advantage of the growing demand as the economy grows. However, its strategy to leverage the expertise of Skoda and its own MQB platform should work well in the region.  A new line up of budget cars developed in India should help Volkswagen capture the growth in emerging markets. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Why We Remain Positive On ADP
  • By , 9/19/17
  • tags: ADP PAYX
  • ADP (NASDAQ:ADP) has had a good start to its fiscal 2018. While the company’s fiscal  2017 performance was mostly in line with its guidance and market expectations, its stock reached an all-time-high of more than $120 per share after the release of the results, as investor Bill Ackman bought a large stake in the company. Though the market corrected itself a bit over the last few weeks, the company’s stock is still trading 4% higher than its price at the beginning of the year. Accordingly, we believe that the company has strong growth prospects that are reflected in its current valuation. We have a price estimate of $107 per share for ADP, which is in line with its current stock price. Below we talk about the key growth factors that will drive ADP’s value in the coming years. See Our Complete Analysis For ADP Here Source: Google Finance PEO Services To Boost Top-Line Growth With the growing preference of businesses to outsource their HR services, ADP’s revenue from its PEO services have grown at around 14.5% annually over the last five years. However, ADP’s overall revenue has increased at a rate of roughly 7% annually during the same period. Consequently, the proportion of PEO services in the company’s total revenue has gone up from less than 20% in 2012 to almost 28% in 2017. Since the global market for HR outsourcing is estimated to expand at a compound annual growth rate (CAGR) of around  12.7% between 2016 and 2020, we expect ADP’s revenue from its PEO services to continue to grow in double digits over the rest of the decade. Further, with the implementation of the Affordable Care Act (ACA), the adoption of ADP’s products catering to the regulation has been increasing significantly, driving up its client base.  This is because large employers (+1,000 employees), many of whom were unprepared for the implementation of the regulation, are now choosing providers such as ADP to help them implement ACA solutions for their employees. As a result, ADP has seen a sharp rise in the demand for its PEO services, which is evidenced by the 9% annual rise in its worksite employees over the last two years. Assuming the ACA is not repealed in the near term, this is likely to continue. Given the rising demand for PEO services, we forecast ADP’s total worksite employees to increase  to over 740,000 employees by 2024 . Based on company guidance, we expect ADP’s PEO services revenue to grow by 11% to 13% in the current fiscal year. Payroll Processing Will Continue To Be The Core Business While ADP’s PEO services business has driven much of the top line growth in the last few years, payroll processing continues to be its core business, contributing the largest portion of its top-line. The company’s revenue from its payroll processing services have grown at a steady rate of 5% annually over the last five years, driven by stable growth in the number of clients served by the company, and an annual rise in client fees. Although the share of the division in terms of ADP’s total revenue has dropped from 75% in 2012 to about 69% in 2017, it accounts for almost 65% of the company’s total valuation, according to our estimates. With a large and growing customer base and a high retention rate of clients of (over 90%), the company is in a strong position to generate sustained revenue growth in this segment. Based on the company’s guidance, we estimate ADP’s total number of payroll processing clients to continue to grow consistently at a CAGR of 2% and reach 740,000 clients by 2024. Moreover, if the company continues to increase its fee per client in line with industry standards, its average implied fee per payroll client could grow from a little over $13,000 per client in 2017 to almost $16,000 per client in 2024. As a result, net revenues from the Payroll division would grow at a CAGR of 5% through our forecast period. In addition to the steady growth, ADP’s payroll processing business generates a higher EBITDA margin compared to its PEO services. The company’s operating margin from payroll processing has increased from 20% in 2012 to around 24% in 2017, while the operating margin for its PEO services has remained stagnant at 12% over the last five years. Thus, we figure that the growth in the company’s Payroll division is likely to trickle down to its operating profits much faster than its PEO services. As a result, we expect the sustained growth in ADP’s core business to boost its bottom line going forward and drive the company’s future value. 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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    Schwab's Monthly Metrics Improve Significantly; Rate Hike To Further Propel Asset Growth
  • By , 9/19/17
  • tags: SCHW AMTD ETFC
  • In continuation with a strong performance across its key metrics in the first 7 months of the year,  Charles Schwab ‘s (NYSE:SCHW) growth trend continued as the brokerage saw significant improvement across its key metrics in August . Interest earning assets, which generate over 45% of Schwab’s revenues, continued their strong growth (around 10% year over year). This surge in volumes has likely been driven by both the rate hikes over the past few months and the anticipation of further hikes in the year ahead. Assets under management (AUM) have also continued to grow, and the brokerage’s digital advisory business and focus on newer investment products are likely to drive further AUM growth and consequently, higher investment product fees. The decline in revenues from slashing of trading commissions will be largely offset by the growth in trading volumes. See our complete analysis for Charles Schwab . 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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    Capital One Stands Out Among U.S. Card Lenders With Highest Charge-Off Rate
  • By , 9/19/17
  • tags: AXP BAC COF C DFS JPM
  • Card charge-off rates have been elevated across the industry over the last two quarters, but Capital One is faring much worse than its peers with a figure in excess of 5% for Q2 2017. This compares with the average figure of 3.64% for the U.S. card industry for the same period. Individual charge-off figures above are taken from the latest quarterly SEC filings for these card issuers. The weighted average charge-off rate represents the average card charge-off rate for these card issuers as weighed by their outstanding card balances. The average figure for the U.S. card industry is taken from data compiled by the Federal Reserve Bank of St. Louis here . The table below details the trend in card charge-off rates for these card issuers over the last five quarters. The red-to-green shading across a row should help identify trends in card charge-off rates for a particular lender over this period. The sharp increase in the charge-off figure across lenders over the last three quarters is clearly seen here. That said, the weighted average charge-off figure for these lenders remains lower than the industry average. The charge-off rate is widely used as a parameter to gauge the quality of a lender’s loan portfolio, as it represents the proportion of loans which the lender is forced to write off for a given period. A lender with a higher charge-off rate historically is likely to see a larger hit in profitability in the event of weak economic conditions, as it usually indicates more relaxed lending standards. On the other hand, lenders that follow strict lending guidelines are expected to see lower loan charge-offs compared to their peers. Historically, American Express has enjoyed the lowest card charge-off rates among all card lenders in the U.S. thanks to its policy of focusing on affluent clients, as this acts as a protection against loan losses. Discover also has lower-than-average charge-off rates, largely due to a selective card lending policy. At the other end of the spectrum is Capital One, with a charge-off rate above 5% for the first two quarters of the year. We believe that the elevated figure is indicative of lenient card lending criteria by the company – something that could lead to significant losses under weak economic conditions. The impact of a sharp increase in card charge-offs on our estimate for Capital One’s share price can be understood by making changes to the chart below, which captures the bank’s card loan provisions as a percentage of its total outstanding loan portfolio. See full Trefis analysis for  U.S. Bancorp  |  Wells Fargo  |  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
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    Could Monster's Takeover Be On The Cards For Coca-Cola?
  • By , 9/18/17
  • tags: KO PEP DPS
  • The Coca-Cola Company  (NYSE:KO) closed on a 16.7% stake in Monster Beverage in June 2015, and since then there has been speculation regarding when the former would end up acquiring the remaining stake in the latter. This speculation hit a high in the beginning of this month, sending the stock price of the two companies higher. According to The Deal, Coca-Cola may be nearing a takeover of Monster Beverage . However, contrary to this opinion, Credit Suisse thinks the deal may happen, but further down the road . In light of these contradictory statements, we’ll highlight some factors that show why the deal may make sense for Coca-Cola. See our complete analysis for The Coca-Cola Company Lure Of The Energy Drinks Market The retail market for sports and energy drinks in the US touched sales of $25 billion in 2016, rising at an average annual rate of 7% over the previous five years, according to Packaged Facts, Rockville, Md. As per their research, these drinks are perceived to be healthier than carbonated beverages because of their association with sports and physical activity. While meant originally for athletes, these drinks grabbed the attention of teens and young adults as “anytime drinks.” Energy drinks also appeal to consumers as a change from the regular sodas. The market is set to carry on its growth momentum, albeit at a slower rate of 3.1% a year for the next five years. Monster is the number two player in the market, after Red Bull, with a market share of 26.8% versus the 38.3% of Red Bull. Looking forward, the market will be hurt as these companies face allegations that their products are harmful to the consumers, as they contain a high level of sugar and caffeine. Keeping this in mind, Monster is launching Hydro, a non-carbonated energy drink, which the company feels can generate $200-$400 million in sales within two or three years, and White Lightening, a zero calorie carbonated soft drink. International Expansion Will Boost Sales Monster has in the recent past been delivering strong financial performance and has been capitalizing on the tremendous potential of the energy drinks market. However, in the global scenario, the company still has only a small share. This could change if Coca-Cola acquires the company. Coca-Cola has a strong global distribution network, with the help of which Monster would be able to greatly expand its presence in international markets. Moreover, by using KO’s distribution network and scale, the company will be able to reduce its distribution costs significantly. Such a scenario will put Monster in a better position to compete with the likes of Red Bull. While the company already has a partnership with Coca-Cola, an acquisition could speed things up. Hence, the acquisition would result in a meaningful increase in Monster’s sales, and consequently of Coca-Cola. Furthermore, it could also provide a boost to its margins, given the reduced expenses associated with the international expansion. Diversifying Portfolio As the beverage industry undergoes a transformation with carbonated soft drinks losing their position and consumers preferring “healthier” beverages, it appears that Coca-Cola is now looking to focus on innovation to introduce new/modified beverages which will attract consumers. It is focusing on flavored water, bottled water, and dairy beverages to diversify its portfolio. The new management structure is aimed at the company’s strategy to drive growth via newer products in line with changing consumer preferences. In this regard as well, the purchase of Monster will benefit them in terms of diversifying its portfolio. It will also help them compete better with Pepsi, though an acquisition of a food company might make more sense. Coca-Cola already has a sufficient number of water, juice, and soda brands in its portfolio. For KO, this acquisition would mean a better foothold in a market where the company does not have a significant presence. New CEO James Quincey has already stated that the company will be looking into expanding into other categories that they deem attractive. Globally as well, Coca-Cola trails Pepsi in this segment, and hence, by combining with Monster they can edge that company from its dominant position. Have more questions on Coca-Cola? See the links below. How Is Coca-Cola Turning Around Its Business? (Part 1) Coca-Cola’s Revenue Declines, But Core Business Remains Solid Coca-Cola Faces The Sugar-Tax Problem In South Africa Coca-Cola Set To Enter The Coffee Market In Brazil Notes: See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    How Will LNG Re-Negotiations With India Impact Exxon Mobil And Other LNG Suppliers?
  • By , 9/18/17
  • tags: XOM RDSA BP PBR CVX
  • Having discussed the changing dynamics of the LNG markets in our previous article –  The Changing Face Of The LNG Industry – we now talk about the details of the recent re-negotiation of the terms of an LNG contract pricing between Exxon Mobil and India’s Petronet, and how this will impact the LNG suppliers in the long term. See Our Complete Analysis For Exxon Mobil Here India’s Strong Bargaining Power As An LNG Importer With an aim to shift to a cleaner environment, India has been gradually moving towards becoming a gas-based economy as opposed to a coal-dependent economy. For this, the country aims to double the share of natural gas in its energy mix to around 15% in the next few years. At present, India is the world’s fourth largest and Asia’s third largest LNG buyer, with an annual gas consumption of roughly 50 billion cubic meters (bcm). Of this, about 30 bcm is produced domestically, while the remaining amount is imported from other countries. Given the declining domestic gas production and lack of new gas projects within the country, it is expected that any incremental demand for gas in India will be met through imports. Thus, India is a key LNG buyer in the global markets, and consequently, possesses a fair degree of bargaining power. Given the drop in crude oil prices over the last couple of years, countries, such as India, were obligated to pay a higher price for their pre-contracted LNG volumes since these were linked to previously higher oil prices. However, since India is among the fastest growing LNG buyers, it managed to use its bargaining power as a strong buyer to rework its 25-year LNG agreement with Qatar’s RasGas Co. in December 2015, making it the first Asian country to renegotiate a long-term LNG contract. Under the contract, Petronet, a state-controlled natural gas importer, had agreed to purchase an extra one million tons of LNG from RasGas in return for a change in the pricing formula that brought down the gas prices to almost half. Source: Royal Dutch Shell, LNG Outlook 2017 Exxon Mobil-Petronet Renegotiation  With the success of the Qatar renegotiation, India gained confidence in its bargaining power, and recently renegotiated the prices of one of its LNG contracts with Exxon Mobil. Under the revised contract, Petronet will purchase additional LNG volumes of one million tons per annum (MTPA) from Exxon’s Gorgon Project in Australia, taking its total purchase commitment to 2.5 MTPA, for a period of 20 years. In return, Exxon Mobil has agreed to cut down the prices of these volumes going forward, as well as to bear the transportation costs associated with the delivery of these volumes. The original supplies (1.5 MTPA) will now be priced at 13.9% of the Brent oil price, down from 14.5% agreed in 2009, while the incremental supplies (1 MTPA) will come in at a price of 12.5% of Brent. Apart from the lower LNG prices, Exxon Mobil has agreed to bear the transportation charges for the delivery of these volumes. In addition to selling its LNG volumes to Petronet at reduced prices going forward, the world’s largest publicly traded oil company will be obligated to take care of the transportation and logistic expenses related to the delivery of these LNG volumes. Unlike previously when Petronet had to bear the shipping costs, the LNG volumes will now be delivered ex-ship (DES), which means that Exxon will be responsible for delivering LNG volumes to Petronet at the agreed port of arrival. Impact Of Renegotiation On Exxon Mobil & Other LNG Buyers
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    A Closer Look At Honda’s New Urban EV (Electric Vehicle) Concept
  • By , 9/18/17
  • tags: HMC TM F GM
  • Recently, Honda Motors  (NYSE:HMC) unveiled a pure electric concept car built on a completely new platform which will set the direction for the technology and design to be used in Honda’s production models in 2019. As an increasing number of countries impose new regulations to increase usage of new energy vehicles and China looking to make it mandatory for automakers to have electric vehicles as part of their portfolio, companies are increasing their focus on EVs. Mercedes-Benz is likely to introduce electric versions of all its models by 2022, indicating that automakers are also looking to provide luxury electric cars to meet customer needs.  Honda’s new concept vehicle includes: An automated network assistant concierge which will “learn from the driver by detecting emotions behind their judgements”. The intelligent assistant will then “apply these learnings in making recommendations based on past decisions.” The exterior of the car has been designed to give it a sporty driving performance. The design also allows drivers to display messages in front of the car which could be “greetings, advice for other drivers on the road or charging status updates”. The interiors of the car have a large “floating” dashboard console which houses the steering wheel, simple control buttons, and a panoramic display. The company also revealed its “Power Manager Concept” which can store energy more efficiently, providing revenue opportunities to EV owners in future. The EV’s battery can be used to power a home thus cutting down the electricity consumption and the EV owners can sell this unused energy back to the grid. While the car has several intelligent features, the fact that Honda is likely to start production of vehicles based on this concept as early as 2019, gives the company a competitive edge over other players. As most countries look to tackle the growing pollution in cities, electric cars are likely to dominate urban markets in the next few decades. China is the fastest growing market in the world for new energy vehicles (NEV) and by 2025 the market for NEVs in China will grow to 6 million units per year of which 4 million vehicles will be all electric . This trend is pushing automakers to focus more on electric vehicles and might change the market share breakdowns going forward. Companies with a better and cheaper technology who are able to produce these cars faster are likely to emerge as winners. Honda’s aim is to have electric vehicle sales comprise nearly two-thirds of its new vehicle sales in Europe by 2025 and globally by 2030. Honda’s new concept urban EV looks like a winner and might provide the company with a competitive edge in the long term. 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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    A Closer Look At Tata Motors’ August Sales
  • By , 9/18/17
  • tags: TTM F GM TM
  •   Strong domestic sales and a solid performance by Jaguar Land Rover, led to a nearly 14% year on year increase in Tata Motors’  (NYSE:TTM) sales for August 2017. Domestic sales of commercial vehicles grew by 24% year on year, as the company witnessed growing demand across segments and positive customer sentiment. With a lower tax regime on automobiles kicking in in India from July of this year, the company passed on the tax benefit to consumers, lowering the prices of its vehicles. This appears to have had a positive impact on sales, with medium and heavy commercial vehicles registering a 52% growth in the domestic market and the light commercial vehicles, registering a 44% growth. Similarly in the domestic passenger vehicles market Tata Motors saw a 10% year on year growth in August 2017 driven by strong demand for its Tiago and Tigor models.  While the company seems to be on an upward trajectory in the domestic market, this segment does not account significantly for its revenues and valuation. Jaguar Land Rover Delivers Strong Performance Jaguar Land Rover accounts for more than 95% of Tata Motors’ valuation according to our estimates and this segment registered a 4.3% increase in sales (year on year) in August 2017. These sales were driven by a strong performance in China where retail sales grew by nearly 30% and a 2% growth in North America. However Europe remained a drag on the company’s performance with a nearly 10% decline in sales (year on year). Introduction of the long wheel base Jaguar XFL and the new Range Rover Velar in China boosted sales of the company in the region. Its Discovery Sport and Evoque models are also performing well in the region. Jaguar Land Rover also performed strongly in the U.S. owing to the popularity of its Jaguar F-PACE and the new Range Rover Velar. Tata Motors continues to invest significantly in the JLR brand and six new JLR models debuted at the motor show in Frankfurt. The company also announced that from 2020, all new JLR models will be available in electric versions. In conclusion, Tata Motors surpassed analyst expectations in August 2017 as both its volume based domestic business and profitable JLR business reported strong sales figures.   Get Trefis Technology
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    E-Trade's Growth Momentum Continued In August
  • By , 9/18/17
  • tags: ETFC SCHW AMTD
  • After a decent performance across key metrics in the first 7 months of the year,  E-Trade  (NASDAQ:ETFC) sustained its growth momentum in August. The brokerage saw a 44% year-over-year rise in trading volumes during the month. The acquisition of OptionsHouse in mid-2016 continued to contribute to growth in brokerage accounts and derivative trading volumes, with over 31% of trading volumes attributed to derivatives, in comparison to 23% in August 2016. Interest earning assets have also continued their strong growth, in large part due to the rate hikes over recent months and the expectation of further interest rate hikes going forward. As E-Trade has a higher yield on its interest earning assets (2.7%) relative to most competitors, rate hikes should drive solid revenue growth for the company. With the likelihood of a series of hikes in 2017, we expect the growth in assets to continue. See Our Complete Analysis For E-Trade Here 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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    Ameritrade Sustained Its Solid Growth In August
  • By , 9/18/17
  • tags: AMTD ETFC SCHW
  • In continuation with a strong performance across its key metrics in the first 7 months of the year, TD Ameritrade  (NASDAQ:AMTD) sustained its growth trend in August. The brokerage’s daily trading volumes grew by nearly 19% year-over-year. Since the company generates over 40% of its revenue from trading commissions, it needs to sustain this growth in order to compensate for the price cuts in commissions announced earlier in the year. However, the acquisition of Scottrade should offer some respite and help in offsetting price competition. Interest earning assets, which contribute around 50% of the brokerage’s revenues, grew by over 5% from the previous year’s comparable period. This surge in volumes has likely been driven by both the rate hikes over the past few months and the anticipation of further hikes in the year ahead. Ameritrade’s assets under management (AUM) have also continued to grow, and the brokerage’s digital advisory business and focus on newer investment products are likely to drive further AUM growth, and consequently higher investment product fees. Please refer to  our complete analysis for  Ameritrade . 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 Is First Solar's Series 6 Transition Progressing?
  • By , 9/18/17
  • tags: FSLR SPWR
  • First Solar  (NASDAQ:FSLR) is getting ready to roll out its Series 6 modules next year. The panels are viewed as one of First Solar’s most important product launches in years, as they allow it to compete more directly with silicon-based panels in terms of both conversion efficiency as well as total rated power. In this note, we take a look at why Series 6 is important to the company and where it currently stands with its transition. We have a  $49 price estimate for First Solar,  which is roughly in line with the current market price. See Our Complete Analysis For Solar Stocks  First Solar  and   SunPower Why Series 6 Is Important To First Solar  First Solar current Series 4 modules offer a peak power rating of roughly 120 watts (W) per module, putting them at a disadvantage relative to many multi c-Si panels which have maximum power output of upwards of 315 W. This means that a greater number of First Solar panels are required for a given system size, translating into higher balance of systems (BoS) costs per watt compared to systems which use silicon panels. This has proved a handicap for First Solar, as BoS costs are becoming a prominent part of a solar system’s overall cost, as they include labor and mounting – that do not necessarily sees cost reductions like solar panels. First Solar expects its Series 6 to be rated at upwards of 420 W per panel. Series 6 also utilizes a new production methodology that employs a larger glass size and also has significantly lower capital expenditures (roughly 40% lower per watt of manufacturing capacity). Production Ramp And Expected Efficiencies First Solar is expected to invest a total of about $1 billion into the Series 6 transition, building the modules in three regions, including Malaysia, Ohio and a facility in Vietnam, that it had previously built but never operated.  Over the last quarter, First Solar noted that the first of its Series 6 equipment has arrived at its factory in Ohio, with tools for Malaysia expected to arrive by the end of this year. The tooling of the plant in Vietnam will be slower, as the company expects the key milestones on the unit to be achieved about one quarter after the Malaysian unit. The company plans to ramp up Series 6 production to about 1 GW next year, with capacity improving up to 3.5 GW during 2019. The company expects to exit 2019 with just under 4 GW of Series 6 capacity. While First Solar says that the efficiency of its Series 6 modules will likely stand at over 18% at launch, efficiencies could improve to over 19% in the next few years, as the company executes on its technology roadmap. We could see stronger improvements in the long run, as First Solar’s Cd-Te technology has a higher theoretical upper limit for conversion efficiencies compared to silicon-based panels. Moreover, First Solar has a solid track record of translating record cell and record module efficiencies into production. It’s current record cell efficiency standard currently stands at 22.1%. 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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    Can Tesla Disrupt The Trucking Market With Its Electric Semi Truck?
  • By , 9/18/17
  • tags: TSLA DAI CAT
  • Tesla  (NYSE:TSLA) CEO Elon Musk said the company would unveil an electric semi-truck at an event to be held on October 26. The unveiling will be very closely watched by investors, as it marks Tesla’s first step away from the luxury passenger vehicle market into the commercial space. While Tesla could bring many of its core strengths to trucking market, including its autonomous driving technology and relatively low operating costs, experts remain divided as to  whether the long-distance trucking  industry is ready for electrification yet, considering the lack of charging infrastructure and concerns relating to battery prices, tonnage, and range. Below we take a look at what Tesla could have in store for its first commercial vehicle. We have a $205 per share price estimate for Tesla, which is well below the current market price. Read our  current stance on Tesla here . What Can Tesla Bring To The Commercial Trucking Market?  Tesla has a lot of strengths that it could bring to the commercial trucking market. The company’s electric drivetrains are known for their strong performance, and the performance of the new truck is also expected to be robust, with Elon Musk indicating that the vehicle would have better torque than any diesel truck. Running costs could also be low. For instance, Morgan Stanley estimates that the truck could be up to 70% cheaper to operate compared to regular trucks on account of lower fuel, maintenance, and insurance costs. Tesla is also viewed as a leader of sorts in the autonomous driving space, on account of vast datasets from the autopilot hardware on its cars. While a completely autonomous truck could be several years away, the company could offer some level of automation to help companies better manage their manpower costs. Tesla’s vehicles also have no tailpipe emissions, and this could prove advantageous at a time when regulators in regions including China, Europe, and California are pushing automotive manufacturers to transition towards zero-emission vehicles. How Will Tesla Adress The Range, Capacity And Cost Tradeoff? Unlike Tesla’s luxury vehicles, which sell based on their brand cachet and performance, the semi truck will have to provide a compelling economic argument for businesses to adopt it. There is some skepticism as to how the company will address the trade-off between prices, tonnage, and range. For instance, researchers at Carnegie Mellon University estimate that an electric truck with a range of 600 miles would require a 14-ton battery, which could cost as much as $290k for the battery pack – which alone is more than double the price of a Class 8 truck. The unladen weight of the trucks could also be a constraint, as battery packs weigh significantly more compared to diesel in internal combustion engine-based trucks. As federal rules cap the gross weight of  trucks to 40 tons, there is a possibility that Tesla could reduce the range in favor of more load carrying capacity. For instance, there have been reports that the truck could have a range of   200-300 miles, allowing it to support regional trucking routes. Does Tesla Have The Production Capacity To Manufacture A Truck? Tesla has a history of production-related issues and the company still operates out of a single manufacturing facility in Fremont, California. While Elon Musk has indicated that production of the truck could scale up within 18 to 24 months, we believe that the timeline could be longer, as the company likely has its hands full with the production of the mass market Model 3 sedan, which is already seeing waiting periods that extend past mid-2018. Tesla intends to scale up Model 3 production from just over 1,500 vehicles in Q3 2017 to a weekly run rate of 5k vehicles by the end of the year and 10k cars per week at some point next year. Adding a large and potentially complex vehicle like a semi truck could hurt the company’s existing production schedules and efficiency. 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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    Opdivo In Focus After BMY's Checkmate-214 Study Being Stopped Early
  • By , 9/18/17
  • tags: BMY JNJ PFE MRK
  • Bristol-Myers Squibb ‘s (NYSE:BMY) oncology business accounts for over 60% of the company valuation, according to our estimates. The performance of pharmaceutical stocks is highly tied to clinical trial results, and for Bristol-Myers Squibb the uptake of its new cancer drugs, especially Opdivo, is of key importance. Earlier this month, the company reported that a study looking at a combination of two oncology drugs – Opdivo and Yervoy – in the treatment of renal-cell cancer worked well enough to be stopped early. This is a positive development for the company, and if the drug combination is approved, it would result in even higher contribution of oncology revenues for Bristol-Myers Squibb. We currently expect the company’s oncology revenue to jump from nearly $7 billion in 2016 to more than $12 billion by the end of our forecast period, implying annual average growth of just under 9%. Our price estimate of $52  for Bristol-Myers Squibb’s stock is more than 15% below the market price. The company’s stock price has moved up around 5% this month, following the news of Opdivo – Yervoy study for renal cell cancer being stopped early. Opdivo – Yervoy Combination Can Reduce Kidney Cancer Deaths By 37% Based on the Checkmate-214 trial, in intermediate- and poor-risk patients, the Opdivo – Yervoy combination delivered a 37% reduction in the risk of kidney cancer death. The Opdivo – Yervoy combination beat Pfizer’s (NYSE:PFE) Sunitinib at the co-primary endpoint of overall survival in intermediate and poor-risk patients and the secondary endpoint of overall survival in all of the study’s randomized patients. Based on the outcome of the study, Bristol-Myers Squibb could file for full FDA approval for first-line treatment of renal cell carcinoma. It should be noted that renal cell carcinoma is the most common type of kidney cancer in adults, accounting for more than 100,000 deaths worldwide each year. Overall this development is positive for the company, and based on the FDA approval for this drug combination for renal-cell cancer treatment, Opdivo will likely generate even more revenues in the coming years. Looking at 2016, Opdivo generated $3.78 billion in global sales while Yervoy generated around $1.5 billion. We currently estimate that Opdivo will bring in over $5 billion in annual revenue by 2020. The growth for Bristol-Myers Squibb’s overall oncology portfolio is likely to be steep in the next couple of years, but will moderate around 2020 as Sprycel and Yervoy lose patent protection. It should be noted that the revenue from the pipeline is adjusted to reflect around a 50% probability of phase 3 drugs reaching market launch. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Adobe Earnings Preview: Cloud Services To Continue To Drive Revenue Growth
  • By , 9/18/17
  • tags: ADBE
  • Adobe (NASDAQ:ADBE) is set to announce its Q3 results on Tuesday, September 19. In Q2, the company reported 27% growth in revenues to $1.77 billion, which was above its guidance range. Even though the company continues to witness improvement in performance metrics across two of its major business lines (Creative Cloud and Marketing Cloud), its legacy business continues to struggle as the shift to cloud services takes center stage. We expect that this trend continued in Q3 2017, and will likely persist through the remainder of the year. Below we detail what to expect from Adobe’s earnings release. We have a  $141 price estimate  for Adobe, which is slightly below the current market price. Outlook For Q3 2017 Adobe has guided for revenues of $1.815 billion for the third quarter of fiscal 2017. It expects GAAP EPS to be around $0.72, and non-GAAP EPS to be around $1. The company expects to achieve approximately $300 million of net new Digital Media ARR, and guided for digital media and digital marketing cloud revenues growth of 26% and 25%, respectively. Growth In Creative Cloud To Continue According to our estimates, the Creative Cloud (CC) division is the biggest of Adobe’s operating segments and makes up 55% of its value. In the previous quarter, the company reported a record addition to its Creative Cloud software as revenue growth for this vertical continued. In Q3 2017, we expect Adobe to report over $1075 million in revenues for the CC division even as the ARR (annual revenue run rate) for this product family outperforms the guidance range. Despite the increase in revenues, we expect a marginal decrease in average revenue per user (ARPU) during the quarter as Adobe continues to improve its portfolio of services by adding products at lower price points. Nevertheless, we believe that CC will continue to drive revenues over the next couple of years with solid growth in subscribers. Marketing Cloud Expected To Report Double-Digit Growth Adobe’s Marketing Cloud division is the second biggest division and makes up 30% of its value, according to Trefis estimates. The company continues to report growth for this vertical due to both organic and inorganic expansion of its products and services. Specifically, Adobe is focusing on the mobile domain to strengthen its cloud marketing services. The company is also driving larger, multi-year and multi-solution customer contracts. We expect this trend continued in Q3, as the company continued to implement its strategy for a mobile-centric solution in marketing. Furthermore, we believe that the next phase of revenue growth will stem from the expansion of its portfolio of services to incorporate Machine Learning and Artificial Intelligence (AI) platform Sensei. We currently project revenues from its digital marketing division to grow to $515 million in Q3. Document Cloud To Boost Acrobat Family Revenues The Adobe Acrobat family is Adobe’s third largest segment, and we estimate that it makes up around 10% of its value. In the previous quarters, the company reported that its Document Cloud subscriptions eclipsed license sales of the perpetual Acrobat software on Adobe.com, and it expects to see stronger migration among enterprise customers in the remainder of the year. With the increase in Document Cloud revenue, which now accounts for over 63% of total document revenues, we expect that revenue for Acrobat family will improve in Q3 as revenue for Document Cloud grows to $137 million. Smaller Divisions To Report Declines Some of Adobe’s smaller businesses, including Adobe Packaged Software, LiveCyle software and Print & Publishing, contribute less than 2% of the company’s value, according to our estimates. The adoption of Creative Cloud will negatively impact Adobe’s Packaged Software, while up-selling to Adobe Marketing Cloud will pressure LiveCyle & Connect Pro revenues. We expect revenues from these businesses to decline in Q3 2017 and for the remainder of fiscal 2017. 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