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Netflix is set to report its Q4 earnings on Monday. We expect the company to see solid subscriber growth.

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IBM continues to see strong growth in Cognitive Solutions revenues, which we expect to continue driven by Watson and other advanced solutions.

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CMG Logo
Should Chipotle Mexican Grill Double Down On Home Delivery?
  • By , 1/19/18
  • tags: CMG MCD DNKN
  • Chipotle Mexican Grill (NYSE: CMG) is struggling to grow revenues as cautious customers are staying away from its restaurants due to fears of food virus, after a major E. coli outbreak and several subsequent isolated incidents. The company is working on several initiatives to increase restaurant traffic but is going slow on restaurant expansion, since it wants to focus on improving the operations of its existing restaurants. One way of increasing revenues from existing restaurants could be to expand its home delivery initiative. Chipotle currently offers home delivery from select restaurants through its partnership with Tapingo and Postmates.  However, expansion of this initiative can increase revenues for Chipotle. Home delivery is a huge opportunity in the restaurant industry as millennials prefer convenient options. Competitors such as McDonald’s have identified that home delivery orders are usually group orders leading to higher average check size (nearly double the size of the order in a restaurant). An increased focus on home delivery can potentially increase Chipotle’s average revenue per restaurant, thus impacting its valuation positively. You can click here to view our interactive model to analyze the impact of a higher average revenue per restaurant on Chipotle’s valuation. While home delivery can expand Chipotle’s customer network and lead to higher average check size, it comes with additional costs, which Chipotle might not be able to sustain at this stage and can impact the company’s profitability. . Chipotle is a small company with around 2,000 restaurants and does not have the scale of McDonald’s. Further the company is spending heavily on initiatives to regain its lost reputation after a series of food related issues. However, an increased focus on home delivery can help Chipotle grow revenues in the long term. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
    UAL Logo
    What To Expect From UAL's Q4 Earnings
  • By , 1/19/18
  • tags: UAL
  • United Continental  (NYSE:UAL) posted a better than expected quarter last time around. However, investors were not happy with how things went on the previous call. The company witnessed its value plummet by more than 12% post the earnings call, when upper management spooked investors into a selling frenzy after failing to answer Wall Street analysts’ questions. Analysts called into question the company’s growth initiatives that have, so far, failed to work as hoped for. That said, things have definitely improved for the airline this time around. Apart from growing investor confidence, adverse effects from the hurricane also seem to be finally dissipating. This is evident from the company’s impressive price performance in the quarter. The stock is up by almost 28% since. In all likeliness, it appears as though United’s top line will be driven by higher passenger revenues caused by a heavy increase in holiday travel this time around. In fact, the airline reported exceptional performance through the Thanksgiving weekend, breaking various records. Additionally, the company recently issued a rather improved outlook in comparison to the last earnings call. PRASM, a key measure of unit revenue, is expected to come in flat year over year. According to the earlier guidance, this metric was expected to come in the range of negative 2% to flat. Further, pre-tax margin (adjusted) is anticipated to lie between 6-7%. Previous guidance figures had pegged the range to be around 3-5%.                          However, as expected, the company’s bottom line growth will be hurt on increased costs. Fuel price is expected to come in significantly higher at $1.91. Furthermore, CASM ex-fuel is estimated to increase by about 1.5-2% in Q4.                            The charts above were created using the Trefis Dashboard . 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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    Should Starbucks Consider A Franchisee Model To Drive Growth?
  • By , 1/19/18
  • tags: SBUX MCD DNKN
  • Most restaurant companies either already have or are adopting a 100% franchised model to aid growth. McDonald’s has improved its profitability significantly by moving towards a 95% franchised model, since company owned restaurants need higher capital expenditure and costs in terms of labor and other operating expenses are high. Starbucks (NASDAQ: SBUX), on the other hand, has a nearly 50:50 ratio of company owned and franchised restaurants and the company is likely to maintain this ratio in the future. Starbucks’ management believes that company owned restaurants are essential for quality control and hence it is likely to continue with this model. We believe Starbucks does not need a franchisee model to drive growth since the company has expanded company owned restaurants in the past without compromising on margins. Its company owned restaurants are profitable and efficiently run. You can click here to access our interactive model which includes the charts below and analyze how company owned restaurants are likely to contribute to Starbucks’ growth in the future.   In 2017, 54% of Starbucks’ EBITDA was contributed by company owned stores, while franchisee (licensed stores) contributed 30% toward the company’s EBITDA. The company had nearly the same number (approximately 13,000) of company owned and franchised stores in 2017. While the company is expanding aggressively (especially in China) and using the franchised model to expand in several locations, its company owned stores are profitable and essential for “a certain level of control” which the management wants to retain. You can click here to access our interactive model which includes the charts above and analyze how company owned restaurants are likely to contribute to Starbucks’ growth in the future. Starbucks is growing aggressively, however its company owned restaurants are profitable and essential for the company to maintain its quality and brand value. Growth is likely to come in the current  50:50 ratio of company owned and franchised restaurants and this strategy should work positively for Starbucks’ valuation.   View Interactive Institutional Research (Powered by Trefis):
    MO Logo
    How Can Altria's Valuation Change With A New Effective Tax Rate?
  • By , 1/19/18
  • tags: MO PM
  • With the US government’s new tax law coming into effect, many companies will see a significant impact from changes in their effective tax rates. As per the new tax bill, the corporate tax rate will be lowered to 21% from 35%, while the overall tax structure is also expected to be simplified. This factor will improve the valuation of companies, with some companies benefiting more than others. One such company is  Altria (NYSE:MO), as the company operates entirely in the United States, and is hence, subject to the exorbitantly high corporate tax rates in the country. We have a  $73 price estimate for Altria, which is slightly higher than the current market price. Altria Forced To Pay High Tax Rates Currently Since splitting with Philip Morris, Altria operates only in the United States. This factor does have some positives: the increased global regulations and the rising strength of the dollar, which have together hit tobacco companies with international operations, have had no impact on Altria’s performance. However, on the other hand, it also means that since all of its revenues are earned in the US, they are taxed at US rates. The company’s effective tax rate has hovered around 35% for the past few years, implying that more than one-third of its profits are going towards its tax payments. While the statutory rates in the US are quite high, that is typically not the rate most companies end up paying. Deductions and credits can help to reduce the tax liability, and as a result, such companies end up doling out taxes at a lower rate than the statutory rate. As a result, the average tax rate paid by corporates in the US is actually 18.6%, which is, in fact, lower than the rate the Trump government is imposing. According to CSIMarket, on a trailing 12 months basis, the effective tax rate is 20.62% . Hence, the tax rate paid by Altria is in fact much higher than that paid on average by other companies in the United States. During 2016, the company’s earnings before income taxes were $21.9 billion, and it had to pay taxes of $7.6 billion on it, implying a tax rate of 34.8%. If the tax rate was instead 21%, its tax liability would have been close to $4.6 billion, and its earnings after taxes would rise to $17.3 billion, instead of $14.3 billion. This would mean its earnings would rise by over 21%, and consequently its earnings per share. Looking ahead, we can with certainty say that a fall in the corporate tax rate would have an enormously positive impact on Altria, and, as a result, should give a boost to its stock price. Altria Set To Benefit Immensely We have created an interactive model that details how changes in effective tax rates can impact the valuation of Altria. You can modify the assumptions to see how the tax rate/valuation dynamics change. As per our model, the effective tax rate for 2016 is higher than the reported figures, on account of the merger between SABMiller and AB InBev, which has been adjusted for in the reported figures. While it is not certain that the company’s reported effective tax rate will fall to 21%, if it does, it can improve the valuation and our price per share by 22%, to $171 billion and $88, respectively. See Our Complete Analysis For Altria Have more questions? Have a look at the links below: Why It Makes Sense For Altria To Bet On The E-Cigarette Market California Tax Hike Drives Altria’s Sales Fall Delay In FDA’s Proposed Regulations To Help Altria Key Reasons Why We Are Bullish On Altria Notes:  
    HAL Logo
    Halliburton's 4Q'17 Earnings To Be Driven By Its North American Operations
  • By , 1/19/18
  • tags: HAL SLB RIG
  • Halliburton (NYSE:HAL), the world’s third largest oilfield services company, is set to release its financial performance for the December quarter and full year 2017 on 22nd January 2018. Backed by the growing rig count and strong drilling demand, the market expects the Houston-based company to report a remarkable jump in its top-line as well as bottom-line, both for the quarter as well as for the full year. Given the company’s higher exposure to the North American markets compared to its closest competitor, Schlumberger, it is likely to witness a higher improvement in its fourth quarter results. See Our Complete Analysis For Halliburton Here Key Highlights Of 4Q’17 The North American oil and gas rig count experienced a dip in the months of October and November. However, with the extension of the OPEC production cuts, the WTI crude oil prices rose sharply in December and averaged at around $55 per barrel during the quarter, almost 15% higher than the previous quarter. For the full year 2017, the oil prices averaged at almost $51 per barrel, 17% more than for 2016. As a result, the region’s rig count recovered to 1,135 units at the end of the December quarter. Contrary to this, the Latin American and the Middle East markets showed signs of improvement during the quarter. The international rig count rose to 954 units during the same quarter, as opposed to 929 units in the same quarter of last year. For the full year 2017, the global rig count rose to 2,089 units, compared to 1,772 units at the end of last year. Given the surge in the global rig count during the year, we expect to see a sharp rise in Halliburton’s revenues for the quarter as well as full year. However, on the pricing front, the company is expected to have witnessed continued pressure in the fourth quarter due to the onset of the holiday season and lower efficiency levels due to winter months mainly in the Rockies and Northern US. Also, the oilfield contractor does not expect to see a stark improvement in the year-end product and software sales in the international markets, as most of its customers are budget constrained. Thus, we foresee the company’s revenue to be lower compared to the previous quarter. On the profitability front, the company’s efforts to increase its pricing, improve its equipment utilization, and structurally reduce its operating costs are likely to enhance its margins. Lastly, Halliburton announced a fourth quarter dividend of 18 cents to its shareholders. This reiterates the company’s willingness to share its improving cash flows and profitability with its investors. 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 Sensitive Is Juniper's Stock To Changes In Its Router Market Share?
  • By , 1/19/18
  • Networking giant Juniper (NYSE:JNPR) is one of the largest router players in the industry, with a 15% share in the global router market. However, its share is dwarfed by main rival Cisco (NASDAQ:CSCO) which has a share of over 50%. It is interesting to note that despite the fact that Cisco still commands a massive share in the market, its share has gone down from 62% at the beginning of the decade to just over 50% currently. Comparatively, second-largest player Juniper has improved its share over the same timeframe. Needless to say, Juniper’s ability to maintain or grow its share in the market is important for its valuation. We have created an interactive model that details how a change in its router market share can impact the company’s value. You can modify assumptions such as projected revenues to see how the market share or estimated valuation changes. The image below shows one of the key steps in identifying Juniper’s stock sensitivity to change in its market share. We detail how change in share impacts revenue, which then impacts EPS and subsequently the valuation (assuming the P/E multiple doesn’t change). We find that a  1% increase in Juniper’s market share would imply a nearly 2.4% upside to its near-term valuation, which we estimate using projected EPS and a forward P/E multiple. Our sensitivity analysis assumes that the increase in market share would not impact Juniper’s forward P/E multiple, which currently stands at just over 12 based on Trefis estimates (P/E based on Non-GAAP EPS). However, if you disagree with that assumption, you can make changes to all input variables on the interactive dashboards platform to gauge the impact of all changes on our price estimate and EPS. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Rio Tinto's 2017 Production Review: Iron Ore Output Is Expected to Remain Steady in the Upcoming Year
  • By , 1/19/18
  • tags: RIO VALE MT CLF
  • We have a $47 price estimate for Rio Tinto, which is below the market price. Have more questions about Rio Tinto? See the links below. How Rio’s Access to High Grade Iron Ore Would Remain Advantageous to the Company in Q4 Why Rio’s Interest in SQM Makes Sense Notes:
    INTC Logo
    How Much Could Intel's Stock Move In 2018?
  • By , 1/19/18
  • tags: INTC AMD NVDA
  • Intel’s  (NASDAQ:INTC) market price currently stands at around $44, which is over 20% higher than a year ago. This run up was driven by the company’s impressive quarterly results throughout the year. Despite competition from AMD and Nvidia, Intel grew its operating income by nearly 50%. That’s extremely impressive for a company as large as Intel, and much of this improvement came from a rebound in margins from the prior year, as the company benefited from price increases. With that said, it will be interesting to see how the company performs throughout 2018, and if the stock has scope for significant further growth. We have created an  interactive valuation calculator dashboard  using Trefis’ interactive technology where you can modify inputs such as EBITDA multiples and fundamentals determining Intel’s 2018 EBITDA (earnings before interest, taxes, depreciation and amortization). See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    JNJ Logo
    Johnson & Johnson Likely To Post Solid Q4 Led By Ramp Up In Oncology Drug Sales
  • By , 1/19/18
  • Johnson & Johnson  (NYSE:JNJ) is set to report its Q4 2017 earnings on January 23, and we expect the company to post solid numbers, primarily led by continued growth in oncology drug sales, which saw growth of 25% in the previous quarter. It will also be interesting to see the trends in the company’s immunology drug Stelara, which saw a 38% jump in sales in the previous quarter, led by market share gains. We currently estimate full year Oncology drug sales to be over $7 billion, over 45% of which can be attributed to Imbruvica and Darzalex. These two drugs are likely to be key growth drivers for J&J in the coming years, with peak sales being touted to be around $4-5 billion for Imbruvica (J&J’s share) and $9 billion for Darzalex. The company should also benefit from its $30 billion acquisition of Swiss biotech Actelion in June last year. Actelion has provided J&J access to some high-margin medicines, since the company focuses on rare diseases which tend to have more price protection and fewer competitors. Beyond pharmaceuticals, the medical devices and consumer business will likely continue to drag along at a modest pace. The medical devices segment hasn’t seen a meaningful growth trigger, while the consumer business is facing strong competition from both big brands and private labels (Also see – A Look At Johnson & Johnson’s Medical Devices Segment ). While we remain optimistic about J&J’s overall performance, pricing issues and competitive pressure may keep growth in check in the fourth quarter. Looking forward, most of the major pharmaceutical companies, including J&J, should benefit from lower tax rates. The companies will see a significant impact from changes in their effective tax rates, and this could allow these companies to potentially increase R&D investments with the freed up cash, and more projects may become economically viable – as the expectation of greater future profits due to a lower tax rate could potentially encourage more risk-taking. You can look at our dashboard for pharma companies’ value sensitivity to changes in tax rates .  It will be interesting to see the company’s commentary on freed up cash. Our  price estimate  of $126 for Johnson & Johnson is around 10% below the current market price. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Key Trends To Watch As Verizon Reports Q4 Results
  • By , 1/19/18
  • tags: VZ S TMUS T
  • Verizon  (NYSE:VZ) is scheduled to publish its Q4 2017 results on January 23, reporting on a quarter that likely saw the carrier continue its momentum in the postpaid wireless space. Below, we take a look at what to expect when Verizon reports its numbers. We have a  price estimate of $52 for Verizon’s stock, which is roughly in line with the current market price. Postpaid Business To Remain Strong Verizon’s postpaid wireless phone subscriber additions should remain strong, driven by its unlimited data plans.  Moreover, the carrier could also benefit from less aggressive device promotions from Sprint and T-Mobile over the holidays, as well as T-Mobile’s decision to incrementally increase pricing on some plans in early Q3 2017. That said, Verizon’s move to divide its unlimited offerings into three separate plans in late August, with caps on video resolution and stricter throttling policies that could partially impact its new activations (related:  Why Verizon Had To Rethink Its Unlimited Strategy ). During Q3 2017, the carrier added a total of 603k retail postpaid subscribers, marking a 36% improvement over the last year, with smartphone additions coming in at  486k, up from 242k in Q3 2016 . Retail Postpaid phone churn levels, which stood at just 0.75% in Q3 2017, likely remained low over the fourth quarter. Verizon’s prepaid operations may also continue to gain traction. The carrier has been tweaking its prepaid offerings to offer unlimited data and family accounts, posting net adds of about 139k in the last quarter. Updates On Emerging Businesses We will also be looking for updates on Verizon’s emerging businesses, such as media and the Internet of Things. The company’s Oath division – which is focused on digital media, digital advertising, online services, and software – saw revenues of about $2 billion during Q3 2017, and it’s possible that revenues will grow over the holiday quarter. Verizon has indicated that Oath has around 1 billion monthly unique users across its AOL and Yahoo platforms (related:  Where Will Verizon’s Oath Stand In The Digital Advertising Market? ). We will also be tracking the performance of the company’s Telematics business, which includes its Fleetmatics and Telogis operations. Telematics revenues stood at over $220 million during Q3’17. See our complete analysis for   Verizon  |  AT&T  | T-Mobile |  Sprint  
    NFLX Logo
    What To Expect From Netflix's Q4
  • By , 1/19/18
  • tags: NFLX
  • Netflix (NASDAQ:NFLX) is set to announce its fourth quarter results on Monday, January 22. Despite the intensifying competition in the over-the-top (OTT) streaming market, we expect Netflix to report growth in revenues and subscribers across both the domestic and international markets. Netflix’s revenues should continue to outperform, and we expect it to exceed its guidance of $2.97 billion. We expect the company to report revenues in excess of $3.2 billion as Netflix’s services witnessed strong adoption in the international market, while revenues from the U.S. streaming market should remain steady. Furthermore, we anticipate that the total subscriber base for both international and U.S. streaming services will grow to over 115 million during the quarter. We have created an interactive dashboard that illustrates our expectation for Netflix’s various divisions. You can modify the revenue and contribution profit expectations for each division to see how the EPS will be affected in Q4. For Q4, we expect Domestic streaming revenues to improve to $1.6 billion as the company adds substantial net subscribers to the business. Additionally, we also expect its ARPU to grow to around $10 in Q4. International streaming revenues to improve to over $1.5 billion and total membership to swell to nearly 62 million. However, Netflix’s international operations are still not as profitable as its domestic business, as the company continues to invest heavily in expansion through marketing and content development. The DVD business will continue to lose steam, and revenues will likely decline to just over $100 million. Increases in the cost of content production and marketing expenses will continue to impact profitability and cash flows during the quarter. Nevertheless,  the company is expected to report y-o-y growth in contribution margins. At present, we have a  $187 price estimate for Netflix, which is 15% below the current market price. See our complete analysis for Netflix View Interactive Institutional Research (Powered by Trefis): See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    Key Takeaways From PTC's Q1 Earnings
  • By , 1/19/18
  • tags: PTC ADSK ADBE
  • PTC Inc. reported better-than-expected results for the first quarter of fiscal 2018 this week, with a 7% year-on-year (y-o-y) rise in its top line, while the company’s diluted GAAP earnings grew sharply from a loss of 8 cents in Q1’17 to a profit of 12 cents in this quarter. The strong start to the year can be attributed to a surge in subscription revenue, which grew by 84% y-o-y. The growth in subscription revenue allowed PTC to beat estimates by nearly $6 million. However, the earnings beat was partially offset by a mixed performance in terms of support, perpetual, and professional services revenue. Apart from the strong Q1’18 performance, the company announced the transition to a subscription-only licensing model in the Americas and Western Europe. Under this transition, the company will switch its focus from perpetual licenses – which entail upfront payment – to subscription-based licenses that would realize periodic fees to license the software on an ongoing basis. Although this shift might hurt the company’s revenue in the short term, it should also boost recurring revenues and drive long-term value for the company. Below, we have summarized the major takeaways from PTC’s Q1 earnings using our interactive dashboard Subscription Revenue Drives Recurring Software Revenue Recurring software revenue accounts for nearly 75% of PTC’s revenue. This segment has been growing consistently and has reported double-digit growth for four consecutive quarters, indicative of the momentum PTC continues to gain from the business model transition. The division’s revenue grew 12% y-o-y to $231 million in Q1’18, fueled by the growth in subscription revenue. Subscription revenue grew to $100 million in Q1’18, 84% higher than the prior year quarter. As a result of the transition, the contribution of subscription revenue to the company’s total revenue rose from 19% in Q1’17 to nearly 33% in Q1’18. Further, the company witnessed strong demand across its product portfolio. Additionally, the company also reported a strategic alliance with BMW, which could hold significant potential. Under this alliance, BMW has selected PTC’s PLM solution to support its digitalization efforts. PTC’s PLM solutions provide data management solutions across a product’s lifecycle – from inception to post-production. With the PLM market expected to grow further, this partnership could be a steppingstone for PTC to boost its recurring revenue. Professional Services Revenue Dampens Overall Revenue Growth Professional services revenue declined by 10% y-o-y to $41 million in Q1’18, due to the company’s strategy to shift services engagements to partners and deliver products that require less in terms of professional services. Furthermore, PTC’s support revenue declined by 13% in Q1’18, as customers continued to convert their perpetual licenses to subscription licenses. Consequently, its contribution to the overall revenue fell to around 43% in Q1’18 compared to 53% in Q1’17. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    What To Expect From Texas Instruments' Q4
  • By , 1/19/18
  • tags: TXN
  • Texas Instruments  (NYSE:TXN) is set to report its Q4 2017 earnings on January 23 . The company reported strong numbers for Q3, as both revenue and EPS beat expectations driven by strong demand in the automotive and industrial segments. Additionally, its gross margin touched a high of 64.5% in Q3 2017, while operating profit also grew on the back of an increasing proportion of analog production at 300mm fabrication facilities. We expect the growth momentum to continue into Q4 2017 as well, as the industrial and automotive markets should boost the top line yet again. We expect the company to report revenues in excess of $3.85 billion as TI’s sales continue to gain traction in the industrial and automotive markets, where semiconductor demand is high. We have created an interactive dashboard that illustrates our expectation from various divisions. You can modify the revenue and contribution profit expectations for each division to see how the EPS will be affected in Q4. For Q4, we expect: Analog revenues to grow by around 9% y-o-y to about $2.5 billion as TI shifts an increasing proportion of analog production to the 300mm production facilities to cater to growing industrial and automotive markets. Embedded revenues are expected to grow to $900 million due to growth across product lines, Processors, and Connected Microcontrollers. Margins are set to grow again as the company continues to increase its production from its 300mm plants. Our Texas Instruments’ stock price estimate of $79 is below the current market price. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    IBM Logo
    IBM's Q4 Revenues Grow, One-Time Charges Lead To Net Loss
  • By , 1/19/18
  • tags: IBM
  • IBM  (NYSE:IBM) posted its Q4 results on January 18. For the first time in several quarters, IBM’s revenues grew as its systems division reported excellent growth amid the shift to cloud computing services. During the quarter, the company’s revenues grew by 3.5% to $22.5 billion while its consolidated gross margin declined by 185 basis points to 48.2% for Q4. Furthermore, the company reported a loss from continuing operations at $1 billion as a one-time charge of $5.5 billion associated with enactment of tax reform impacted profits. The stock price declined by 3% in aftermarket trading as the tax reform will actually increase company’s effective tax rate from 12% in 2017 to 16% in 2018, reducing its cash flows for the year. The highlights of the results are as follows: Revenues for Cognitive Solutions, which includes Solutions Software and Transaction Processing Software, grew by 3% to $5.4 billion. Both the annuity and transactional subsegments reported growth. Additionally, the SaaS business saw double-digit growth in signings and revenue during the quarter. Global Business Services, which includes consulting, global process services and application management, reported a 1.5% decline in revenues to $4.2 billion. However, the company expects revenues to improve in 2018 as its order backlog grew in 2017. Revenues for Technology Services & Cloud Platforms, which include infrastructure services, technical support services, and integration software, declined by 4% y-o-y to $9.2 billion. The company continued to witness robust growth for its cloud-based infrastructure services and this will drive revenue growth margins in the coming years Systems revenues, which includes systems hardware and operating systems software, grew by 28% to $3.3 billion as sales from the recently refreshed Z-systems grew by 71%. Additionally, Power servers reported growth in Q4 as the next-gen POWER9 system went on sale during the quarter. Storage hardware reported 8% growth in revenues driven by double-digit growth in high-end hardware product lines and all-flash array offerings. However, margins declined marginally compared to last year, consistent with product cycle dynamics. We have a  $151 price estimate for IBM, which is slightly below the current market price. See our full analysis for IBM See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology  
    HD Logo
    How Can A Change In Home Depot's EBITDA Margins Impact Its Valuation?
  • By , 1/18/18
  • tags: HD LOW
  • Home improvement giant  Home Depot  (NYSE:HD) has successfully managed to improve its EBITDA margin year after year, on the back of higher sales and increased productivity. Moreover, as the sales grow, the company is able to leverage the fixed costs, and thus expand its margins. Further, while its largest expense – payroll – increases with the growth in sales, it occurs at a slower rate, which is another factor that has driven its operating margin expansion. According to our estimates, the adjusted EBITDA margins have increased from 15.9% in FY 2013 to 18% in FY 2016. Going forward, we expect the margins to continue to increase, reaching the 19.5% mark by the end of the Trefis forecast period, due to further operating leverage as comps improve. We have a $187 price estimate for Home Depot, which is below the current market price. Two of the major factors that may improve the margins have been highlighted below: 1. Improving Same-Store Sales The company’s integration of its brick-and-mortar stores with its online channel has helped it immensely to remain popular with its customers and associates. Home Depot’s integrated retail strategy, which seamlessly connects online and offline channels, is making its stores more efficient, leading to higher revenues and profitability. The company has also observed improved customer satisfaction scores as it continues to invest in this initiative. The company has stated that 60% of all its sales, whether in-store or online, are influenced by a digital visit . HD’s online revenues have increased by approximately $1 billion in each of the last four years, with the online penetration reaching 6.4%, nearly double that of its nearest traditional competitor. The online channel has also been one of the driving factors behind the impressive growth rates the company has seen, contributing to 20% of HD’s growth over the past few years. While Home Depot has made a considerable effort in developing its omnichannel strategy, the core of the Home Depot experience is its stores. Hence, the company has made a substantial investment to keep them relevant, by improving the speed and convenience of a customer’s shopping experience, besides investing in capabilities to drive productivity and ensuring the timely availability of its products. The shift towards the online space will ensure increased digital revenues for Home Depot; meanwhile, its investments to keep its stores relevant will ensure sales growth from this avenue as well. 2. Supply Chain Enhancements Home Depot’s supply chain has been an immense source of value creation for its customers and shareholders, and can be considered one of the best in the industry. This has been achieved by making a considerable investment, in terms of time and resources, over the past several years. Home Depot has centralized its inventory planning and replenishment function and continuously improved its forecasting and replenishment technology. This has helped it improve its product availability and inventory productivity at the same time. At the end of fiscal 2016, over 95% of Home Depot’s US store products were ordered through central inventory management. In order to ensure timely availability of its products, the company has implemented initiatives such as Project Sync, which has enabled Home Depot’s warehouse workers to more quickly receive inventory delivered to distribution centers and stores. The company intends to pass on the savings achieved through this to the customers in the form of lower prices, and is a key to achieving the operating margin target as these efforts would help to optimize its end-to-end supply chain network and improve its inventory, transportation, and distribution productivity. However, the retail landscape is changing, with a consistent shift seen towards the online space. This would result in higher costs due to increased delivery and logistics expense. Moreover, the needs of its associates are also evolving, such as the requirement for flexible hours, higher wages and benefits, etc. These factors could result in a bump in the operating expenses. While the measures undertaken by Home Depot would ensure growth in the margins, higher levels of operating costs could result in a slower than expected growth in the EBITDA margins, reaching 18.5% by the end of 2024. This can result in a 5% downside to our valuation for Home Depot. On the other hand, if the housing market and home improvement industry continues to strengthen, and outpaces previously forecast growth estimates, it may result in the EBITDA margin touching 20.5% by the end of our forecast period. Such a scenario would boost HD’s valuation by over 5%. We have created an interactive model  that details how a change in the EBITDA margin can impact the valuation of Home Depot. You can modify the EBITDA margin driver to see how it can impact the valuation and price per share. See complete analysis for Home Depot’s stock Have more questions about Home Depot? See the links below. Improving Housing Trends Bode Well For Home Improvement Companies How Is Home Depot Keeping Its Stores Relevant Amid A Changing Retail Landscape? What Is Home Depot’s Growth Strategy For the Future? What Is Home Depot Doing To Ensure Continued Growth Online? Notes: Get Trefis Technology  
    EOG Logo
    Crude Oil Touches $70 Per Barrel – Is This A Turnaround?
  • By , 1/18/18
  • tags: EOG COP CHK APC
  • The new year seems to have brought good luck for the oil and gas industry. The commodity markets, that had been suffering from their worst-ever downturn over the last three years, appear to be finally witnessing a rebound. Within two weeks of the start of 2018, Brent crude oil prices have already jumped by more than 5%, crossing the $70-per-barrel mark for the first time since December 2014. Since the oil prices have surged despite the consistent growth in the US oil output, this is being viewed as a false alarm by some market experts. However, the bulls that are riding heavily on this recovery have strong reasons to stick to their stance. Here’s our take on the situation and why we believe that this could be the actual turnaround for the oil and gas markets. We currently forecast Brent oil prices to average at around $65 per barrel in 2018 . See Our Brent Oil Price Forecast Here OPEC Production Cuts Have Eased The Oversupply For the longest time, the Organization of Petroleum Exporting Countries (OPEC) held the position of a swing producer in the global oil markets, implying that the cartel could manipulate its oil output to suit the market situation because of their low cost of production. However, due to the excessive oil dependence of OPEC members, these countries have faced severe fiscal deficits over the last couple of years because of extremely low oil prices. As a result, the OPEC, along with some Non-OPEC members such as Russia, decided to pull back their oil output by 1.8 million barrels per day (bpd) from January of 2017 until March of 2018. Despite the skepticism about OPEC’s adherence to the cuts, the oil prices rose sharply to over $50 per barrel in the first quarter of 2017, from close to $26 per barrel in the same quarter of 2016. However, due to continued growth in the US oil output, the predicted recovery in oil prices stalled in the later months of the year. This forced the OPEC and its allies to revisit the duration and effectiveness of their production cuts. Consequently, the oil cartel, along with Russia and other Non-OPEC members, decided to extend the output reductions until the end of 2018. The news came as relief to the investors, causing the oil prices to reach the recent high of $70 per barrel. OPEC Supply To Remain Subdued Due To Production Cuts Rising US Shale Production – A Threat? One of the key premises of the OPEC’s production cut was to bring down the US oil inventories back to its 5 year average in order to reduce the oversupply in the markets. Interestingly, since the announcement of OPEC supply cuts in November 2016, the US oil inventories have dropped by roughly 7.5% to 1,883 million barrels, in line with the OPEC’s expectations. At the current level of inventories, it will take some time for the US shale producers to flood the markets and create a similar oil glut in the coming quarters. That said, the recovery in oil prices over the last year has allowed the US shale producers to reinstate their oil production, which had become non-profitable due to extremely low oil prices. Consequently, the US oil output has grown sharply over the last few months. To put things in perspective, the US oil production has increased from 8.69 million bpd in November 2016, to almost 9.78 million bpd at the end of 2017, representing a jump of more than 12% over the last year. With the extension of the OPEC production cuts until the end of this year, the market anticipates a further rise in the US output in the coming months. In fact, the US Energy Information Administration (EIA) expects the US output to grow at almost 11% in 2018, and estimates the country to surpass Saudi Arabia and Russia in oil production by 2019. Non-OPEC Oil Supply To Rise Backed By Growing US Production Although a surge in the US oil production cannot be ruled out, we believe that the US shale producers have learned their lessons from the ongoing commodity slump and have become more conservative over the last three years. Rather than flooding the markets with their shale output and causing the oil prices to decline, they are likely to plan their output expansion judiciously, conserving much of their cash flows for capital investments in the future years. Our Take Based on the above discussion, we believe that the OPEC production cuts have been effective in enhancing the oil prices so far. The oil prices have jumped over 40% since the first announcement of these production cuts. However, the rising US output continues to be a crucial factor in the determination of oil prices. We expect to see a steady yet moderate growth in the US output over the coming months. However, we believe that the OPEC as well as Non-OPEC members have already factored in the impact of the surge in US shale output as a result of these output cuts while deciding their production quotas. The cartel expects the oil markets to rebalance by the second half of 2018, taking the oil prices to the $65-$70 per barrel range over the next few months, ceteris paribus (all other things being equal). Thus, we figure that with the reduction in the US inventories and OPEC supply, the global oil markets will have enough elbow room to accommodate the growing US oil supply and will take some time to go into another downturn. Based on our estimates, we expect Brent oil prices to average at around $65 per barrel in 2018 and gradually increase to $90 per barrel by 2024. Feel free to create our own forecast for oil prices by altering the various demand and supply drivers using our interactive platform . Brent Oil Prices Are Expected To Average At $65 Per Barrel For 2018 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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    Guess' Growth Is Expected To Accelerate In Fiscal 2019 On The Back Of Its Successful Growth Strategies
  • By , 1/18/18
  • tags: GES ANN LB GPS
  • Guess (NYSE: GES) had a successful fiscal 2018 (fiscal year ends in January) so far, going by its performance over the first nine months of the fiscal year. The company’s pursuit of a strategy of expanding its presence in Europe and Asia while gradually decreasing its presence in its domestic American markets, is working in its favor. It has witnessed a quarter over quarter improvement in its performance in fiscal 2018 and the growth rate is expected to accelerate in the next fiscal year. Guess is currently witnessing double digit growth in Europe and Asia. For its customer base, it is mainly targeting the millennials and in order to do so, it is strengthening its digital presence and upgrading its omni-channel capabilities. Additionally, it is transitioning all its websites into a state-of-the-art responsive site, which will improve the user experience with faster speed and less navigation steps. It has recently partnered with marketplaces such as Tmall, JD, and vip.com in China, La Redoute and Otto in Europe, and Amazon in the U.S. and Canada in order to further build the omni-channel capabilities. We have a $17 price estimate for Guess which is in line with the current market price. Guess’ Market Specific Strategies Europe Guess’ profitability in the wholesale business is currently growing in Europe which is evident from the fact that despite not growing the number of wholesale dealers significantly over the past year, the revenues from the wholesale business kept growing. A few months ago, the company opened a new 625,000 square-foot distribution center in Venlo, in the Eastern part of the Netherlands. The distribution center will help Guess further with its supply chain management in Europe. Asia In mid-2015, soon after Guess’ current CEO Victor Herrero assumed his position, he announced his expansion plans in Asia. Herrero has been extremely successful in the past in building a $4 billion business from scratch for Inditex Asia. He plans on growing Guess in a similar fashion in the Asian markets. Towards that end, the company doubled its capital allocation for the Asian stores and the e-commerce business in Asia was strengthened by a greater presence on websites like Tmall, JD.com, and Guess.cn. The company’s double digit y-o-y growth in the Asian markets for the first nine months of fiscal 2018 was driven by a rise in store openings and comparable store sales (which included e-commerce sales as well). Americas Due to a lack of footfall in the brick-and-mortar stores, Guess had been suffering in the Americas, specifically in North America for quite a few years in the past. Hence, currently the company is gradually trying to reduce its footprint and increase its profitability in the region. Currently, the Americas contribute over 40% to Guess’ total revenues. The management plans on reducing this contribution to around 25% in the future and it plans on achieving a 7.5% overall long term operating margin in the Americas. To achieve these goals, the company is creating a better balance between the American retail and wholesale businesses, while closing stores, improving its product offerings, and building a stronger online presence through celebrity endorsements, marketing, and promotions.   Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Key Takeaways From Delta's Q4 Earnings
  • By , 1/18/18
  • tags: DAL
  • Delta Air Lines  (NYSE:DAL) reported a rather strong earnings, to finish off the year, last week. After posting a rather mixed Q3, the company managed to bring things back to speed this time around. Revenues and earnings per share in the quarter jumped significantly at 8.3% and 17.1%, respectively. Additionally, the company managed to post its most notable unit revenue growth figure in 2017. The key metric jumped to 4.4% in Q4. This uptick enabled Delta to post a solid profit despite facing significant cost headwinds.                       The company expects this to just be the beginning. In 2018, it forecasts that EPS would reach $6.35 to $6.70, up about 30% year over year. Revenues Revive Across The Spectrum Over much of the last three years, like its competitors, Delta Air Lines has witnessed unit revenues in many of its international routes erode. The sudden fall in the oil prices, the strengthening dollar, global economic weakness, and pricing pressures were the main contributing factors to this trend. That said, international unit revenue jumped by almost 5% in the latest quarter, growing quicker than its domestic unit revenue. In that respect, the company has managed to post positive unit revenues in every region of the world this time around. Of all the markets Delta operates in, the trans-Pacific market remained its weakest for over five years. While the growth in the region continued to lag overall, the company managed to post a significantly improved growth of 1.6% in unit revenues here. Meanwhile, unit revenues in all its other markets saw better-than-expected growth this time. Unit revenue rose by about 3.5% domestically, while the key metric saw increases of about 7.4% on transatlantic routes, and 4% in Latin America. This comes as great news, as a balanced performance is more likely to be sustainable than unit revenue growth driven by just one or two regions. Delta hopes this strategy will allow unit revenues to continue performing with a similar momentum in 2018 as well. Profits Could See A Jump Going Forward Delta’s profit gains in 2017 were largely offset by higher non-fuel cost growth. The company’s non-fuel CASM increased by a notable 4.3% for the full year. That said, it appears as though costs will dissipate in the coming months. The airline expects the March quarter to be its peak cost growth of the year, with unit costs jumping by about 2-4%. Through the second half of the year, non-fuel expense growth is expected to come down dramatically. In this respect, for the full year, the company hopes to achieve 0-2% non-fuel CASM growth. Here’s why: The company will lap the costs that it began incurring last year with a 6% April employee pay increase. Depreciation is expected to come down significantly in the second half of the year. To make sense of this, depreciation for the full year is expected to be up by about $250 million, with almost 80% of that increase coming in the first half of the year alone. Additionally, maintenance expenses are also weighted towards the first half of the year as the company gears up for summer flying and certain aircraft extensions, driven by the result of delays and deliveries of the C Series. Further, at the latest investor day, the company announced that a reduction in the statutory corporate tax rate, from 35% to a much lower 20%, is expected to boost the estimate EPS figure by close to $1-1.25. The statutory rate has been set at 21%, so Delta will get most of that projected savings. The charts above have been created using Trefis dashboards . View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research  
    TRIP Logo
    Here Are Some Of The Factors That Might Continue To Weaken TripAdvisor's Performance In 2018
  • By , 1/18/18
  • TripAdvisor (NASDAQ: TRIP) had a disappointing 2017, as indicated by its first nine months’ performance. The company’s non-hotel segment performed significantly better than its hotel segment, despite its huge spending on TV ads in 2017 (around $60 million), after a two  year-hiatus from the television advertising space. TripAdvisor failed to gain traction for its Instant Booking platform since its launch in 2014. While focusing on the platform, the company also lost some of the demand on its metasearch platform. Over the last few months, the company has been striving to bring back the focus on its metasearch features through its TV advertisements. However its softer-cost-per click in both the second and third quarter of 2017 suggests that its bigger clients like Priceline and Expedia might not be competing too aggressively for top slots on its pages. This doesn’t bode well for TripAdvisor as it derives over 70% of its overall revenues through its hotel segment and hence the segment’s revival is crucial for its growth. We have a $35 price estimate for TripAdvisor which is in line with the current market price. TripAdvisor’s Performance Might Continue Being Dampened Because Of A Few Factors Almost 50% of TripAdvisor’s advertising revenues come from the two OTA giants Priceline and Expedia. However, both these companies have started relying less on TripAdvisor’s metasearch platform and have instead switched to either their own and other metasearch engines, or to more ads via TV. Like TripAdvisor, Priceline has also decided to get back to TV advertising in a big way for its biggest brand, Booking.com. With an aim to bring in more direct booking customers on to its platform and raise awareness about its other accommodation offerings such as vacation rentals, Priceline aired its TV ads in 30 countries by the end of 2017, thereby significantly expanding its presence from the 12 countries in which those were aired in 2016. Priceline and Expedia might also be feeling uncomfortable with their margin erosion that results due to spending a huge amount to maintain a top position on a digital advertiser’s page and hence they decided on switching loyalties. Along with this, comes the bigger issue of TripAdvisor’s direct competition with its OTA clients. Its Instant Booking platform has placed the company as a rival for OTAs like Priceline and Expedia and it is only natural that they don’t want to spend their money on their rival’s platform. Additionally, both Priceline and Expedia have their own metasearch engines, so even if these OTAs are spending on digital ads, they can focus more on their own metasearch sites. This might not spell a very optimistic future for TripAdvisor. Hence, currently both TripAdvisor’s metasearch and Instant Booking platforms seem to be suffering. Finally, the possibility of the arrival of  blockchain  might minimize the metasearch demand by minimizing the flaws in the distribution system, something that helps these engines generate revenues. All these factors together might continue dampening TripAdvisor’s performance this year and we need to wait and watch how TripAdvisor addresses these issues.     See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    AA Logo
    Alcoa Q4 2017 Earnings Review: Higher Commodity Prices Supported Earnings Amid an Environment of Higher Input Costs
  • By , 1/18/18
  • tags: AA RIO
  • Alcoa Corporation (NYSE:AA) released its Q4 2017 earnings results and conducted a conference call with analysts on January 17 . As anticipated, higher global aluminum and alumina prices drove a significant improvement in the company’s results. The prices of both these commodities have benefited from production curtailments in response to alarming levels of pollution in China. However, higher input costs weighed on Alcoa’s earnings, consequently resulting in missing market expectations. We have summarized Alcoa’s Q4 earnings and detailed the major takeaways from the announcement in our interactive dashboard, the key parts of which are captured in the charts below. Alumina Segment Remained a Major Highlight in Q4 China’s industrial curtailment has been a pivotal factor in driving alumina prices in Q4. Although aluminum production cutbacks have not been as drastic as anticipated which weighed on aluminum prices in Q4, alumina cuts on the other hand remained substantial leading to a  widening demand-supply gap for the metal. Alcoa states that the Chinese winter heating season in 2017 to 2018, experienced a total curtailment of 3.5 million tons of alumina refining capacity while aluminum smelting capacity were cut by 0.9 million tons . This led to a higher price realization for alumina and benefited the alumina business segment of the company. Third party alumina shipments represented 67% of the total production volume. Alumina is used as a primary raw material in aluminum production. Higher alumina prices have thus resulted in a rise in raw material cost for the company coupled with higher-than-expected energy costs which weighed on earnings. Despite missing market estimates by $.18/ share, we believe that the company displayed a strong performance throughout 2017, given its first full year of operation as an independent listed company. Going forward, the company’s objective of increasing its cash flow and initiating measures to increase shareholder returns would continue to support the growth in its stock price. We have a $42 price estimate for Alcoa which is currently below the market price. Have more questions about Alcoa? See the links below. Here’s What to Expect from Alcoa’s Fourth Quarter Results Alcoa’s 2017 in Review Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    MSFT Logo
    Microsoft's Path To A $1 Trillion Market Cap
  • By , 1/18/18
  • tags: MSFT
  • Microsoft’s (NASDAQ:MSFT) stock recently hit an all-time high, and its market capitalization reached over $700 billion. Some analysts on Wall Street have recently predicted that the company’s market cap could reach $1 trillion in the coming years, on the back of the increasing popularity of its cloud services across the Productivity and Intelligent Cloud businesses. We have created an interactive dashboard  which illustrates the growth and margin improvements across the company’s divisions that would need to occur in order to reach this valuation. You can modify assumptions such as projected revenue and margins to see how the valuation changes. We currently have an  $87 price estimate for Microsoft, which is in line with the current market price. Productivity And Business Processes Business To Power Valuation Microsoft’s Productivity and Business Processes revenues, which include the Office suite, Dynamic CRM and ERP and LinkedIn, has grown from $27 billion in 2014 to $30.5 billion in fiscal 2017, primarily due to the growth in Office 365 cloud services and Dynamics cloud software. Currently, we project those revenues to improve to $45 billion by the end of our forecast period as the company continues to strengthen its presence in the rapidly growing productivity market through sales of cloud-based Office 365. However, as Office 365 and Dynamic cloud are witnessing robust adoption, it is possible that that the actual performance will exceed our forecasts. While Office 365 commercial seats grew by 40% from 85 million in 2016 to 120 million active users in 2017, Dynamics software revenue grew by 8.3% in first three quarters of 2017. Considering this growth across these two verticals, it is possible that revenues from this segment could grow to $60 billion by 2024 if this rate of growth is maintained. Furthermore, operating margins in 2017 declined to historic lows as the company completed the acquisition of LinkedIn, which negatively impacted margins due to an acquisition-related operating loss of $361. While we expect margins to improve to 42.5% by the end of our forecast period as the company is increasingly selling more cloud subscriptions compared to perpetual licenses, the margins could improve even more – to above 52% – as hosted solutions are generally higher-margin in nature than the traditional suite. An increasingly favorable sales mix could boost margins even more than we forecast. Cumulatively, the superior growth in revenues and margins will result in an upside of $186 billion, or $24 per share, to our existing valuation.   Intelligent Cloud Still Growing While Microsoft’s server products such as Windows Server OS and MySQL were a gold standard in the industry, its cloud platform Azure has been a relatively late entrant in the infrastructure- and platform-as-a-service (IaaS and PaaS) market.  Azure is gradually catching up with incumbent Amazon AWS, and its market share has inched up to 10% recently. The company continues to add capabilities such as AI to its Azure hybrid cloud offering, and as a result Azure is fast emerging as an attractive platform for Microsoft’s clients for Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) solutions. Based on these trends, we expect this segment to become an important driver of Microsoft’s value in the coming years. While in our base case scenario, we project revenues to grow to $37.4 billion, increased adoption of Azure platform could boost the revenues for this division even further to $55 billion by 2024. Microsoft’s clients are increasingly adopting the Azure platform for their IaaS and PaaS needs. This will not only result in revenue growth but also margin expansion in the coming years, as many services can be rolled into a value-added bundle through the platform. While we project operating margins to improve to 35% by 2024 as the cloud service ARR grows in the coming years, it is possible that the margins could rebound to the historical average of 40% due to better cost control measures and increased automation in this segment. Cumulatively, this growth in revenues and margins would lead to an upside of $138 billion, or $18 per share, to our existing valuation. PCs Still Likely Report Tepid Growth Microsoft’s Personal Computing division did fairly well in 2017, largely due to the adoption of Windows OS, the launch of its Surface line of devices and growth in Bing’s online search ad revenues. Still, the revenues declined by 4% in fiscal 2017 to $38.7 billion due to secular pressures. While we expect that Windows OS sales for both Windows OEM non-Pro and Pro will continue to outperform PC sales in the coming years, the secular decline in PCs will continue to impact revenues. As a result, we project revenues from the PC division to grow marginally to around $38 billion by 2024, aided by growth in revenues from Xbox, the Surface line of devices and Bing search. If revenues were to grow to $42.5 billion by 2024 and margins were to improve slightly to 25.5% due to the popularity of Windows OS and hardware devices, the upside to our valuation would be $2.5 billion, or 80 cents per share. These Scenarios Could Cumulatively Lead To $1 Trillion Market Cap Should all of the above scenarios come to fruition – which seems relatively unlikely in the near term – Microsoft could certainly see a path to a $1 trillion market cap in the coming years. Even if they don’t, the company is clearly well-positioned for strong long-term growth. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    SCHW Logo
    Key Takeaways From Charles Schwab's Q4
  • By , 1/18/18
  • tags: SCHW ETFC AMTD
  • In continuation with its strong performance over the first three quarters of 2017, Charles Schwab  (NYSE:SCHW) reported another impressive quarter to end the year on a high note. Interest earning assets continued to be the primary growth driver, aided by the Fed’s interest rate hikes, while assets under management also saw growth. The company’s digital advisory arm, Schwab Intelligent Platform, and strong position in the ETF market drove a nearly 8% increase in earnings from the segment. A rise in trading volumes partially offset the losses the company saw due to a price cut in trading commissions. Operating expenses grew nearly 12% in comparison to the prior year comparable period, due to higher compensation and infrastructure spending to cater to the expanding customer base. However, an even stronger 14% revenue growth led to an improvement in operating margins. Our price estimate for Charles Schwab’s stock stands at $42, which is below the market price. Below we discuss some of the key factors which impacted the brokerage’s earnings. Interest Earning Revenues Continue To Boost Top Line  Interest earning assets account for nearly half of Charles Schwab’s revenue. These assets saw over 8% growth along with a 29 basis point increase in yield, resulting in over 26% growth in the segment’s revenues. With the Fed’s indication of rate hikes in the year ahead, we expect the growth momentum to sustain through the year. You can modify our forecasts for the asset base and yield on assets in our  interactive dashboard to assess their impact on revenues. Digital Advisory, New Products Helped Assets under management generate around 40% of Charles Schwab’s revenue, and the segment saw around 8% revenue growth. The company has introduced many ETFs over the past few years and is among the top ETF providers in the U.S. In addition, the company’s robo-advisory services have helped attract more investors, given the lack of advisory fees and enhanced customer support for portfolio management. The company has focused on its client engagement and advisory services and consequently expanded its customer base, which bodes well for its future growth. Trading Volumes Recovered But Revenues Declined Due To Cut In Commissions The fourth quarter saw a nearly 24% decline in trading revenues amid falling revenue per trade, which can be primarily attributed to the company’s decision to slash its commissions to $4.95 per trade. However, the quarter saw a significant recovery in trading volumes (+18% y-o-y), which helped offset some of the losses from the price cut. 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
    LEA Logo
    How Growing Demand For SUVs and Crossovers Can Aid Lear Corporation’s Business
  • By , 1/18/18
  • tags: LEA HOG F GM
  • Demand for SUV’s and Cross-overs has increased steadily over the years and the share of these vehicles in the global market is likely to increase to 35% by 2021 from 13% in 2016. Crossover was the biggest segment in the US car market in November 2017. This trend towards bigger and premium cars is likely to benefit Lear Corporation  (NYSE:LEA). Bigger cars such as SUVs and Crossovers command premium content per vehicle (premium/ additional seating and more advanced electric content) leading to higher revenues for Lear. Content per SUV is estimated at $1,000 as against $700 average content per vehicle. This trend is likely to positively impact Lear Corporation’s revenues. Our interactive model analyses the impact of an accelerated growth in revenues of both its segments on Lear Corporation’s valuation. You can click here to access this model and modify the charts below:   Our base case assumes a steady growth in the revenues of both the Seating segment and the E-Systems segment of Lear Corporation. However, an accelerated growth in revenues — higher growth by 100-300 bps — can significantly impact the valuation of Lear Corporation and lead to a nearly 10-15% upside in our price estimate.  The shifting vehicle portfolio in favor of SUVs and Cross-overs can act as a catalyst for Lear Corporation’s revenue growth. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research  
    HPQ Logo
    HPQ Sensitivity Analysis: How Changes In PC Market Share Can Impact HPQ’s Value
  • By , 1/18/18
  • tags: HPQ
  • Despite secular declines in the PC hardware industry, HP Inc.  (NASDAQ:HPQ) has managed to steadily outperform the market due to new launches in the premium segment, catering to both consumer and commercial clients. HP’s market share in the PC market has improved by 180 basis points y-o-y to 22.7% in 2017 . Additionally, the company  reacquired the #1 spot in the global PC market in 2017, according to IDC. When looking at HP’s stock, it is important to understand how changes in market share can impact the company’s share price. We have created an  interactive model  that details how changes in market share in the PC market can impact HPQ’s market price. You can modify assumptions such as earnings multiples, margins, average sales prices and others to see how the dynamics of market share/market price sensitivity change. Our price estimate for HPQ stands at  $18, which is 20% below the market price. In 2017, HP has launched a host of new PCs such as the Spectre portfolio and Omen X gaming laptop. These new launches helped the company post an increase in shipments in 2017 despite a decline in the global PC market. The company continues to include value-added features to HP’s existing product line, which should help the company to not only improve its share in the PC market but also improve the ASPs for its laptops. This would also improve the company’s margin profile. A 1% increase in projected market share would boost HPQ’s price estimate by around 0.65%.
    MSI Logo
    How The Services Segment Can Drive Value For Motorola Solutions
  • By , 1/18/18
  • tags: MSI NOK ERIC
  • Motorola Solutions’  (NYSE:MSI) bread-and-butter land-mobile radio sales to U.S. government agencies could come under pressure over the long run, with the U.S. government looking to create an alternative, interconnected communications platform for first responders called FirstNet. However, Motorola is looking to counter this by improving sales of its services operations, which provide  end-to-end solutions ranging from implementation and optimization to repairs, support, and hardware maintenance. Over the first nine months of 2017, Motorola Solutions’ services revenues rose by about 9% year-over-year to $1.88 billion, while its product sales grew by less than 5%. Although services revenues are tied to hardware sales, we believe that Motorola should be able to grow services revenues as a percentage of hardware sales in the long run, driven by acquisitions in the managed and support services space and growth in software sales. Software sales in particular could add value for Motorola, given their higher margins and ability to drive customer loyalty via platform lock-ins. For example, Motorola is looking to double down on command center software, which is used for emergency call handling. We have created an interactive analysis that determines how stronger services and particularly software sales could impact Motorola’s valuation. If we assume that service revenues as a percentage of product sales rise to about 85% by 2024, up from our base case of 70% of product revenues, with services gross margins rising to about 40%, up from our base case of under 35%, there could be an upside of close to 20% to our price estimate. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research