A unique interactive experience

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


COMPANY OF THE DAY : ADOBE

Adobe reported solid fiscal Q2 earnings, with a 24% increase in revenue driven by subscription revenue growth.

See Complete Analysis for Adobe
Screenshot of forecast demo
To use this tool, please upgrade Adobe Flash Player here.

FORECAST OF THE DAY : KIMBERLY-CLARK'S CONSUMER TISSUE PAPER MARKET SHARE

Kimberly-Clark's global consumer tissue paper market share has been declining in recent years, driven by competitive pressure from international markets and private labels.

Read more...
Screenshot of forecast demo
To use this tool, please upgrade Adobe Flash Player here.

RECENT ACTIVITY ON TREFIS

Is The Market Pricing Mondelez Inc Fairly?
  • By , 6/15/18
  • tags: MDLZ
  • Mondelez International Inc  (NASDAQ: MDLZ),  is one of the world’s largest snacks companies. During the recent annual earnings the company’s revenue declined by 0.1 % for the full year, with sales for 2017 at $25.8 billion, impacted by divestiture and the malware incident.  At the same time, Mondelez delivered a strong year of margin expansion and earnings growth, marking significant progress from four years ago. This growth in margins was fueled by their Power Brands and favorable trends in emerging markets. The strength of these businesses is enabling the company to grow profitably despite the pressures of a persistently challenging retail environment.  For 2018 the management is focused on execution, ongoing improvements in top-line growth, and continuing actions to expand margins. The company is working on developing their long-term strategic plan for sustainable growth, by optimizing and accelerating their  strengths to create more value for their consumers, customers, communities, colleagues, and shareholders. The P/E multiple is also forecast taking into account the historical data and its likely trend. Detailed steps to arrive at our price estimate are outlined in our  interactive dashboard .  You can modify our assumptions to arrive at your own price estimate for the company.  
    C Logo
    Upbeat Card And Commercial Real Estate Lending Drive Growth In Bank Credit In The U.S.
  • By , 6/15/18
  • tags: BAC C JPM USB WFC
  • The Fed’s ongoing rate hike process has hurt loan growth across U.S. banks, with demand for commercial and industrial loans remaining subdued for nearly two years now. Add to this the fact that the mortgage industry slumped in Q1 to well below the already low levels seen in the last three years, and that explains why total loans across commercial banks have only grown by 4% year-on-year since Q1 2017 – in sharp contrast to the double digit loan growth reported by the industry nearly each quarter over 2014-16 thanks to record low interest rates. But a couple of loan categories stand out as they continue to witness strong growth despite rising interest rates: credit card loans and commercial real estate (CRE) loans. While CRE loans have been among the strongest growing loan categories since late 2012, card loans across U.S. banks swelled the most over the last four quarters. This trend is attributed to an increase in risk appetite among consumers, who have started to add debt given the strong economic outlook . This is a welcome development for the banks, as it should gradually see loan growths improve across categories in the near future. We capture the trends in loans and deposits for each of the five largest commercial banks in the country – JPMorgan Chase,  Bank of America,  Wells Fargo,  Citigroup,  U.S. Bancorp  – through interactive dashboards, while also detailing the impact of changes in these key factors on their share price. * Credit card loans include unsecured revolving credit, while retail loans include auto loans, student loans and other secured consumer loans. Other loans primarily include loans to financial institutions, to foreign governments, and for agricultural purposes. As shown above, mortgages, commercial loans and CRE loans now represent roughly equal parts of the total portfolio of loans across U.S. banks (~23%) – with outstanding mortgages falling the most in proportion (from over 30% in 2011). The U.S. banking industry grew by just 4% between Q1 2016 and Q3 2017. While card loans grew by 7.3%, CRE loans followed with gains of 5.6% year-on-year. In subsequent articles, we will highlight the changes in the loan portfolio of the five largest U.S. banks over recent quarters, while also detailing the relative importance of individual loan categories to the business model of these banks. Details about how changes to key Loan and Deposit parameters affect the share price of the five largest U.S. commercial banks can be found in our interactive model for  JPMorgan Chase  |  Bank of America  |  Wells Fargo  |  Citigroup  |  U.S. Bancorp What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own  
    TRV Logo
    What Are Travelers' Key Sources of Revenue?
  • By , 6/15/18
  • tags: TRV
  • Travelers  (NYSE: TRV), one of the leading property and casualty insurers in the U.S., operates three primary businesses – Business Insurance, Personal Insurance, and Bond & Specialty Insurance. Below, we expand on these businesses, their historical performance, and our expectations going forward. Business Insurance, the largest division, provides property and casualty insurance products and services to various industries across the world. The solutions include commercial auto and truck insurance, workers compensation, property insurance, and cyber liability insurance solutions. In the U.S., the company caters to the needs of markets ranging from Select Accounts to National Properties. The business is also prevalent in Canada, UK, Ireland, and Brazil. It contributes to about 57% of Traveler’s revenue and saw 1.6% growth in 2017, on account of NWP growth in select account and middle market. Personal Insurance  encompasses property, auto, and liability insurance to individuals and households in U.S. and Canada. Over the last few years, this division has been the stand-out performer for the company. The 9.4% growth in 2017 was driven by higher renewal rates, increased business volumes, and improved pricing. As a result, net written premiums grew by 9%. Meanwhile, the business generated higher investment income from short-term securities. Bond & Specialty Insurance  covers payment and commercial surety for construction and general enterprises, management liabilities, and professional liabilities. This business has remained fairly stable over the past few years, with 2017 experiencing a steady 1.5% revenue growth. We have created an  interactive dashboard analysis  that shows Travelers’ key revenue sources and the expected 2018 performance. You can adjust the revenue drivers to see the impact on the overall revenues, EPS, and price estimate. Personal Insurance Business To Continue On Its Upward Trend Personal Insurance has been a strong contributor to the company’s top line in the past few years, and we expect this trend to continue in the upcoming year. Pricing increases in the Automobile category and Policy-In-Force (PIF) growth in the Homeowners category will likely drive the growth in this segment. Meanwhile, the company has  recently launched Quantum Home 2.0, a homeowners insurance product that provides flexible coverage options. The product was initially launched in select states, but the company plans to gradually roll out the product in several states later in the year. This should provide a boost to the company’s top line, as the product has been gaining traction amongst the customers. Moreover, with personal property insurance prices potentially set to rise in 2018, largely due to catastrophes in 2017, Travelers should experience moderate growth in net written premiums. Business Insurance Could Experience Slight Pressure; Bond & Specialty To Generate Stable Revenues As per NOAA’s (National Oceanic and Atmospheric Organization) prediction, which has been reliable in the past, the number of hurricanes could be lower than the last year. While this bodes well for insurers because of lower expected catastrophe losses, it also means that product pricing could go down, thereby negatively impacting the net written premiums. This, along with the fact that the company’s performance in National Accounts and National Property market has been on a decline over the past few years, will likely offset the growth in Select Accounts and Middle Markets. However, a large part of the company’s fixed income portfolio is in investment grade, which helps the company to generate stable investment income, and we expect this to continue in the coming years. We maintain our $147 price estimate for Travelers, which is ahead of the current market price. Disagree? Detailed steps to arrive at Travelers’ price estimate are outlined in our  interactive dashboard,   and you can modify our assumptions to arrive at your own estimate for the company. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    ALK Logo
    How Sensitive Is Alaska Air's Price To Oil Prices?
  • By , 6/15/18
  • tags: ALK DAL LUV AAL JBLU UAL
  • The slump in commodity prices that began in mid-2014 led to a reversal in the profitability of the US airline industry. Since fuel costs are the single largest operating cost for an airline, the sharp drop in oil prices has augmented the earnings of these airlines over the last few years. The airlines, in turn, have utilized the increased profits to revamp their operating fleet as well as balance sheet to return higher value to their shareholders. However, the recovery in crude oil prices over the last few quarters has resulted in a decline in the profitability of these airline companies. In this note, we show how a change in crude oil prices can impact the profitability as well as valuation of Alaska Air (NYSE:ALK) using our interactive dashboard . Higher Oil Prices Could Pull Down ALK’s Price Since fuel costs are the major operating costs of an airline, a marginal change in crude oil prices can significantly impact its operating expenses, and, in turn, its earnings. However, airlines are aware of the volatility in crude oil prices, and consequently, hedge a large portion of their annual fuel consumption at lower oil prices in order to maintain their margins. Based on our analysis and company guidance, we believe that a $1 per barrel rise in the crude oil price could result in a 0.82% increase in Alaska Air’s fuel cost. For instance, if the oil prices jump $5 per barrel higher than our base case estimate of $65 per barrel, it will cause the airline’s fuel expense to shoot up by 4.1% (blue bars). This will cause the airline’s net income margin to drop sharply, resulting in lower earnings per share. Now, if we assume a P/E multiple of 12x for Alaska Air, we arrive at a price estimate of $59 per share, which is roughly 9% lower than our base case price estimate of $65 per share . Thus, we figure that Alaska Air’s valuation is sensitive to the movement in oil prices. Do not agree with our forecast? Create your own price forecast for Alaska Air by changing the base inputs (blue dots) on our interactive platform .  
    BSX Logo
    A Quick Snapshot of Boston Scientific's MedSurg Segment
  • By , 6/15/18
  • tags: BSX ABT ISRG
  • We estimate that the MedSurg segment constitutes over 30% of  Boston Scientific ‘s (NYSE:BSX) value. This division includes medical devices designed and manufactured for Endoscopy, and Urology & Women’s Health. Neuromodulation was also part of this segment until recently, but the company has now included this in its Rhythm Management segment. The MedSurg segment has been doing well in the recent past, primarily led by its Urology, and Women’s Health. Looking at the Endoscopy, the company has made a number of acquisitions to strengthen its product portfolio in recent years. We have created an interactive dashboard highlighting the company’s MedSurg segment. You can adjust revenue drivers and margins for 2018 and 2019 to see how it impacts the company’s overall revenues, earnings, and price estimate. Below we discuss our expectations and forecasts for the segment. Expect MedSurg Segment To Grow In High Single Digits In The Near Term We believe that the segment’s sales will grow at an average annual rate of 9% in the near term. This growth should be driven by both Urology & Women’s Health, and Endoscopy. The company’s next-generation endometrial ablation system has been successful in bringing in new business and should continue to do so in the near-term. Also, the company’s acquisition of American Medical Systems’ Urology portfolio in 2015 has expanded the segment’s sales significantly since then. In fact, Urology & Women’s Health revenues surged 45% in 2016, and grew in double digits in 2017. We expect it to continue to grow in low double digits in the near term. In the longer run though, an aging population in Europe and the U.S. will likely bode well for sales of urological devices. For a variety of reasons patients generally prefer minimally invasive medical procedures. As newer, minimally-invasive products are introduced, it should drive global sales. It should also be noted that the global urology devices market is expected to grow at a CAGR of a little over 5% during 2018-2022, according to a research report . Looking at Endoscopy, the company is benefiting from its Spyglass, a visualization system to treat Pancreatico-biliary diseases. The company also expects to launch several other products over the next few years, which should help in increasing its market share. The worldwide endoscopy devices market is expected to grow at over 6% annually, and exceed $35 billion by 2022, according to a research report . There has been a consistent increase in the incidence of cancer, gastrointestinal diseases, and other chronic diseases, which can be attributed to the aging population, growing incidence of obesity, and lifestyle related factors. Additionally, the improvement in visualization and diagnosis technology, accompanied by higher awareness of advantages among medical professionals, is driving the demand. The market is dominated by flexible endoscopes, and this is likely to continue because of the variety of conditions these endoscopes are used for. Boston Scientific has several products in this category, and we believe this will likely drive Endoscopy revenue growth in the coming years.   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    BBY Logo
    What Is Driving Our $74 Price Estimate For Best Buy?
  • By , 6/15/18
  • tags: BBY WMT TGT AMZN
  • Best Buy (NYSE:BBY) had a fairly strong fiscal 2018 (ended January 2018), as the company’s performance was mostly above its guidance and market expectations. The retailer is executing on its strategy to cut costs, optimize square footage, grow online sales and stabilize its revenue stream. The company returned to real growth in fiscal 2018, with revenue growth of 7% y-o-y to around $42 billion, primarily driven by an enterprise comparable sales increase of nearly 6%. This growth followed largely flattish revenue growth in previous fiscal years. Accordingly, we expect the company to benefit from its growth momentum in fiscal 2019 as well going forward. We recently revised our price estimate for Best Buy upward to $74, which is about in line with the current market price. This was on account of higher expected revenues relative to our previous forecasts. We have kept our net income estimate constant at $1.6 billion in fiscal 2019 and decreased the average share count slightly to 3 billion, implying EPS of around $5.06. Further, we have also increased our trailing twelve-month P/E multiple for the company to 14.6 from a previous 12, which – when combined with the estimated EPS – gives us price estimate of $74. Our interactive dashboard  details our forecasts and estimates for the company. Below we outline the key drivers of our price estimate. Overview Of Estimates We expect Best Buy to generate around $42 billion in revenues in fiscal 2019, and earnings of almost $1.6 billion. Our revenue forecast of $42 billion represents a year-on-year decline of around 1%. Of the total expected revenues in 2018, we estimate $38 billion in the Best Buy U.S. business and almost $4 billion in the Best Buy International business. It should be noted that Best Buy closed  its 250 small mobile stores across the U.S., and therefore, we have excluded these numbers from our forecast. In addition, the company also expects these mobile store closures to negatively impact full-year fiscal 2019 revenue by approximately $225 million, with a flat to slightly positive impact on its operating income. Best Buy continues to expect an enterprise comparable sales growth of flat to 2% in fiscal 2019. The retailer’s investments in specialty labor, supply chain and increased depreciation related to strategic capital investments and ongoing pressures in the business, including approximately $35 million of lower profit share revenue, will be partially offset by a combination of returns from new initiatives and ongoing cost reductions and efficiencies. Best Buy  Operating Divisions Forecast We have calculated Best Buy’s total revenue in fiscal 2019 by estimating the revenues from the company’s domestic sales, international sales, and other standalone store sales. Further, we have calculated the retailer’s divisional revenues by estimating the number of stores, square footage per store and revenue per square foot in fiscal 2019. We expect Best Buy’s 2019 store count in the U.S. to be just over 1000, with an average square footage per store of 39k and revenue per square foot of $975, translating into $38 billion (flat y-o-y) in domestic revenues in fiscal 2019. In addition, we also expect close to 215 stores in international markets, with an average square footage per store of 21k and revenue per square foot of $853, translating into $3.9 billion (+1% y-o-y) in international revenues in the same period. On similar lines, we expect other standalone store revenues to reach $400 million (flat y-o-y) in fiscal 2019, with 28 stores, 26k square footage per store and $509 of revenue per square foot. Best Buy saw its stock gain nearly 60% in fiscal 2018, and much of the growth was due to the company executing a turnaround plan called “Renew Blue” – which has now entered into growth phase after completing its turnaround phase. The consumer electronics giant has made major investments in the online business that have paid off, and shown considerable improvement in its comparable sales growth. However, the retailer’s aggressive push to keep up with online retailers such as Amazon (by investing in people and technology) is leading to pressure on margins. Going forward, we expect the company to grow, albeit at a slower pace than that of fiscal 2018. The company’s stock is up more than 5% year-to-date as of June 15. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    SNAP Logo
    How Snap Is Eyeing Facebook's Turf With New APIs
  • By , 6/15/18
  • tags: SNAP GOOG FB
  • Snap Inc.  (NYSE:SNAP) is offering a public application programming interface (API) called Snap Kit, in a move that would open the app up for developers who can now leverage the company’s platform to log in to apps, post information from other apps to Snapchat and export bitmoji. With the move, Snap is looking to increase the influence of its social network across the internet, much like rival Facebook, which has used such tools to become a fixture across multiple websites and apps. To begin with, Snap has launched 4 APIs that include a login API – which allows users to use their Snapchat username to create accounts on other apps and websites – and a Snap camera API, which lets people share things from other apps to their Snapchat Story. Snap also launched an API that allows users to use its bitmoji in other apps. Another API will allow developers to use public Snaps to create Stories on third-party apps or websites. Below, we take a look at how the move could impact Snap. We have also created an  interactive analysis   outlining our expectations for Snap over 2018. You can modify the drivers to arrive at your own price estimate for Snap. How The APIs Help Snap  The new API could help Snap in multiple ways. The Snapchat login tool could help the company improve its customer stickiness, making their Snap username a keychain of sorts for multiple apps and websites, reducing their incentive to leave the platform. This API effectively makes Snap part of the internet infrastructure, much like Facebook and Google, who offer similar services to save consumers the hassle of remembering usernames and passwords and going through the laborious account creation process. The other APIs could also help to make Snap more useful to users, while potentially allowing the company to grow its brand recall with people who don’t currently use its app. For instance, if users start to see Snapchat stories on other media websites (much like Twitter’s tweets), it could help improve the visibility of the app, driving more user adds. Snap is looking to avoid the privacy-related pitfalls experienced by Facebook, which faced a huge backlash after it shared too much user data to a third party service via its API. For instance, the company is looking to only give developers access to a person’s Snapchat username, holding back other demographic information and friends list data. Snap has also indicated that it intends to manually review all its API partners. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    The Boston Red Sox Will Be Worth At Least $3 Billion By The End Of The 2018 Season
  • By , 6/15/18
  • tags: DIS BOS NYY BAL TB TOR
  • The latest edition of Forbes’ annual valuation of Major League Baseball (MLB) teams values the Boston Red Sox at $2.8 billion – making it the fifth most valuable baseball team. While the Red Sox are a financially strong organization with a ranking of #4 in the MLB in terms of revenues – after the Yankees, Dodgers and Cubs – and #3 in terms of operating income – after the Cubs and Phillies – the team’s comparatively lukewarm performance over the last two seasons has weighed on its valuation – dragging the club down two spots from the #3 position in 2017 (after the Yankees and the Dodgers). The Red Sox have had a good run so far this season, and could potentially go on to win the World Series this year (which generally boosts revenues and valuations). But either way, we estimate that the  team’s value should cross $3 billion for the first time by the end of this year . We arrive at this figure using our interactive dashboard model for the Boston Red Sox, which captures trends in the club’s revenues over recent years and forecasts our expectations for key revenue drivers in the future, as detailed below Gate Receipts We forecast gate receipts for 2018 through two components: Regular Gate Receipts, and Premium & Postseason Gate Receipts Regular Gate Receipts:  This represents the team’s gate receipts from selling tickets to regular seats for all home games in a season. These revenues, in turn, are dependent on: Average Ticket Price, which is the average price a fan pays to buy a ticket to regular seats at Fenway Park. This figure is compiled annually in  Team Marketing reports, and has increased from under $50 in 2013 to almost $56 in 2017. With the Red Sox raising ticket prices by 2.5% for the 2018 season, the average figure this year is forecast to be almost $57. Average Attendance per Home Game, which will largely depend on how well the team performs (though they regularly sell out games regardless). The attendance has largely hovered around 36,000 over recent years – or roughly 96% of Fenway Park’s capacity of ~37,500. As the team is performing well this season, we expect attendance should be above average. Accordingly we forecast an average attendance figure of 36,400 for the 81 home games. Taken together, this works out to revenue of $168 million for the Red Sox in the form of regular gate receipts this season, as shown in the chart below. Premium & Postseason Gate Receipts:  This represents the team’s gate receipts from selling tickets to premium / club seats for all home games in a season, as well as the total gate receipts from postseason games. While the premium gate receipts are correlated with regular gate receipts each year, the postseason gate receipts depend completely on whether the team makes the playoffs and how it performs. Clearly, the two teams making it to the World Series will generally have played more postseason games compared to any other team in the MLB, so postseason gate receipts will therefore be generally higher for more successful teams. We forecast premium & postseason gate receipts for a year as a percentage of regular gate receipts, as shown in the chart below. Notably, postseason gate receipts for the Red Sox spiked in 2013 when they went on to win the World Series – resulting in these receipts being almost 27% of regular gate receipts. On the other hand, a poor showing in 2014 led the figure down to just 11%. The premium & postseason gate receipts have seen a visible upward trend due to an increase in the price of premium tickets each year. As we assume for now that the Red Sox will fare largely how they did last season, we estimate that premium & postseason gate receipts will be 18% of regular gate receipts – or just over $30 million. Adding up the two gate receipt components gives us an estimate of $168 million + $30 million = $198 million for total gate receipts in 2018. Concessions  & Souvenir Revenues This represents the revenues attributable to the team from the sale of food and beverages at home games as well as from the sale of team souvenirs. We calculate these revenues using  Bloomberg’s 2013 estimate of $38 million as the base figure, and then estimating the impact on these revenues each year due to changes in the following figures: Fan Cost Index for the team, which captures the year-on-year change in ticket price, concessions, souvenirs as well as parking fees at Fenway Park as compiled in Team Marketing reports. We only consider the concessions and souvenir part of the Fan Cost Index (by removing the impact of changes in average ticket cost as shown above, and for changes in parking costs) to determine annual change in these revenues. Although the most recent Team Marketing report shows a reduction in the FCI, the decline is due to a reduction in parking fees under a new sponsorship agreement. We expect concessions & souvenirs to cost roughly 4% more in 2018 compared to 2017 Attendance at the stadium (including postseason games), which is derived from the forecast for gate revenues above. Using this, we expect concessions & souvenirs to rope in $40.7 million in revenues for the Red Sox this season. Sponsorship & Other Revenues This includes revenue generated by the team from multi-year sponsorship contracts as well as from the sale of local television/radio broadcasting rights for home games. While these revenues are expected to grow steadily over time, they have outpaced gate receipts over the last decade – primarily because of each team’s share in Major League Baseball Advanced Media, which owns and operates MLB.com, in addition to MLB’s deals with media partners such as Fox Sports and ESPN . A strong performance by a team in a given year can provide a boost in future years – while many TV and radio deals are largely fixed in nature, a strong season can boost ratings and can help in negotiating future local broadcasting agreements. These revenues have increased by more than 55% between 2013 and 2017 – jumping from $142 million to $222 million – and we expect the figure to increase further to over $240 million in 2018. Combining this with the other revenue streams above, we forecast total revenues for the Boston Red Sox to be about $483 million in 2018 . Valuation Estimates To identify the trend in revenue multiple for the Red Sox over the years, we plotted Forbes’ estimates for the team’s revenues and valuation as shown in the chart below. This showed a steady increase in the revenue multiple from 4.2x to 6.2x between 2013 to 2017 – something we attribute to the fact that the team’s revenues have grown at a faster rate than expenses. Also, the World Series win in 2013 triggered the single biggest year-on-year jump between 2013 and 2014 (from 4.2 to 5.7).   As we assume the Red Sox’s performance in 2018 to remain largely unchanged compared to 2017, a revenue multiple figure of 6.2 looks appropriate for 2018 too. This works out to a valuation of $3 billion for the Boston Red Sox by the end of the 2018 season .  However, if the Red Sox go on to win the World Series this year, their valuation could jump even higher. It should be noted that there are more factors that determine actual team valuations than just revenues and operating income – most of which are intangible in nature – but this analysis is strictly looking at the fundamental value of the business. If you do not agree with our forecast, you can come up with your own estimate for how much the Boston Red Sox are worth by making changes on our dashboard . What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
    ADBE Logo
    After A Strong First Half, Can Adobe Continue Its Growth Momentum?
  • By , 6/15/18
  • tags: ADBE GOOG MSFT AMZN ORCL SAP
  • Adobe (NASDAQ:ADBE) announced its Q2 FY’18 results on Thursday, June 14, reporting a solid 24% increase in net revenue to $2.2 billion. Adobe has been a high-growth stock in the last few quarters since it announced Q3’17 earnings in mid-September. Adobe’s stock price has increased from $155 to $255 since October of last year – a 65% increase. The rally was driven by successive quarters of positive results as well as a robust outlook for FY’18. The trend is expected to continue through the end of the current year, particularly for Digital Experience offerings, according to Adobe’s management . In the second quarter, Adobe reported a 30% y-o-y increase in subscription revenues to $1.9 billion – a trend consistent in recent quarters. Comparatively, product revenues were down 11% to $151 million and services revenues were up by a modest 4% to $121 million. Going forward, Adobe’s subscription-based revenues from the Digital Media segment are likely to continue to grow rapidly and drive top-line growth. Adobe’s management expects net revenues to increase 25% to $2.2 billion in the third quarter, keeping up the growth spree. We forecast full year revenues to increase almost 23-24% for the full year as well. We have summarized our expectations for the company’s FY’18 results on our interactive dashboard  platform. You can change expected segment revenue and net margin figures for Adobe to gauge how changes will impact its value. Digital Media segment includes revenues from Creative Cloud and Adobe Document Cloud. In recent years, Creative Cloud revenues have increased in high double digits, driven by increases in individual, team and enterprise subscriptions. This trend continued through FY’18 as well. In the second quarter, both Creative Cloud revenues and Document Cloud revenues were up 22-24% y-o-y to $1.3 billion and $243 million, respectively. We forecast Digital Media to remain the key growth driver for Adobe in the coming quarters, as standalone product sales are expected to remain low. It should be noted product sales form less than 10% of Adobe’s total revenues, due to which we expect a minimal impact on earnings from revenue declines in the products segment. See Full Analysis For Adobe Here What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
    MGM Logo
    How Much Will Las Vegas Contribute To MGM's Top Line Growth?
  • By , 6/15/18
  • tags: MGM LVS WYNN
  • MGM Resorts (NASDAQ: MGM) has performed strongly over the past couple of years, with nearly 9% annual growth in revenue and a 49% jump in the stock price between 2015-2017. The strong growth was largely due to a robust performance in the domestic market, in addition to the full operational year of MGM National Harbor. Based on recent market trends and the near-term outlook provided by the company’s management, we forecast MGM to report 6-7% revenue growth in the next two years, from $12 billion in FY 2018 to about $13.4 billion in FY 2020. Of the estimated $1.5 billion added to net revenues, we estimate that Las Vegas will contribute around $725 million, or about 49% of the incremental revenues. We arrive at this estimate from MGM’s key growth metrics such as Casino, Hotel, and Entertainment & Other revenue. We have summarized our expectations on our interactive dashboard  platform. If you disagree with our forecasts, y ou can change the key drivers for Las Vegas to gauge how changes will impact its expected revenue. Estimates for Key Growth Drivers Las Vegas contributes to slightly over 80% of the company’s overall revenue and has seen its revenue grow by nearly 13% annually between 2015-2017. This was largely due to robust growth in Table games, Slot revenue, and hotel revenue on a comparable basis. In addition, the full operational year of MGM National Harbor in 2017 further bolstered domestic revenue. The company expects domestic resorts to grow in mid-to-high single digits in the second half of 2018, driven by several citywide conventions and a recovery in the Vegas market. Further, the sooner than expected opening of MGM Springfield, its Massachusetts resort, should boost Q4’18 revenue and provide for significant medium term growth. However, MGM expects to see some near term pressure in the Monte Carlo casino due to the undergoing transformation,  cancellation of a major boxing fight, and additional time required to recover at Mandalay Bay, which should likely impact company’s margins. We expect the domestic market to remain the driving force led by the  improved outlook of the U.S. economy, recovery in the Vegas market – owing to recent tax cuts and higher customer spending –  and its expansion into Massachusetts . Further, we expect the  legalization of sports gambling to boost its domestic operations. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
    URBN Logo
    Benefit Of Higher Consumer Spending Continuing In Q2 For Urban Outfitters
  • By , 6/15/18
  • tags: URBN GPS ANF AEO
  • Urban Outfitters  (NASDAQ:URBN) was among the top performing companies in the retail sector in the first quarter. Comparable sales growth for the company came in at 10%, higher than the 8.9% forecast by analysts, led by a 15% improvement at Free People, followed by 10% at Anthropologie, and 8% at its namesake brand. Moreover, it was the first quarter in four years that the company was able to post positive store comps at each of its brands . This growth was spurred on by higher consumer spending, despite a longer than normal winter, as well as easier comparisons versus the same period last year. These factors have continued to aid the retailer, with the company reporting that in the second quarter-to-date, the comparable sales growth in the retail segment has been  mid-teens positive . We have a $47 price estimate for Urban Outfitters, which is in-line with the current market price. The charts have been made using our new, interactive platform. If you don’t agree with our analysis, you can click here for our interactive dashboard to modify our driver assumptions to see what impact it will have on the company’s revenues, earnings, and price estimate. Factors That Should Positively Impact Urban Outfitters Going Forward 1. Strength of Digital Segment:  The shift toward the online space has been pretty evident, with the digital penetration of URBN’s retail segment sales exceeding 40% for the first time in Q4 2018 (quarter ended January 2018). This strength continued in the first quarter as well. Free People and Anthropologie have benefited the most with this shift, and their digital penetration has increased to over 50%. To take advantage of the popularity of the online channel, URBN re-platformed its website, enabling better functionality for customers, including in-store pick-up capabilities, improved delivery options, a more responsive site, faster load times, and the addition of Apple Pay and Afterpay as alternative payment methods. While its successful implementation resulted in a strong double-digit increase in digital sales for the brand in the first quarter, its benefit can be expected to continue in the future. 2. Good Momentum In The Home Business: The Home products provided by Anthropologie delivered its 15th sequential quarter of positive comps, driven by an increased and innovative assortment, high double-digit growth in digital sales, and the mini-home showroom concept within certain Anthropologie stores, which is expected to be rolled out in more stores this financial year. The momentum in this business continues to be strong, and should drive the brand’s sales in the coming quarters. 3. Addition Of Anthropologie In Wholesale:  Anthropologie home wholesale was launched in North America in March, in partnership with Nordstrom. This follows the success of Anthropologie wholesale in the U.K. last financial year. While it is currently available in 15 Nordstrom stores and online, this assortment is anticipated to be included in additional stores by the end of the year, and should help to drive wholesale revenues. For Free People wholesale, there is significant opportunity to increase the domestic business through category expansions like FP Movement and denim. 4. International Growth Potential: URBN believes Anthropologie has the potential to derive half of its sales from outside the United States in the long term. Currently, all of the international sales are obtained from the U.K., but the brand is in the process of expanding in other countries, including opening its first store in Germany later this year. For its eponymous brand, in Europe, the brand opened its first freestanding store in Paris in February, and a first franchise store in the outskirts of Tel Aviv was launched in April. The company plans to open two additional stores in Europe and facilitate the opening of several additional franchised stores in Israel. For its Free People brand, the company intends to open its first two stores in Europe later this year or early next year. 5. Lower Markdowns: The management noted that the “total company markdown rate in Q1 was the lowest of any quarter in the last ten years.” This resulted in higher AUR (Average Unit Retail), one of the factors that resulted in positive store comps. A better assortment, higher consumer spending, and disciplined inventory control helped the company keep the discounting low. The company feels there is still scope for a reduction in this metric, and has stated that the lower markdown trends have, in fact, strengthened in the second quarter to date. See our complete analysis for Urban Outfitters   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    VALE Logo
    How is Vale Likely To Grow In The Next 2 Years?
  • By , 6/14/18
  • tags: VALE RIO CLF
  • Vale (NYSE: VALE) displayed consistent strength in its operations over the past two years as it recovered from the commodity downturn and ramped-up its sought-after S11D mines. Vale’s top line grew by 20% year-on-year (y-o-y) in 2017 as a result of the same. However, looking ahead, we expect Vale’s top line to grow moderately at a CAGR of 3% over the next two years as the growth in the company’s iron ore sales volume and nickel sales volume remains limited in the near term. Vale’s iron ore output grew by 5% y-o-y in 2017 with the ramp-up of the company’s S11D mine, however, its total sales volume declined marginally by 70 basis points. The stagnant sales volume largely reflects China’s steel curtailing activity which has shut a large number of the country’s illegal and outdated steel plants. China  has already closed about 120 million tons of annual crude steel capacity since its announced plan in 2016. China’s steel capacity back then was estimated at 1.2 billion tons and the country aims to reduce this output to less than 1 billion tons by 2025. As China shuts down its steel capacity, the demand for iron ore from the Chinese steel plants is likely to weaken. Although Vale holds a comparatively stronger stance in this whole situation, due to its access to higher grade iron ore, sales volume is still expected to remain weak even with the ramp-up of the company’s S11D mines. Over the next two years, we anticipate most of the company’s revenue growth will be driven by the premium pricing on its iron ore sales. Additionally, the company’s stance on reducing its nickel output through the next four years would hinder Vale’s top line growth as nickel prices are currently trading at a record high level. Nickel prices have gained substantial strength with the environmental production cuts across China, declining inventories, and a strong demand environment. Vale, however, determined to reduce its nickel output in order to benefit from a future environment of increased nickel prices and also to align with the company’s ongoing debt-reduction strategy. Vale’s nickel production fell by  7% Y-o-Y in 2017 and is expected to decline by another 9% in 2018. Soaring nickel prices are expected to provide some relief to the company’s declining output, however, the revenue is expected to remain dim in the near term. Our estimates for Vale’s two years’ projected revenue growth are elaborated in our interactive dashboard . You can make changes to our assumptions to arrive at your own revenue estimate for the company.
    BUD Logo
    Can The World Cup Provide A Boost To Anheuser-Busch's Beer Sales?
  • By , 6/14/18
  • tags: BUD DEO
  • The 2018 World Cup in Russia is upon us. Budweiser, one of the key brands of  Anheuser-Busch InBev (NYSE:BUD), is the global beer sponsor of the sporting event. Partnering with such a massive tournament, which boasts an audience of over 3.2 billion, should bode well for the company. In this regard, AB InBev launched its biggest commercial campaign called “Light Up the FIFA World Cup.” This campaign has been activated in more than 50 countries, which includes not only those where the brand already has a significant presence such as China, Brazil, the U.K., and Russia, but also new markets which include Colombia, Peru, Ecuador, Australia, and Africa. The company expects growth to accelerate in the remainder of the year, particularly in the second half, with the World Cup being one of the driving factors. We have a $122 price estimate for Anheuser-Busch InBev, which is higher than the current market price. The charts have been made using our new, interactive model. If you don’t agree with our analysis, you can click here for our interactive dashboard to modify our driver assumptions and see what impact this will have on the company’s revenues, earnings, and price estimate. Possibility Of Volume Growth Amid A Foundering Beer Market In Russia The Russian beer market has been shrinking in recent years. An anti-alcohol campaign was launched in the country in 2010 in a bid to lower liquor consumption by half by 2020. Subsequently, taxes have been raised and advertising has been banned, which has resulted in a considerable reduction in volumes. To make matters worse, the size of plastic beer bottles was reduced to a maximum of 1.5 liters, from 2.5 liters earlier, in 2016, hurting a segment that formed over 20% of the beer sales previously. The latter was one of the factors that resulted in disappointing beer sales during the Confederations Cup (another footballing event, albeit on a much smaller scale) held in Russia in 2017. According to Brewer’s Union in Russia, beer sales volume fell 5% in 2017, versus an expected growth of 3% to 5%. This year, all growth hopes are pinned on the performance of the Russian football team, who would need to do much better than their last campaign when they didn’t win any of their matches, and failed to progress from their group. Bernstein analysts have forecast the World Cup to boost the beer sales in the country by 2.5% to 3%, contingent on the team’s performance. Meanwhile, Morgan Stanley analysts have predicted a 2% to 3% growth, based on past data. What can benefit Anheuser-Busch is that, given its sponsorship of the sporting event, it has exclusive rights to advertise and sell its beverages at the stadiums and in the Fan Zones, with alcohol sale restricted in other areas. The official beers of the World Cup are Budweiser and local brew Klinskoye, both brands of Anheuser-Busch. Russia will not be the only market experiencing growth in beer volumes. CFO Felipe Dutra has stated that the event could result in a volume spike in Brazil and Argentina, despite cold weather conditions, by 0.5 to 1 percentage points. Furthermore, Budweiser was launched nationally in South Africa in March, in preparation for the World Cup. Consequently, the company’s global brand portfolio, including Stella Artois and Corona, grew by more than 200% in the first quarter, and gained over 600 bps of share in the growing premium segment. Volume growth can be expected to come from traditional beer drinking nations, such as England and Germany, as well. See Our Complete Analysis For Anheuser-Busch InBev   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.  
    SNAP Logo
    Can Pinterest Be A $30 Billion Company?
  • By , 6/14/18
  • tags: SNAP TWTR FB GOOG
  • Pinterest has gathered a lot of interest of late, with news around its impending IPO emerging every few months. The company had originally planned an IPO in 2018, but reports suggest that it now plans to go public in 2019, after it missed its 2017 revenue estimates. In its latest funding round in 2017, Pinterest was valued at $12.3 billion . However, with a strong growth in users and revenues, Pinterest could potentially command a much higher valuation if the company goes public next year. Our interactive dashboard analyzes Pinterest’s key metrics and compares them to Twitter and Snap, the smaller (non-Facebook) to evaluate how much Pinterest could be worth. We encourage you to modify these assumptions to arrive at your own valuation of Pinterest. Pinterest has around 200 million monthly active users currently, and this number has doubled from 100 million in 2015. While the growth in users has been exponential, Pinterest still lags behind Twitter’s 330 million monthly active users for 2017. It should be noted that Snap reports daily active users, and its DAU count for 2017 was 171 million. However, Pinterest’s user base is strong and engaged, and this is likely to be a key factor in driving revenue growth and valuation. The key to a $30 billion valuation for Pinterest would be a significant increase in revenue per user by attracting more advertisers to its platform. While data around the company’s key metrics is limited, sources suggest that Pinterest might already be profitable, with gross margins higher than 45%.
    NEM Logo
    How is Newmont Mining Likely To Grow In The Next 2 Years?
  • By , 6/14/18
  • tags: NEM ABX WPM
  • Newmont Mining (NYSE: NEM) has become the world’s largest gold producer (per volume), surpassing the output of its main competitor Barrick since the end of 2017. However, the company’s gold volume output is anticipated to decline going forward which is expected to have a negative impact on the company’s top-line growth in the upcoming years. Based on such circumstances, we expect the company’s top line to grow marginally at a CAGR of 1% over the next two years. Newmont expects its sales volume to range between 4.9 to 5.4 million ounces per year in 2018 and 2019, which is approximately 3% lower than the company’s attributable gold output in 2017 (assuming mid-points). The long-term output is expected to decline even further to 4.6 and 5.1 million ounces per year through 2022. The company is expected to experience this significant decline in volume largely due to a decline in its reserve base and a fall in its grade quality. Of Newmont’s total asset base, its Yanacocha mines in South America are expected to decline by an extensive portion. This decline is largely due to the expected lower mill grade and lower leach tons expected at the Yanacocha mines. The previous year had been a good year for the company’s South American operations with the commencement of the commercial production of its Merian mines. However, production volume is likely to decelerate by more than 30% in 2018 due to the reserve exhaustion at Yanacocha. The company reported its South American mines to have a total mine reserve of 6 million ounces in 2017, the lowest in comparison to all its other locations. On the contrary, the company’s African mines are expected to provide some relief to the company’s top line with the Subika Underground and Ahafo Mill Expansion projects which together are expected to enhance the company’s total output by the range of 550,000 to 650,000 ounces per year for the first five full years of production, starting in 2020. Subika and Ahafo Mill Expansion are expected to commence commercial production by the second half of 2018 and the second half of 2019, respectively and is thus expected to translate into stronger volumes by 2019 itself. Thus, with a declining gold output, Newmont’s revenues are expected to outperform only through an environment of enhanced gold prices. This has been the case during the first quarter of the year wherein Newmont reported a similar sales volume as last year, but its total revenue grew by almost 8% year-on-year (Y-o-Y). The primary reason for this was the 9% increase in the company’s realized gold price, as the demand for the safe-haven commodity increased with the ongoing trade tension between the U.S. and China and the geopolitical uncertainty surfacing in the Middle East. Thus, Newmont’s growth for the next two years will remain extremely variable depending on the trajectory of gold prices. Our estimates for Newmont’s two years’ projected growth are elaborated in our interactive dashboard . You can make changes to our assumptions to arrive at your own revenue estimate for the company.   What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    GS Logo
    Five Largest U.S. Investment Banks Have $1.54 Trillion In Securities Trading Assets, And The Figure Is Increasing Fast
  • By , 6/14/18
  • tags: BAC C GS JPM MS
  • The securities trading industry fell out of favor in the wake of the economic downturn, as stricter regulatory requirements coupled with restrictions to proprietary trading activity, forced major investment banks globally to implement sizable cuts to their trading portfolio. But it looks like the five largest U.S. investment banks have been refocusing their efforts in the capital-intensive industry over recent quarters, as is evident from the fact that their combined securities trading portfolio was almost $1.54 trillion at the end of 2017 – up nearly 15% from the figure of $1.34 trillion at the end of 2015. And given upbeat market conditions and the strong outlook for the U.S. economy, this figure is likely to grow rapidly over the foreseeable future. We capture the trends in securities trading assets for each of the five largest U.S. investment banks – Goldman Sachs,   Morgan Stanley ,  JPMorgan Chase,   Bank of America   and   Citigroup   – through interactive dashboards while also detailing the impact of changes in these assets on their share price. The figures here have been compiled from the annual reports of individual banks over the years, and represent the sum of trading assets as well as derivative assets on their balance sheet at the end of a period. While there was a steady decline in the trading portfolio over 2011-15, the trend has reversed sharply over several quarters now thanks to a combination of: Improvement in asset valuation: The Fed’s ongoing rate hike process improved the interest rate environment, while strong economic indicators resulted in the U.S. equity market scaling record highs Strong capital buffers for the largest banks: Although the largest U.S. banks implemented notable cuts to their trading desks to comply with stricter capital requirements, strong operating performances over the years, coupled with prudent payouts to shareholders, have helped these banks build a strong capital buffer. This has helped them divert free capital towards their trading desks over recent years. Improving market share from shrinking European rivals: Another key factor that has worked in favor of U.S. investment banks is the fact that many of their European peers (like Deutsche Bank, Barclays, RBS, UBS and Credit Suisse) have either done away with huge chunks of their trading businesses, or are still in the process of reshaping their business models. This has helped the U.S. investment banking giants step in to fill the gap created in the European securities trading industry. The table below captures the ratio of trading assets to total assets for each of these banks since 2013, and highlights the relative importance of securities trading to their respective business models. The red-to-green shading along a row makes it easy to visualize how this ratio has changed for a particular bank over the period. Trading assets constitute around one third of the total balance sheet for Goldman Sachs and Morgan Stanley, and roughly 16% of the total assets for JPMorgan, 14% for Citigroup and 11% for Bank of America (despite the significantly diversified business model for the latter three). Notably, the jump in the ratio for JPMorgan in Q1 2018 stands out, and is because of the sharp increase in value of debt trading securities over the period – something that had a positive impact on the trading portfolio of JPMorgan, Goldman Sachs as well as Citigroup, as their business models rely more heavily on FICC trading. On the other hand, Morgan Stanley’s focus on equity trading resulted in its trading assets shrinking considerably in Q1 due to the decline in equity market values over February and March. However, with the Fed holding a hawkish outlook for interest rates over the rest of the year, and with the equity market resuming its rally over the last couple of months, the total trading assets for all these banks should nudge higher – possibly crossing $1.55 trillion by the end of Q2 and $1.6 trillion by the end of the year. Details about how changes to Securities Trading Assets affect the share price of these banks can be found in our interactive model for  Goldman Sachs | Morgan Stanley | JPMorgan Chase | Bank of America | Citigroup What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
    WMT Logo
    How Is Wal-Mart Likely To Grow In The Next 2 Years?
  • By , 6/14/18
  • tags: WMT TGT AMZN
  • Wal-Mart  (NYSE:WMT) had a fairly strong fiscal 2018 (ending January 2018) as the company’s performance was mostly above its guidance and market expectations. In fiscal 2018, the retailer’s total revenue increased 3% year-over-year (y-o-y) to $500 billion, driven by 3% y-o-y growth in the U.S. business. Wal-Mart’s net growth was positively impacted by a 3% increase in overall comparable sales and the e-commerce business. Accordingly, we expect Wal-Mart’s revenue to grow by nearly $22 billion (2% CAGR) through fiscal 2020. To arrive at our fiscal 2020 net revenue estimates for Wal-Mart, we have broken down the revenues and estimated separately.  We have also created an interactive dashboard analysis which provides a detailed analysis of how to arrive at this growth number. You can make changes to these variables to arrive at your own revenues estimates for the company. We have a $94 price estimate for Wal-Mart, which is almost 10% ahead of the current market price. Wal-Mart’s assortment of online products has grown to nearly 75 million SKUs from a mere 2 million SKUs in 2015. Wal-Mart’s growth has been boosted by the company’s acquisitions – Jet.com, Hayneedle, Moosejaw, Shoebuy, and Bonobos – which have provided the company with a diverse product portfolio in categories like shoes and apparel, along with increased digital marketing expertise, eventually helping it face growing competition from internet retailers. So far this year, Wal-Mart has been rumored to be in talks to  buy insurer Humana and pharmacy  delivery startup PillPack  – if these materialize, they could boost the company’s performance even further. Wal-Mart also recently announced that it would pay $16 billion to acquire a 77% stake in Flipkart, India’s biggest online retail company, to make further inroads into the fast-growing market. This deal is believed to be the world’s biggest e-commerce deal, as well as the largest for the U.S. retailer. To add to that, the retailer is planning to expand its online grocery program through its  Postmates deal, whereby more than 40% of U.S. households will be covered by the expansion. Overall, the company is preparing to focus on North American core and key growth markets, in addition to China and India, going forward. We have calculated Wal-Mart’s total revenue in 2018 by estimating the revenues from the company’s domestic sales, international sales, Sam’s club sales and other income. Further, we have calculated the retailer’s divisional revenues by estimating the number of stores, square footage per store and revenue per square feet. We expect Wal-Mart’s fiscal 2019 store count in the U.S. to be over 4800, with an average square footage per store of 147k and revenue per square feet of $466, translating into $330 billion (+3% y-o-y) in domestic revenues in fiscal 2019. We expect a similar rate of growth in store count, square footage per store and revenue per square feet in fiscal 2020, and estimate Wal-Mart’s domestic revenues to reach $340 billion. In addition, we also expect close to 6390 stores in international markets with an average square footage per store of 58k and revenue per square feet of $321, translating into $119 billion (+1% y-o-y) in international revenues in fiscal 2020. On similar lines, we expect Sam’s Club revenues to reach $58 billion (-2% y-o-y) in fiscal 2019, with 599 Sam’s Club stores, 134k square footage per store and $724 of revenue per square feet. We expect a decline here on the account of the  closing of 63 Sam’s Club locations . What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    TSLA Logo
    What Steps Is Tesla Taking In Its Path To Profitability?
  • By , 6/14/18
  • tags: TSLA GM F
  • Earlier this week, Tesla  (NYSE:TSLA) indicated that it would cut about 9% of its global workforce, in a move that would impact about 3,500 salaried staff. The layoffs come at a time when Tesla is looking to eke out its first profit in its fifteen years of existence while refraining from raising additional capital to fund its operations. Below, we take a look at some of the other steps Tesla has been taking to reach profitability. We have also  created an interactive dashboard analysis   which outlines how Tesla’s revenues, operating profits and free cash flows could trend over the next three quarters. Building Economies Of Scale As Model 3 Production Is Ironed Out Elon Musk has projected that Tesla would reach a goal of making 5,000 Model 3 sedans a week by the end of June, up from just about 2,000 units towards the end of the last quarter. The company intends to produce about 10,000 cars per week next year. The relatively exponential production ramp may be attainable, as the company has deployed a significant amount of automation in building the new vehicle. As production scales up, cost absorption should improve, helping gross margins. Tesla is targeting gross margins of 25% on the Model 3 by next year, which would be roughly in line with its premium vehicles. Focusing On Higher Variants Tesla indicated that it would continue to prioritize the production of higher variants of its mass-market Model 3 sedan (extended-range, with the luxury package) which have thicker margins, with the base versions only likely to see shipments towards the end of this year. Most Model 3 vehicles that are being delivered currently likely have average selling prices of upwards of $50,000, per our estimates (related: Tesla Is Smart To Prioritize Premium Versions Of The Model 3 ). The higher mix of luxury vehicles is likely to help Tesla bolster its profits. Battery Costs Could Continue To Decline Batteries account for a meaningful part of an EV’s cost, and Tesla has been working on improving its battery technology as well as the supply chain. Tesla, along with Panasonic, is producing a new variety of battery cells, the 2170, which are being used in the Model 3 sedan. These cells replace the smaller 18650 cells, which have been in use for decades and allow for higher energy densities and lower production costs. As the company scales up production of these cells in its Gigafactory, using them in newer models, it could reduce battery costs and reduce battery imports from Japan. Tesla indicated that it could get below the $100/kWh level (for battery pack) within two years. For perspective, battery costs stood at about $400/kWh when the Model S was launched in 2012. Restructuring Company, Reducing CapEx Tesla noted that it would be scaling back its planned capital expenditures this year to less than $3 billion from $3.4 billion last year. That said, this reduction could be a temporary measure, as the company has multiple other projects in the pipeline including the Model Y and the semi truck. Tesla is also planning on carrying out a significant restructuring operation, under which it is making its management structure flatter and more efficient. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
    RIO Logo
    How is Rio Tinto Likely To Grow In The Next 2 Years?
  • By , 6/13/18
  • tags: RIO VALE CLF
  • Rio Tinto (NYSE: RIO) displayed substantial growth in its revenue in 2017 with the recovery in commodity prices. However, we expect the company’s top line to improve marginally over the next two years as the Chinese demand for the iron ore market is expected to remain dim with the regulatory production curtailments initiated in the country. We expect Rio’s top line to grow at a CAGR of 2% over the next two years. In this note, we look at the factors leading to the company’s marginal growth rate. China has been strictly curtailing its industrial production and also shutting its illegal plants in order to fight its alarming levels of pollution. As per the latest estimates, the country has already closed about 120 million tons of annual crude steel capacity since its announced plan in 2016. Reduced steel output has negatively impacted the demand for iron ore and is expected to keep the demand environment dim in the near term. China’s steel capacity was estimated at 1.2 billion tons in 2016 and the country aims to reduce this output  level to less than 1 billion tons by 2025. Consequently, we expect the company’s iron ore shipment to decline at a CAGR of 2% over the next two years. However, contrary to the reduced demand for iron ore, prices of higher grade ores are trading at a premium which has remained beneficial for high-grade iron ore producers like Rio. Chinese steel producers are substituting their demand for lower grade iron ore with higher grade ores as they are comparatively less polluting to the environment, and thus allow them to increase their output through lower per unit pollution. Discount for the lower grade  iron ore (58% Fe content) in comparison to medium grade iron ore (62% Fe content) has widened from 27% in 2016 to 45% in 2017. We expect this trend to continue in the near term and support the prices that Rio realizes for its iron ore fines. Additionally, we expect the company’s aluminum division to display some momentum in the upcoming years as the prices for both aluminum and alumina are expected to remain strong with an anticipated supply deficit expected for both the commodities in 2018. Global supply disruptions with the supply cuts at Alunorte, and an enhanced demand environment, is expected to lead aluminum prices to remain strong. This is expected to translate into higher aluminum revenue for Rio even though its shipments are likely to only grow marginally. Our estimates for Rio’s two years’ projected revenue growth are elaborated in our interactive dashboard . You can make changes to our assumptions to arrive at your own revenue estimate for the company.
    TXN Logo
    How Much Will Embedded Processing Segment Contribute To Texas Instruments' Top Line Growth?
  • By , 6/13/18
  • tags: TXN AMAT CREE
  • Texas Instruments  (NYSE: TXN) has performed strongly over the past couple of years. The company saw its revenue grow by just over 7%, while its stock increased by 17% between 2015-2017. The Embedded Processing segment contributes nearly 23% of the company’s overall revenue and was the fastest growing segment, at over 12% annually between 2015-2017. The strong growth was largely due to robust performance in the automotive & industrials market. Based on recent market trends and the near-term outlook provided by the company’s management, we forecast TI to report 4-5% revenue growth in the next two years, from $16 billion in FY 2018 to about $17.5 billion in FY 2020. Of the estimated $1.5 billion added to net revenues, we estimate that the Embedded Processing segment will contribute over $300 million, or about 21% of the incremental revenues. We have summarized our expectations on our interactive dashboard  platform. If you disagree with our forecasts, y ou can change the key drivers for the segment to gauge how changes will impact its expected revenue. Estimates for Key Growth Drivers The Embedded Processing segment contributes nearly 23% of the company’s overall revenue and has been the fastest growing segment, at over 12% annually between 2015-2017. This was largely driven by robust performance in the automotive & industrials market. Texas Instruments, with about  18% market share, is amongst the leaders in the Embedded Processing market and is well positioned to increase its share over time. Embedded Processors are the “digital brains” of electronic equipment. They gather input from analog chips and are optimized to handle specific tasks and functions depending on the application. In the automotive industry, some applications for embedded processors would be infotainment systems and advanced driver assistance systems (ADAS), whereas industrials use cases can vary from robotic assembly lines that utilize sensing technology to run autonomously and accurately, to sensors in tanks that assess fluid levels. Accordingly, we believe that the Embedded Processing segment holds considerable growth potential for TI, as a result of the increasing demand for Microcontrollers and Processors from automakers, driven by autonomous and semi-autonomous vehicles and other technological advancements, coupled with strong demand in the industrial segment. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
    HD Logo
    Why Is Home Depot Making A Considerable Investment In Its Supply Chain?
  • By , 6/13/18
  • tags: HD LOW
  • Home Depot (NYSE: HD) has stated its intention of investing roughly $1.2 billion into its supply chain over the next five years. Given the changing retail landscape, the company believes “a great customer experience depends on great supply chain capability.” Over the past decade, the company has made big strides in its upstream supply chain – moving product to the stores and direct fulfillment centers (DFCs) – and more recently, it has undertaken significant expenditure to build its downstream supply chain – delivering to customers directly. However, the home improvement giant feels there is still some way to go to fully leverage its upstream network, as well as build the fastest and most efficient delivery system. We have a $212 price estimate for Home Depot, which is higher than the current market price. The charts have been made using our new, interactive model. If you don’t agree with our analysis, you can click here for our interactive dashboard to modify our driver assumptions to see what impact it will have on the company’s revenues, earnings, and price estimate. Meaningful Achievements So Far In terms of its upstream network, Home Depot has made a meaningful improvement in devising an optimal flow network with its RDCs (Rapid Deployment Centers), improving its inventory management capabilities, and driving further efficiency through the Supply Chain Sync initiative. For an enhanced direct-to-consumer supply chain, HD has introduced a number of interconnected customer offerings like Buy Online, Ship To Store, and Buy Online, Deliver From Store. The home improvement retailer has also built a network of DFCs, which gives them the capacity to reach 95% of the U.S. population in 2 days or less, and 30% in one day. Moreover, for the professional segment, the company has introduced 2- and 4-hour windows for deliveries. Potential For Improvement Home Depot feels its downstream network consists of four unconnected and independent components – store-based delivery, online delivery from DFCs and vendors, appliance delivery, and Interline brands delivery – which may not be the most ideal situation. Moreover, the current process of packing and shipping from the store leaves room for improvement. Another area that could be upgraded is the speed of delivery from DFCs in cases where the time taken to reach customers is over a day. Keeping all this in mind, the company is taking the following steps : Add 170 distribution facilities across the U.S. to reach 90% of the U.S. population in one day or less. Open market delivery operation (MDO), which are local hubs that will consolidate the freight for dispatch on to final-mile delivery vehicles appliances for Interline MRO, Pro and DIY delivery from DFCs, vendors, and stores, in about 100 locations. This will allow consolidation and sorting  capability for big and bulky freight and parcel freight and extend HD’s delivery reach. Consolidate store-based delivery in fewer stores in secondary markets, which will be linked to the upstream network. Open 40 flatbed direct fulfillment centers to serve HD’s top 40 markets. These centers will specialize in big and bulky building material SKUs (Stock Keeping Units), such as lumber, building materials, and flooring, which will be delivered on a next day and same-day basis. Open about 25 local direct fulfillment centers that will carry the most delivered store SKUs and Interline MRO SKUs, to ensure delivery on a next-day and same-day basis direct-to-customers in the top 40 markets. Continue the rollout of van and car delivery options in top urban markets in 2018. For car delivery, HD has partnered with app-based delivery providers, as this results in lower cost and often faster delivery for smaller orders. By undertaking this investment, HD aims to create the “fastest and most efficient delivery in home improvement.” Given the enormous scale and scope of this initiative, the company has given itself a period of five years to complete the actions. Such efforts come at a time when Home Depot is grappling with high transportation costs, as a result of the increase in oil prices. In the first quarter, HD faced transportation headwinds which had an eight basis points negative impact on the gross margins. With the increasing shift toward the online space, as well as the addition of features such as same-day delivery, transportation costs may continue to be a hindrance this financial year. However, the overhauling of its supply chain may be a step toward overcoming such headwinds. See complete analysis for Home Depot’s stock
    LEA Logo
    How is Lear Corporation Likely To Grow In The Next 2 Years?
  • By , 6/13/18
  • tags: LEA HOG DDAIF
  • Lear Corporation, (NYSE: LEA), a leading supplier of automotive seating and electrical systems globally,  has had a strong start to 2018. Lear’s stock price has gained close to 16% since the beginning of the year and we expect the company to gain further momentum given its strong presence in the seating segment and the global shift towards  energy efficient and connected vehicles. We expect Lear’s top line to grow at a CAGR of 8% over the next two years. Lear backed the second position (based on revenue) in the seat systems assembly market globally in 2017 which was estimated at $65 billion  by the company. The company’s recent acquisition of Grupo Antolin’s automotive seating business is expected to further boost the company’s growth prospects in the seating segment in the upcoming years as Antolin posses a strong market presence in Europe. Lear’s 2018 first quarter seating sales increased by 12% year-on-year (y-o-y) and the company attributed a large proportion of this growth to its recent acquisition. Additionally, a shift in consumer preference towards sports utility vehicles (SUVs) and crossovers are expected to further aid Lear’s top line as bigger cars such as SUVs and crossovers command premium content per vehicle (premium/ additional seating and more advanced electric content) leading to higher revenue for Lear.  Lear’s content per SUV is estimated at $1,000 as against the $700 average content per vehicle.  Furthermore, Lear’s E-Systems segment is also expected to experience a substantial growth rate over the next two years driven by a changing global  trend towards energy efficient and autonomous vehicles.   The company expects the electrical content growth rate in vehicles to be higher than the overall industry growth rate by almost 5%, which would require more complex vehicle electrical architectures to cater to this growth. The company has been gearing up its E-systems operations to accommodate this growth and the company’s recent announcement to  acquire EXO Technologies  coupled with the additional advanced technology obtained through its  Grupo  Antolin’s acquisition will enable Lear to remain at the top of its game. Lear in 2018 expects 145 new launches in its seating segment and 160 launches in its E-system segment which would favorably enhance the company’s results. China is expected to remain a major growth driver for both of the company’s segments with an expected sales growth rate of 10% y-o-y in 2018. Our estimates for Lear’s two years’ projected growth are elaborated in our interactive dashboard . You can make changes to our assumptions to arrive at your own revenue estimate for the company.   What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    PM Logo
    Here's Why We Believe That Medical Marijuana Stock Aphria Is Undervalued
  • By , 6/13/18
  • tags: MO PM
  • As Canada comes close to legalizing marijuana for personal use, Canadian pot stocks are on the rise. According to market research, the sales of Canadian marijuana are expected to go up by more than $4 billion in the first year of its legalization. However, the cannabis industry is a tough one to be in due to endless regulatory approvals and laws required for the legalization of its use, just like the tobacco industry. However, with the upcoming legalization of marijuana for recreational use in Canada, the performance of the pot stocks in the country is anticipated to improve and is likely to replicate the growth trajectory of tobacco stocks, such as  Philip Morris  and  Altria . Consequently, Aphria Inc. (TSX:APH), a low cost of producer of medicinal marijuana in Canada, has witnessed a surge of almost 23% in its price in the last one month. That said, the company’s stock has declined almost 40% since the beginning of the year, largely due to concerns over overvaluation. Hence, in this note we try to estimate Aphria’s fair valuation based on the industry P/S multiple using our interactive dashboard . Aphria is an Ontario-based medical cannabis company trading on the Toronto Stock Exchange under the symbol “APH” and on the United States OTCQB Venture Market exchange under the symbol “APHQF.” The company produces dry cannabis as well as cannabis oil of varying qualities and strength. It has been producing and selling medical marijuana and its derivatives through its wholly-owned licensed subsidiary – Pure Natures Wellness (PNW) – since 26th November 2014. The company caters to the retail customers through its online store and through telephone orders, while its wholesale shipments are sold to other licensed producers. The company has a greenhouse facility in Leamington (greenhouse capital of Canada) that allows it to produce marijuana with ample amount of natural sunlight. Consequently, Aphria claims to be a scalable low cost producer of medical marijuana in the country. In fact, it is among the few cannabis companies in Canada that is profitable at the moment. Despite showing a strong revenue growth in the last few quarters, Aphria’s P/S multiple is notably lower compared to its peers such as Canopy Growth and Aurora Cannabis. Given that the company is a low cost producer of medical marijuana and has been delivering solid returns, we believe that the stock is currently undervalued. Accordingly, we expect its P/S multiple to move closer to the industry average in the coming months. Based on the P/S multiple of Aphria’s Canadian counterparts, we calculate an industry average P/S multiple of 56.49x . If we assume that the stock will move closer to this multiple, we arrive at a price estimate of CAD 13.50 per share for Aphria, which is roughly 12% higher than its current market price. Do not agree with our forecast? Create your own price forecast for Aphria by changing the base inputs (blue dots) on our interactive platform .  
    HSBC Logo
    A Detailed Look At How HSBC's New Growth Plan Impacts Its Key Value Drivers
  • By , 6/13/18
  • tags: HSBC DB JPM BCS RBD
  • HSBC (NYSE:HSBC) recently unveiled the growth strategy it intends to pursue over the coming years . The growth plan marks the end of the large-scale reorganization the geographically diversified banking giant has been undergoing since 2011 – something that resulted in a reduction in its global footprint through the disposal of many loss-making and non-core units worldwide. While the reorganization plan was essential given the changes in global regulatory requirements since the economic downturn, it led to a steady decline in revenues for HSBC over the years. The bank is now aiming to grow its top line over the coming years by focusing its efforts on high-growth areas while keeping costs low and reallocating capital more efficiently. We capture the impact of the growth plan on various aspects of HSBC’s business model as a part of our interactive dashboard for the bank, parts of which are shown below. We maintain our $55 price estimate for HSBC’s shares, which is about 10% ahead of the current market price. See our full analysis of HSBC The key changes proposed by HSBC in the new growth plan are detailed below: Continue The Ongoing Push Into Key Asian Growth Markets:  Asia is expected to remain HSBC’s key growth area for the foreseeable future, with the bank expected to invest considerably to garner more business in the economically growing region. HSBC intends to leverage its strong presence in Hong Kong for future growth there, besides continuing to channel investments in the Pearl Delta region. Additionally, HSBC is also looking to ramp up its wealth management offerings in Asia to be able to make the most of the rapid increase in the number of high net-worth individuals. These efforts should: Boost HSBC’s Asia-Pacific Loan Portfolio over coming years Drive growth in Asia-Pacific deposits Improve Profit Margins, as the increase in expenses is likely to be at a slower rate than revenues Improve Market Share In Its Home Market – U.K.:  HSBC is expected to focus on growing mortgage operations in the U.K., and will also drive growth in small business lending by easing application process. This should help the bank reverse the poor loan growth it has witnessed in the country over recent years. Leverage Leadership Position In Global Transaction Banking Industry To Boost Revenues In The High-Margin Business:  Given HSBC’s #1 rank in global transaction banking, it makes sense for the banking giant to make the most of its geographical diversification to grow its Trade Finance and Securities Services operations further over coming years. While this will have a positive impact on client balances for the bank’s trade finance operation and on assets under custody for its securities services operation going forward, the high profit margins realized in these businesses will also help profit margins for HSBC’s Global Banking & Markets division (which also includes its investment banking operations). Return U.S. Operations To Profit By Focusing On International Clients:  HSBC has largely exited the retail banking space in the U.S. following its mortgage debacle in the wake of the economic downturn, and continues to prioritize the ongoing run-off of non-core U.S. loan portfolio. However, the importance of the U.S. in terms of trade finance will mean that the bank will focus its Retail Banking, Wealth Management, Commercial Banking as well as Investment Banking efforts in the U.S. on multi-national clients. This will allow the bank to grow its loan portfolio in the U.S. without incurring heavy costs associated with a full-fledged banking setup.  Improve Returns By Reallocating Capital: HSBC aims to release excess capital from its U.S. operations and from its Securities Trading operations, and to transfer this to high-growth areas like Asia Retail and Wealth Management operations, and Transaction Banking. This will allow the bank to report a steady improvement in return on equity, despite the projected increase in total equity from strong operating performance, as well as the bank’s decision to hold dividend payout steady in the near future. Invest In Technology To Lower Long-Term Costs And Improve Customer Service, And To Simplify Organization Structure:  As a part of the overall growth plan, HSBC will invest $15-17 billion over the next three years to improve its presence in focus markets and strengthen its core infrastructure. The bank will also work on reducing business model complexity and simplifying client-facing processes. These changes are expected to result in sustainable gains across operating divisions for the bank in the long run by helping revenue grow at a faster rate than operating expenses. We forecast HSBC’s EPS for full-year 2018 to be $3.44. Taken together with our estimated P/E ratio of 16 (which we believe is appropriate for the banking giant), this works out to a price estimate of $55 for HSBC’s shares. In case you disagree with any of our forecasts, feel free to modify them in our interactive model to come up with your own forecast for HSBC What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
    T Logo
    AT&T – Time Warner Deal: Reviewing The Benefits And Risks
  • By , 6/13/18
  • tags: T TWX
  • A Federal judge ruled on Tuesday that AT&T  (NYSE:T) could proceed with its acquisition of media behemoth Time Warner, without any conditions, marking a significant win for the company as the deal was opposed by the U.S. Justice Department on antitrust grounds. AT&T expects the deal – which will integrate its vast distribution network, which spans wireless and broadband services and pay TV, with Time Warner’s media assets – to close by June 20. AT&T is counting on the media and content space to drive growth, as its core telecom business has slowed significantly. By acquiring Time Warner, AT&T would own high-quality original content, besides gaining some bargaining leverage in acquiring content from other companies for distribution, allowing it to keep content costs in check. However, the company still has a lot to prove, and investors also remain skeptical about the deal. For instance, AT&T stock declined by about 2.8% in after-hours trading on Tuesday, while Time Warner stock rose by roughly 4.5%. We have created an  interactive dashboard analysis   which outlines our expectations for AT&T (standalone) over 2018. You can modify key drivers to arrive at your own forecasts for the company’s revenues and EPS. We will be updating our model for the company following the close of the TWX acquisition. AT&T’s Mixed Track Record With Recent Deals  With the deal, AT&T will effectively be transformed into one of the largest entertainment companies in the world. However, it remains to be seen as to whether it can deliver returns to shareholders, taking into account the rise of cord-cutting and cheaper Internet-based streaming options such as Netflix. Moreover, AT&T’s recent track record with acquisitions has been mixed. The company’s most recent deal – the acquisition of satellite TV provider DirecTV – doesn’t appear to have panned out the way the company projected. While AT&T has been able to reduce content costs via the deal, the satellite TV provider actually lost roughly 554k subscribers in 2017, running counter to the company’s post-merger plan of bolstering its satellite subscriber base. The deal could also potentially put some financial strain on the company. AT&T’s total debt load stood at about $163 billion as of Q1 2018, as the company took on financing to fund the cash portion of the deal, and the figure could rise to over $185 billion after it assumes Time Warner’s debt following the close of the transaction. While AT&T has the wherewithal to service the debt (it is targeting a debt to EBITDA ratio of about 2.5x during the year post-closing), its expenditures are also expected to remain high in the near-term. Producing content is an expensive and increasingly competitive business, and the company’s capital requirements on the wireless side are also expected to accelerate, as it builds out its next-generation 5G wireless network. Moreover, unlike a horizontal merger, which results in significant cost savings, synergies are likely to be relatively limited in this case. AT&T previously indicated that it could see $1 billion in annual run rate cost synergies within three years of the deal closing, driven primarily by corporate and procurement expenditures.