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March 2017

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Despite shares sell-off from Warren Buffet and Bill Gates, the investors’ sentiment is rebuilt due to strong third quarter results

Yesterday, Deere & Company (NYSE:DE) surprised the investors through its better-than-projected third quarter financial earnings (3QFY16.) As a result, the shares observed positive flow from $79.37 to make a high of $88.09. At the time of closing bell, the shares were traded at $87.32, up 13.49%. The company is now very close to its 52-week high of $92.45, which it achieved on August 20, 2015.

3Q Financial Performance

The agricultural equipment manufacturing company not only beat the consensus of $6.056 billion estimates through its $6.724 billion revenue report, but also excited the Street with its $488.8 million (EPS: $1.55) adjusted net income disclosure, against $290.167 million (EPS: $0.943) projections. This created positive investors’ sentiments towards the company’s growth.

While conducting the earnings call, Deere & Company’s CEO and Chairman, Samuel R. Allen told the investors that the global recession hurt the farm business. This resulted in challenging construction-equipment market situation. However, the company performed better mainly due to its Agriculture & Turf business segment contribution, which reported better operating profit as compared to last year.

Insider Trading

Just prior to 3QFY16 announcement, the two billionaire activist investors, Bill Gates and Warren Buffet reduced their investments in Deere & Company. As per the filing disclosed with the US Securities and Exchange Commission (SEC) this Monday, Mr. Buffett’s Berkshire Hathaway Inc. reduced its holding by 6% to sell 1.32 million shares. Now its investment is restricted to 21.96 million shares.

On the other side, this Wednesday, Mr. Gates’ Cascade Investment, LLC filed SEC that it sold 85,000 shares in the market. Nevertheless, it remained one of the largest shareholders of Deere & Company with 31.42 million shares, which translated into 10% holding.

Apple Inc.’s (AAPL) troubles with the government are still not over – scuffle continuing over an iPhone in a drug investigation

Apple Inc.’s (NASDAQ:AAPL) encryption on its iPhone continues to be a hurdle for the government even after the FBI managed to hack into the device of San Bernardino shooter. The justice department has demanded Apple’s help in unlocking an iPhone in a drug related case in Brooklyn.

According to the representatives of the Justice department, the demand for Apple to unlock its security on the iPhone is common but since the San Bernanrdino case, Apple has been up in arms about protecting its ecosystem. According to the iPhone company, creating a software to bypass security on its phone is tantamount to providing the government a back door into the devices of all iPhone users.

The demand for Apple’s assistance was struck down in a ruling earlier this year but the department of justice is hoping to appeal this. According to representatives of the Justice Department, the device used in the Brooklyn case runs on a different operating system than the iPhone in the San Bernardino case. Through this, they imply that the same method cannot be used to break into the device in question for the Brooklyn case, a fact which cannot be confirmed since the FBI has not disclosed the third party method it used to unlock the phone.

The argument has been a difficult one for Apple to make since it has a long history of cooperation with the government and in the past, has unlocked iPhones for criminal investigations. However, Apple’s lawyers argue that past precedents of Apple choosing to cooperate are not basis for a legally binding order to do so again. The company also plans to defend against any demand for cooperation on the basis that the government has already proven its capability of hacking into a device with a newer more secure operating system and has the resources to do so with a device running an older operating system too.

Tesla has recently hired a former Apple engineer to improve the reliability of Model 3

As Tesla Motors Inc. (NASDAQ:TSLA) has set itself a goal of manufacturing up to 500,000 cars in the next two years, the company cannot afford to compromise on the quality of its self-driving cars. In its latest attempt of acquiring the best available talent, the company has employed a former Apple engineer in order to ensure that quality control is perfectly in place to match the significant increase in production. This latest recruit would be enforced with the task of utilizing his experience and expertise in quality control to perfect the company’s Model 3.

Tesla is highly rumored to have a few interesting projects in the framework and the automobile company is doing all it can to ensure that a rise in production level does not lead to a compromise on the quality of its final products. The company received numerous complaints from users regarding the quality and functionality of Model X after it released not too long ago. Fortunately, Tesla is well-aware of the shortcomings that its Model X experienced and the company is doing all it can to deliver its customers a significantly improved product.

Tesla is no longer just another startup firm, so it has shifted its focus towards a strategy that could potentially bring significant success. It brought a unique and innovative concept to the auto industry, but the company’s biggest rivals are secretly working on self-driving car projects of their own. Hence, Tesla has raised its game in order to stay ahead of its biggest rivals and offer users the most reliable self-driving car available in the market.

Over the past few years, Tesla has been forgiven for its slack in the level of quality that the company implemented. However, it was in the past and should stay there; Tesla intends to move on to greater things. The company has already received more than 400,000 registrations for its Model 3, which is why it is going all out to improve the quality of its current and upcoming self-driving models.

Netflix and Amazon to hold over two-thirds of the Western European SVoD market by 2021

While Netflix, Inc. (NASDAQ:NFLX) continues to dominate the subscription video on-demand (SVoD) market in Western Europe, Amazon.com, Inc. (NASDAQ:AMZN) video streaming platform, the Prime Instant Video, is gradually expanding. Both the American streaming platforms held about 65% of the entire market last year, according to the London-based Digital TV Research Limited.

The research firm published a press release on Thursday, expecting Netflix and Amazon to keep dominating the Western European SVoD market over the next five years. However, the world’s largest online TV network is expected to have the major chunk of the market.

Netflix’s market share is expected to reduce by three percentage points (pp) from 2015 to 47% in 2021. Conversely, Amazon’s share is estimated to grow by seven pp to 21% over the same time period, as it will expand its services to other Western European markets. Thus, both the companies will control more than two-thirds of the market. Here’s the chart of estimated SVoD subscriber forecast for Netflix, Amazon, and other SVoD services:

The firm forecasts 55.17million SVoD users in 17 countries in Western Europe by the end of 2021, compared to 24.17 million in 2015 and estimated 32.87 million this year. Over eight million new subscribers are expected to be added in 2016.

Digital TV Research Principal Analyst, Simon Murray, said in a press release: “The UK will remain market leader, but Germany will close the gap. The UK accounted for a third of SVOD subscribers in 2015, but this proportion will fall to a quarter by 2021.”

France, Italy, and Spain are expected to see more modest growth in their SVoD markets. Although Sweden and the Netherlands have less population than Spain, they are expected to have more SVoD users by 2021. Mr. Murray believes that 31.5% of the TV households in the region will have SVoD subscriptions over the same time period, compared to 14.1% in 2015. He estimates Western European SVoD market to be worth $5.87 billion in terms of revenue by 2021, more than doubling from $2.15 billion last year

While the world is glued to Tesla’s pre-order flow counter for the upcoming electric Model 3 sedan, the company is vowing on an even bigger disruption in the energy storage space

Tesla Motors Inc (NASDAQ:TSLA) has rocketed 10.6% over the past one month amidst optimism surrounding Tesla’s highly successful unveiling event for the upcoming mass market Model 3 sedan held on march 31. How do we know it was successful? For a company that barely invests in mainstream marketing efforts, Tesla has been able to since bag nearly 400,000 pre-orders for the mid-priced electric sedan –due for a rollout late next year. However, that is not where the thrill for Tesla fans ends.

The company is saying it expects to sell more energy storage units this year than the entire market did last year, when it had quietly set up its “Tesla Energy” business unit. The claim comes from a report issued by GTM Research.

 The firm’s analysts claim Tesla could sell 168.5 megawatt-hours of energy storage applications to its sister company SolarCity which is already the country’s largest supplier of solar panels. That represents a 60% jump over industry-wide sales last year and almost a six fold increase in what Tesla sold SolarCity in 2015.

Last year, the company’s CEO Elon Musk had said the company’s energy storage ventures could one day trump the company’s electric vehicles business. With Model S orders sustaining the growth momentum and order flow for Model X and Model 3 literally taking off, it seems Tesla is content on ensuring the energy business does not fall behind.

Earlier this year, the company quietly removed the 10 kWh version of the Powerwall – its home energy storage solution – to focus production mainly on the high-in-demand 7 kWh version. Apparently Tesla hopes it can ramp up production to meet order flow for that version.

It has all the reasons to be hopeful too, with the company’s massive 10 million square feet, $5 billion lithium-ion battery plant nearing completion in the Nevada desert outside of Reno. The company is aiming for a partial launch this year and eventually hopes it can expand volumes to full capacity (half a million battery units per year) by the end of the decade, at which point economies of scale could allow for a 30% reduction in battery costs – which comprise bulk of the production costs for both; stationary storage applications like the Powerwall as well as electric vehicles.

Cook has encouraged those employees to reach out to him, “who feel anxious” after the result of the US Presidential Elections 2016

Apple Inc. (NASDAQ:AAPL) CEO Tim Cook has issued a company-wide memo to address any concerns that employees might have after Republican nominee Donald Trump was elected as the next President of the United States on November 8. Cook addressed subjects like diversity and inclusion in the memo, stating that Apple is “open to all regardless of what they look like, how they worship, or who they love.”

As President Trump’s statements on people of diverse backgrounds like Mexicans, or his call for surveillance on Muslim worship houses have shaken people up, employees at Apple were reassured of the values that the company followed. Apple has some history was Trump, and the current government and law enforcement agencies as well.

Trump famously called for a boycott of Apple products and said that he’ll force the Cupertino company to manufacture its products in the country, and bring its tax money back to the US. While the FBI demanded that Apple crack the iPhone found on the person of chief suspect of the San Bernardino shootings, Rizwan Farook, the company denied to comply with that demand, of course, citing the privacy of its customers and that it would be setting a dangerous precedent by assisting the FBI with the case.

Cook quoted Martin Luther King Jr. in the memo and he said that we have to “move forward together”, acknowledging that supporters of both candidates work for Apple, and employees should reach out to anyone who’s feeling anxious after the result. The result follows a campaign for which it would be an understatement to say that it left a bitter taste in the mouth. Cook’s memo is a reassuring pat on the back for employees that nothing will change at the company they love, even after such a historic result that is bound to have effects on the country in a long-lasting way.

The Country Caller examines both the stocks from technical analysis perspective

Verizon Communications (NYSE:VZ) and AT&T Inc. (NYSE:T) are two of the prominent names in the field of communications. Both the companies have been actively seeking out opportunities to widen their customer base and have launched a lot of offers in this regard. The New York based American broadband telecommunications company, Verizon Communications, has been doing well in recent times as investors have been bullish on its stock due to which stock prices have risen more than 5% in one month.

According to S&P Global Market Intelligence, Verizon’s stock has risen more than 21% in 2016, which makes it one of the best performing stock. The street, however, maintains a bearish stance as renowned brokerages such as Robert W. Baird and Deutsche Bank AG believe that the stock is currently overpriced. The consensus TP stands at $53.25, which implies a 4% downside.

AT&T Inc. is also up more than 5% MoM, which indicates investor confidence in the Texas based multinational. The company is committed to expand its presence in the IoT as it has recently launched a starter kit for developers. AT&T is also looking to expand beyond geographical boundaries as the mobile carrier has launched a program in Africa to support small start-ups. AT&T also does not have a bullish outlook according to the street, and offers a downside of 5% from current levels. While the street remains pessimistic about both the companies, the Country Caller examines both the companies from technical analysis perspective.

Verizon Communications currently stands in a Neutral position, though there is a potential for the bears. The 14-day RSI indicates that the stock is approaching the overbought region while other indicators such as oscillators also give the same notion. The current bearish trend appears to be gaining strength while the bulls are left with very little power.

Major price level for Verizon Communication is $55.83, a break above which may proceed to $56.19 and $56.78 levels, respectively. Major support resides at $55.24, a break below which may depress to $55.01 and $54.42 levels, respectively. We maintain a bearish stance on Verizon Communications for today.

AT&T Inc. currently also stands at a Neutral region while the bulls may take lead in today’s session. The 14-day RSI currently indicates a Neutral position while other indicators such as Stochastic and oscillators indicate that the stock is approaching an overbought situation. The current Neutral trend appears to be gaining momentum. The stock went ex-dividend on July 6, which may be the reason why prices went down.

Major price level for AT&T Inc. is $42.64, a break above which may advance to $42.8 and $43.17 levels, respectively. Major support resides at $42.27, a break above which may plummet to $42.06 and $41.69 levels, respectively. We maintain a Neutral stance on AT&T Inc.

Yum Brands reiterated as Outperform by RBC Capital

Analyst David Palmer at RBC Capital maintained his stock rating of Outperform for shares of Yum! Brands, Inc. (NYSE:YUM), along with a Price Target of $97.00 for the stock, which reflects an expectation of 10.68% from its current price level of $87.64.

The analyst reiterated his stock rating as he looks forward to hear about the new initiatives at the company’s investor day which is scheduled on October 11. Following a meager miss in its 2Q Earnings per Share (EPS), the analyst at RBC trimmed down his EPS estimates for 2016 as well as 2017 from $3.68 to $3.65, and from $4.14 to $4.18, respectively. The trimmed EPS estimates still reflect an upside potential of 15% and 13% on Year-over-Year (YoY) basis, respectively for 2016 and 2017.

The rationale for lowering the estimates is the lower level of Same Store Sales (SSS) in China, as it is recovering from the protests at the South China Sea, which could present a headwind of 4-5 percentage points, and this could be offset by the acceleration in the margins recaptured and stable to contribute towards improved momentum in KFC and Taco Bell divisions.

With new SSS forecasts of 0%, 3%, -1% and 2% in 4Q 2016 for China, KFC, Pizza Hut, and Taco Bell respectively, in comparison with its previous estimates of about 2% across all four divisions mentioned before.

Despite of such changes, the Price Target has remained intact at $97 by the analyst, on back of Sum of the Parts (SOTP) analysis, which presents a yield of $64 value originating from the New Yum, and $33 value originating from Yum China. Yum China is currently being valued at a multiple of around 10x of 2017 EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization), which translates into a Price Earnings (P/E) multiple of 21x. Moreover, New Yum is currently valued at a multiple of 14x of its 2017 EV/EBITDA, which translates into a Price Earnings multiple of 23x.

The analyst listed plenty of reasons why Dollar General is going to lose value

Dollar General Corp. (NYSE:DG) was slightly below the consensus estimate on both EPS and Revenue front for the 2nd quarter of fiscal year 2016 which was reported on August 25. Street Watchdog Research remained sidelined on the stock for six days following the Q2 earnings, but has finally broken silence and said that the stock is headed towards an even greater slump than what it observed five days ago.

Before the earnings report, the stock was trading in excess of $91 and compared to the current trading price of $75.49 in the premarket, a decline is suggested of almost $15.5 per share, which is about 17% of its total value. Watchdog Research believes that the stock is going to slump further and cited the following reasons.

Revenue growth is likely to decelerate over the next few quarters and this quarter had the worst growth rate of the previous six quarters. The growth was about 9.9% at the end of 2014 and has dropped to 5.81% for the 2nd quarter of the year 2017. Profit growth has continued to decelerate alongside revenue Balance sheet grows weaker as liquidity has dropped significantly down from $580 million in 2015 to only $182 million. Debt load has increased from $1.96 billion to $2.72 billion, further restricting profitability Price cuts for its highest selling products will surely have a negative impact on revenue and gross margins.

From the above highlighted points, it is apparent that there is no single culprit behind the ongoing weakness of Dollar General but for the most part the blame lies with the company’s management for not coming up adequate policies. The analyst cut his price target down to $65 which suggests almost 14% downside to current trading levels. The analyst opinion for the stock consists of nine buy, seven outperform and 10 hold ratings. The stock currently trades at a price of $75.26 and has lost 0.52% in the premarket trading.

Freeport-McMoRan Inc (FCX) vs Chesapeake Energy Corporation (CHK): Technical Analysis

Freeport McMoRan Inc. (NYSE:FCX) and Chesapeake Energy Corporation (NYSE:CHK) are two of the biggest oil producers in the US. However, both these companies have lately been going through a tough time as the global oil industry continues to suffer. The international oil prices have plummeted by over 50% since June 2014, while it has been difficult for oil producers to report profits in their books. The international body consisting of major oil producing nations, the Organization of Petroleum Exporting Countries (OPEC), has lately been trying to manage supply, albeit a bit unsuccessfully.

The Country Caller discussed earlier today that Iraq has refused to reduce its oil production, a news that might signal a bearish outlook for international commodity prices. The Country Caller today inspects both these oil stocks from a technical analysis perspective, and tries to predict possible investor reaction.

Freeport McMoran shares seem to be in a Neutral state, while there is still a potential for the bulls to dominate. The 14-day RSI stands at a Neutral position, whereas indicators such as oscillators also hint at bull-friendly conditions. Neither of the two market participants seem to be more dominant, while the current bullish trend appears to be moderate. The oil stock is currently trading below its 50-day moving average.

Major price for Freeport’s stock today is $10.21, a break above which will lead to $10.37 and $10.66 levels respectively. Major support resides at $9.92, a break below which shall depress prices to $9.79, and $9.50 levels, respectively. The stock might trade in the negative territory today, due to an expected drop in commodity prices.

On the other hand, Chesapeake shares also seem to be in a neutral state, hinting at a possibility of bull dominance. The 14-day RSI, oscillators, and stochastic all show potential for the bulls. The current bullish trend seems to be weak, while neither of the market participants seem strong. The stock is currently trading above its 50-day moving average.

Major price level for Chesapeake stock today is $7, a break above which shall lead to $7.31 and $7.83 levels, respectively. Major support resides at $6.48, a break below which shall put prices back to $6.27 and $5.75 levels, respectively.