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January 2019

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The firm believes that the management might have been over ambitious regarding its long term goals

General Electric Company (NYSE:GE) has been reaffirmed at Market Perform rating following its digital investor day. Analyst Christopher Glynn believes that the company’s guidance and future plans do not warrant an upgrade and was skeptical regarding the company’s ability to execute according to the laid out plan. The digital investor day was largely focused around the company’s large scale industrial transformation that helped secure a revenue of $48 billion in terms of industrial services during the year 2015.

However, it lacked insight regarding the company’s future growth plans and how is it going to execute in accordance with the said plan. Mr. Glynn notes that GE’s management indicated that none of the business segments of GE has enough resources to completely develop its industrial cloud services App and will require outside help nonetheless.

Mr. Glynn believes that the targets set by GE’s management are a tad unrealistic, however, refrained from any lofty comments the visibility regarding such is severely limited. There is an abundance of growth potential in the industrial app and services market but its connection with GE’s core business is minimal at best. The analyst highlighted that GE lacks two important components of the development process, namely, lack of domain knowledge and lack of expertise and resource in the field of digital and business analytics in order to develop an app related to cloud services economy.

The management guides for $1.4 billion of incremental investment on digital services and new initiatives in both vertical and horizontal perspective. Oppenheimer continues to remain on the sidelines without issuing a price target on the stock. The analyst opinion for GE consists of ratings from 19 analysts which are distributed as, six strong buy, four buy, eight hold and one underperform. The stock now trades at a price of $29.62, having gained 1% since the opening of the premarket trading session.

Will OPEC Wednesday meeting be beneficial for the future of oil prices?

Chesapeake Energy Corporation (NYSE:CHK) performed well in the market after the presidential election of 2016. The stock has followed the upward trend because of pro policies of Donald Trump for energy companies and the expectation of OPEC to cut down oil supply. The energy giant has followed a similar price movement as compared to oil prices.

Oil prices have been falling for the past few days ahead of the November 30 OPEC meet. The oil prices have been falling in fear that the OPEC countries will not reach an agreement to reduce oil supply, which can lead to an increase in prices. The Brent Crude futures as of 0749 GMT traded 0.74% lower, while per barrel price fell down to $46.89. The prices fell almost 3% on Friday upon a disagreement between the oil producing nations on who will cut oil production and by how much.

Energy minister for Saudia Arabia, Khalid al-Falih, said on Sunday that the oil market can balance itself in 2017 even if the producers do not interfere and that the current levels of output will be justified. This points to a possibility of disagreement and that no deal may be struck in the Wednesday meeting. Saudia Arabia has refused to attend the meeting due today as it said that the OPEC has not reached an internal agreement.

Morgan Stanley expects that there will be a paper deal signed in the upcoming meeting. The agreement, if reached, will still not guarantee a supply cut soon enough, as producers trade supplies ahead of at least 2 months.

The energy giant stock prices fell by 0.75% in the last session and closed in at $6.59. The prices can be expected to decline  further in the upcoming sessions leading to the meeting as uncertainty prevails in the market.

The Country Caller takes a look at why Chesapeake has to pay $438 million to bondholders

Chesapeake Energy Corporation (NYSE:CHK) has done well to bring in efficiencies and improve investor sentiment. The stock has risen in the past six months more than 60%. The company was thrashed by investors due to a more than 50% decline in crude oil prices. During the beginning of the year, there were rumors that the company might go bankrupt but the management has done well to put these rumors aside.

Chesapeake is trying its best to mitigate costs and save precious cash in order to maintain liquidity due to the monumental decline in crude oil prices. On Thursday, the company faced a minor blow as the federal appeal court passed a decision against it.

According to Reuters, Chesapeake’s efforts to avoid a payment of as much as $438.7 million went against its favor, as the US Federal appeals court asked it to make the payment.  The decision was unanimously agreed by 3-0 vote.

Chesapeake, according to the court, had taken a fair bit of time in telling its bondholders that it had plans to redeem its $1.3 billion worth of bonds in 2013. The parties standing against the company, including Bank of New York Mellon Corp and holders of Chesapeake 6.77% notes expiring in 2019, believed that due to the early redemption the company sought to a special “make-whole” price.

Chesapeake was disappointed following the ruling and regarding the issue said, “We are disappointed with the ruling and will continue to pursue our legal options.” It added, “We were prepared for this potential outcome and have reserved the liquidity to address it.”

This comes as a bad development for Chesapeake who in the current environment was undertaking efforts to reduce debt.  We would have to wait and look how the company utilizes its legal options.

The chip maker’s top executives provided their future outlook for the business amid the ongoing slowdown in mobile and PC growth

Micron Technology, Inc.’s (NASDAQ:MU) outlook for the coming quarters wasn’t pretty, but well within the market’s expectations as the company continues to face headwinds from a precarious DRAM environment that is still quite a far way from stabilizing. The company’s earnings call provided an opportunity for analysts to get an insight on where the company was headed and how it expects to respond to the headwinds.

The $11 billion company’s second quarter of fiscal year 2016 earnings reported a quarterly loss after a long time. The chief reason was declining PC sales, although Micron’s mobile growth acted as a buffer for that slowdown. Now that mobile revenue has declined 40% quarter-over-quarter, the chip maker is having issues again, since even IDC statistics guide for a slowdown in mobile growth. In contrast, CEO Mark Duncan views this as a temporary setback as he expects that with the 20 nanometer DDR4 chip, designed specifically for customers who need low-power microprocessors, would be adopted quickly and memory demand would witness meteoric growth by the end of the year. However, based on the mobile growth slowdown IDC figures have guided for, DRAM chip demand would rise, at best, slowly.

One of the most highlighted problems for Micron, however, is the price for DRAM which has nearly hit rock bottom thanks to a rough combination of intense competition, surplus, and seasonal decline in demand. This has weighed on Micron’s margins, which are expected to narrow down from 20% this quarter to 16.5-19% in the coming quarter. Micron believes this pricing pressure will continue despite the company’s great cost-cuts, as indicated by lower average selling prices (ASPs). More disciplined production by competitors is a must and likely to happen soon as DRAM manufacturers like Samsung are witnessing narrowing gross margins as they register billions in operating loss.

Micron, however, is not going to take its foot off the pedal before its rivals. The company has capacity and it feels that unless the industry at large becomes more disciplined in production, it would be foolish for Micron to take the first step, unless it sees negative cash margins. Considering how hard Micron has worked to cut costs – yet forced to pay fixed costs despite the slowing production – this seems like a rational decision. However, even if other DRAM manufacturers are of the opinion, a price inflection might still be a long way off.

The chip maker’s foray into the automotive sector remains a solid investment, with an 18.9% operating margin and the promise of strong growth going forward due to the stickiness in the automotive industry. Memory demand for cars are expected to grow, and while it makes a negligible share of the company’s revenue right now, it is bound to change in the future.

Watch Dogs 2 and Battlefield 1 are the big hits of this week’s Deals

Microsoft Corporation (NASDAQ:MSFT) has revealed the Xbox Live Deals with Gold for the week starting January 24. The biggest titles include Watch Dogs 2Battlefield 1, and Assassin’s Creed: Chronicles.

For Xbox One, Battlefield 1 – both Deluxe and Ultimate edition – as well as the Battlefield 1 Titanfall 2 Bundles are up for sale at 40%, 25%, and 50%, respectively. Titanfall 2 Standard and Deluxe versions are also available for sale on their own at 50% off, while Assassin’s Creed: Chronicles Trilogy is also available for 50% off. Watch Dogs 2 Standard, Gold, and Deluxe edition are all also part of the sale at 33% and 40% off.

For the last-gen Xbox 360, this week brings with itself the Sega/Sonic Publisher sale which means sale on titles including Sonic & KnucklesSonic & Sega RacingSonic Adventure 1 & 2 with Battle Mode DLC, Sonic the FightersSonic the Hedgehog 1, 2, 3, and 4 Episode I & II, as well as Sonic Unleashed and its DLC Adventure Packs Apotos and Shamar, Empire City & AdabatHoloskaMazuri, and Spagonia. Moreover, DarkStar OneBlood Knights, and Bionic Commando are also up for grabs on the Xbox 360. You can head over to the official Major Nelson site for the full list of games in this week’s Deals with Gold.

Ford’s decision is likely to adversely impact the Mexican community, as it would lead to a dramatic decline in expected job creation in 2017

On Friday, January 6, Ford Motor Company (NYSE:F) expressed its sudden plan to cancel a planned car plant opening in Central Mexico, worth $1.6 billion. The move highlights the rising risk President-elect Donald Trump’s agenda presents to the broader US economy. It also frightens all the suppliers who had bet on the company’s growing customer base with the establishment of the plant. Consequently, Ford shares closed in the red yesterday, declining 0.08% from their last close.

Reuters further cited Julian Eaves – managing director of a Mexican rubber components maker – as stating that several auto parts makers had extended their operations in Mexico in anticipation of the automaker’s expansion. This is because the region’s industry is 70% dependent on the auto sector.

Consequently, Mr. Eaves believes that Trump’s criticism and cancellation of Ford’s plant will affect the local community quite adversely. The loss could go as high as billions of dollars during the next five years, owing to lower-than-expected job creation. The automaker’s move marks the beginning of Mexico’s pain under the new administration, which promises to bring back jobs to the US.

According to Reuters, the $49.16 billion company had earlier moved production to Mexico due to drastic decline for small car demand in the US. However, the company had been Trump’s target, months before his victory in November. He now threatens to impose heavy border taxes on companies producing outside the US. This decision will not only impact Ford but also other major automakers in the country, such as General Motors.

FactSet data suggests that out of 26 analysts reviewing the stock, six recommended it as a Buy, two advocate an Overweight, 15 rated it a Hold, whereas three analysts suggested Sell. Ford’s consensus price target also stands at $12.93, with 1.33% upside potential over the last close.

The Cupertino based company’s CEO, Mr. Tim Cook has reaped the benefits of his contract to the fullest by making a whopping $373 Million

Apple Inc. (NASDAQ:AAPL) CEO, Tim Cook has over the period of his 5 year tenure, raked in a staggering $373 Million in stocks. Bloomberg states that CEO received 98.6% of the units which were available to him in five year stint thus far and can stand to earn the same amount over the remainder of his tenure.

As discussed in a previous article on TheCountryCaller, the Apple CEO stood a chance to earn more than a $100 million stock bonuses tied to his contract with aspects related to performance and longevity. According to Bloomberg, the company met the required rating as it gave a 61% return over the past three years.

Mr. Cook also took matters into his own hands at times by announcing stock splits at times when sales slowed to make sure the company outperformed the S&P 500. Growth was reignited when he issued a share-buyback program just before he introduced the iPhone 6.

At the time of his appointment, the CEO voluntarily changed the terms of his bonus contract to a performance based return rather than getting a specified amount in two installments over the 10 year tenure. The Apple board of directors took this as a positive and announced that Tim Cook’s example shall be taken forward and the future CEO’s will also have a performance based, rather than an installment of stock bonuses.

The CEO also stated that he would give off most of the amount to various charities and also to pay off for his nephew’s education. Tim Cook isn’t the first CEO in a long list of CEOs to have given away their fortune in various philanthropist projects with Bill Gates, Michael Bloomberg and Mark Zuckerberg also in the list.

Subsequently, as successful as the company has been under the leadership of Tim Cook, the innovative side in the Apple devices have seen a hit as Mr. Cook has been criticized of not introducing ideas which are game changers. Rather, he has simply taken the safer way around things and kept making his way through the business. Apple has, however, seen the most successful period of its company under the guidance of Mr. Cook.

New Zealand plans to introduce content and classification requirement for SVoD services, similar to those followed by broadcasters

Netflix, Inc. (NASDAQ:NFLX) has been operating in New Zealand for more than a year now without being bothered much by the nation’s regulations. However, things are about to change soon, as Broadcasting and Communications Minister Amy Adams seeks to overhaul the current laws regulating the subscription video on demand (SVoD) services.

TVNZ recently reported that the upcoming rules would expose content by SVoD service providers to the same Broadcasting Act which reinforces standards for TV stations. The government seeks to introduce new law which would take into account SVoD services, reinforcing the same advertising controls and classification requirements applied on traditional broadcasters.

While the new regulations will affect Netflix, they would not target YouTube and Facebook. Ms. Adams said the government’s only aim is to regulate the mainstream entertainment sites, rather than focusing on all type of online video content.

“On-demand content is either regulated inconsistently or not at all, which can potentially expose the public to harm, as all content is not subject to the same classification standard,” Ms. Adams said, adding that new standards are not for Facebook, YouTube, or user-generated platforms, as well as for current affairs and news-related sites.

There are some complications regarding SVoD content which can be covered by the Film, Video and Publication Act, the Broadcasting Act, or not at all. However, she believes that the upcoming changes would overcome those confusions.

Ms. Adams stated that the Broadcasting Standards Authority, watchdog for radio and TV, would likely govern the new standards which would make it compulsory for SVoDs to fulfill the same content and classification requirements which are currently being fulfilled by broadcasters. She explained that many local consumers are now watching TV online; however, the classification rules that many people who are dependent on do not exist there.

The users demand the same regulations for online content to give them an idea if, for example, a TV series can be watched with family. Earlier today, The Country Caller reported that the classification system in Australia is leading to delays in release of new TV shows and movies, which could affect its subscriber numbers as local competitors are rising. If the regulators in New Zealand turn out to be as slow as the Australian ones, that would definitely create more problems for the company in Australia.

The third installment proudly breaks its street-date

FromSoftware’s Dark Souls III is one of the most anticipated games of this year and fans have been eagerly waiting for its release which is just a couple of days away. As we wait for the game’s official release, it looks like the Middle-East region is in the headlines yet again as copies of Dark Souls III have made it to retail well before the official release date.

According to our sources from the Middle-East region, Dark Souls III is now widely available in local stores a good four days before release date. The release of the game is being openly advertised in local stores and if you happen to be in Dubai, Sharjah or adjacent areas, you can buy the game from your nearest retailer.

Games being leaked before their official street dates are not something new in the Middle-East. We have seen major titles available well before release dates in the area with the most recent being Ubisoft Entertainment SA’s (EPY:UBI) The Division which was available almost seven days before its official release. Not only these, but other popular games like The Order 1886, Witcher 3 and many more have been traded openly well before official release dates in the region.

Digging into the various markets in the region, we find that bringing in games before release dates allows retailers to charge exorbitant prices for the games. One of the retailers told us that bringing in a game more than ten days before release date (which happens very often in the region) allows them to charge between 100-120 dirhams (almost $30) on top of their official price (usually 200-220 dirhams in the region). The retailer tells us that the premium price is simply because of the fact that users are able to play the game before everyone else around the world and in most cases, half of these early buyers end up finishing the game by its official release date and selling them in the local used games market.

The retailer was kind enough to provide us pictures of the box and the contents of the game which includes the standard packaging along with a special 23-page mini strategy guide by Prima. Another point worth mentioning is that the pictures of the disc depict a region 2 UK version.

While there is not a very long gap between the official release date and the leak date for Dark Souls III, it certainly tells us the state of regulations and control in the region and makes us wonder if this could spread to other parts of the world as well.

Is weakness in Jabil Circuit, Inc. guidance, an opportunity to buy Apple Inc stock?

Jabil Circuit, Inc. (NYSE:JBL) recently posted its earnings for second quarter of fiscal year 2016, which missed Street analysts’ expectations, on March 16. The guidance announced by Jabil for third quarter further disappointed the market and there was a drop in stock value of company by 9.11% following earnings release. Jabil reported revenue for the quarter stood at $4.4 billion with earnings per share (EPS) of $0.57. However, the Street was expecting revenue of $4.5 billion with EPS of $0.60.

Moreover, in the earnings release, Jabil’s management announced its guidance for EPS in the range of $0.12-0.18; conversely, the Street had some higher expectation of $0.51 EPS for the quarter. As per Cowen and Company, the weakness in Jabil posted earnings and guidance is an opportunity to buy Apple Inc. (NASDAQ:AAPL) stock, according to a note published for investors by the firm.

The analyst at the research firm doesn’t cover Jabil stock neither is very optimistic about Apple but he believes that the component supply chain will react negatively to Jabil weakness which is perceived as a lagging indicator for Apple. Moreover, Jabil’s CEO Mark Mondello’s statement, “Our updated outlook for the third quarter reflects reduced demand in mobility,” backs the analyst’s prediction of softness in Apple’s revenue in the third quarter, as Jabil’s electronic component is 25% dependent on Apple’s iPhone.

The overall market is of a similar stance. Jabil couldn’t benefit from Apple’s success, but, softness in Jabil’s guidance will have an adverse effect on Apple’s outlook.