Copyright © Daniel Cullinane CPA.
MOST VALUABLE BRAND
Honda Motor Co. Ltd. (NYSE: HMC) and General Motors Co. (NYSE: GM) announced Wednesday that Honda will make a $750 million equity investment in GM’s Cruise autonomous vehicle subsidiary and contribute $2 billion over the next 12 years to “explore global opportunities for commercial deployment of the Cruise network.”
GM acquired Cruise in 2016 for $1 billion and early this year sold a 19.6% stake in the firm to Softbank for $2.25 billion. At that time, GM Cruise, as it is now known, was valued at $11.5 billion. In Wednesday’s announcement, Cruise’s valuation was said to be $14.6 billion, including the Softbank investment. At the current valuation, Honda’s stake in Cruise totals around 5.7%.
GM CEO Mary Barra said of the Honda investment:
This is the logical next step in General Motors and Honda’s relationship, given our joint work on electric vehicles, and our close integration with Cruise. Together, we can provide Cruise with the world’s best design, engineering and manufacturing expertise, and global reach to establish them as the leader in autonomous vehicle technology – while they move to deploy self-driving vehicles at scale.
Honda Executive Vice President, Representative Director and Chief Operating Officer Seiji Kuraishi said:
Honda chose to collaborate with Cruise and General Motors based on their leadership in autonomous and electric vehicle technology and our shared vision of a zero-emissions and zero-collision world. We will complement their strengths through our expertise in space efficiency and design to develop the most desirable and effective shared autonomous vehicle.
Cruise CEO Kyle Vogt added:
The Honda partnership paves the way for massive scale by bringing a beautiful, efficient, and purpose-built vehicle to our network of shared autonomous vehicles.
GM plans to launch a fleet of driverless cars based on the Chevy Volt sometime next year in a city that has yet to be named.
Honda and GM already have teamed up to develop fuel-cell technology and invested $85 million last year in a joint fuel-cell manufacturing venture at GM’s battery assembly plant in Michigan.
Honda’s stock traded down 2.5% early Wednesday at $29.68, in a 52-week range of $28.00 to $37.29. The consensus price target on the stock is $35.21.
GM stock traded up about 3.3%, at $34.41 in a 52-week range of $33.20 to $46.76. The low was posted Tuesday after a poor report on the company’s September sales. The consensus price target on the stock is $45.63.
The annual Interbrand list of the 100 most valuable brands is out. Apple Inc. (NASDAQ: AAPL) is the world’s most valuable brand at $214 billion, up 16% from last year. The top 10 spots on the list are ruled by the tech industry.
The new study, The Best Global Brands 2018, is the 19th annual installment of the list. Which brands are included is based on a complex formula Interbrand has put together. Although it does not give precise details of the methodology, it includes financial strength, an analysis of where the brand sits among competitors and a social media factor.
Google, the search engine of Alphabet Inc. (NASDAQ: GOOGL) ranks second with a $156 billion, up 10%. Amazon, the e-commerce division of tech giant Amazon.com Inc. (NASDAQ: AMZN), ranks third with a brand value of $101 billion, up 56%. Amazon’s sales have surged in the past year as it has introduced a long list of new consumer electronics devices and its Prime membership program has passed 100 million members worldwide. Next on the list, Microsoft Corp. (NASDAQ: MSFT) has a brand value of $93 billion, up 16%. This is followed by Coca-Cola Co. (NYSE: KO) with a valuation of $66 billion, down 5%. South Korean consumer electronics and smartphone company Samsung, next, has a valuation of $60 billion, up 6%. Toyota Motor Corp. (NYSE: TM) is one of two car companies in the top 10. It has a valuation of $53 billion, up 6%. Mercedes ranked just behind it at $49 billion, up 2%. Facebook Inc.’s (NASDAQ: FB) value dropped 5% to $45 billion. Rounding out the top 10, McDonald’s Corp. (NYSE: MCD) has a value of $43 billion, up 5%.
Tech companies also ruled the part of the list that had the largest growth in brand value. Amazon was at the top, followed by Netflix at $8 billion, up 45%, and Salesforce, up $23% to $6 billion.
Five new companies were added to the list: luxury goods brand Chanel with a value of $20 billion, music service Spotify at $12 billion, liquor brand Hennessy at $5 billion, game company Nintendo at $5 billion and Japanese car company Subaru at $4 billion.
Interbrand CEO Charles Trevail described key factors shared by companies on the list:
We live in a world where consumers have more power than ever, curating their own personal brands like we’ve never seen before. Brands such as Amazon, Spotify, and Netflix lead in this era by improving our lives in very personal ways.
Apple, with its suite of hardware products, artificial intelligence aimed at the consumer, and services from music to apps, certainly qualifies.
NATURAl GAS PRICE SLUMP
The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stockpiles increased by 98 billion cubic feet for the week ending September 28.
Analysts were expecting a storage injection of around 90 billion cubic feet. The five-year average for the week is an injection of 84 billion cubic feet, and last year’s storage increase for the week totaled 44 billion cubic feet. Natural gas inventories rose by 46 billion cubic feet in the week ending September 21.
Natural gas futures for November delivery traded down about six cents in advance of the EIA’s report, at around $3.19 per million BTUs, and fell further to nearly $3.14 after the report was released. Natural gas hit a year-to-date high of around $3.26 earlier this week.
For the period between October 4 and October 10, NatGasWeather.com predicts “moderate” demand and offers the following outlook:
The West will see weather systems bring showers with cooling conditions, including showers across California. The southern US up the Mid-Atlantic Coast will remain very warm with highs of 80s to lower 90s. The Great Lakes and Northeast will be mostly mild to warm with highs of 60s to lower 80s due to strong high pressure, although with cooler exceptions near the Canadian border as weather systems provide glancing blows.
Total U.S. stockpiles increased slightly week over week to 18.2% below last year’s level and also rose slightly to 17.5% below the five-year average.
The EIA reported that U.S. working stocks of natural gas totaled about 2.866 trillion cubic feet at the end of last week, around 607 billion cubic feet below the five-year average of 3.473 trillion cubic feet and 636 billion cubic feet below last year’s total for the same period. Working gas in storage totaled 3.502 trillion cubic feet for the same period a year ago.
Here’s how share prices of the largest U.S. natural gas producers reacted to this latest report:
Exxon Mobil Corp. (NYSE: XOM), the country’s largest producer of natural gas, traded down about 0.2%, at $85.99 in a 52-week range of $72.16 to $89.30.
Chesapeake Energy Corp. (NYSE: CHK) traded down about 0.7%, at $4.70 in a 52-week range of $2.53 to $5.60.
EOG Resources Inc. (NYSE: EOG) traded down about 0.3% to $129.99. The 52-week range is $95.36 to $131.60.
Meanwhile, the United States Natural Gas ETF (NYSEARCA: UNG) traded down about 2%, at $26.32 in a 52-week range of $20.40 to $27.43.
PRICE INDEX UP
Ford Motor Co. (NYSE: F) sold 75,092 F-Series pickups in September, topping sales of Fiat Chrysler Automobiles N.V. (NYSE: FCAU) Ram pickups of 51,856 units. For the first three quarters of 2018, Ford has sold 659,018 F-Series pickups to Ram’s total of 375,583. General Motors Co. (NYSE: GM), which no longer reports monthly sales results, reported third-quarter total sales of 424,403 Chevy Silverado pickups and 152,242 GMC Sierra pickups, for a total of 576,645 units.
Ford F-Series pickup sales rose 3.1% year over year for the first nine months of the year compared to a sales dip of 0.6% for the two GM models. Ram pickup sales were flat over the same period.
Other full-size pickups on offer in the United States are the Tundra from Toyota Motor Corp. (NYSE: TM) and the Nissan Titan. Tundra sales for September totaled 11,159, up 6.7% year over year. For the first nine months of the year, Toyota sold 87,782 Tundra pickups, up 2.5% year over year.
Nissan reported September Titan sales of 5,907 units, up 56.6% year over year. For the first three quarters of 2018, Titan sales totaled 37,839, an increase of 6.4% over the same period in 2017.
Toyota sold 22,265 of the company’s midsize Tacoma pickups in September, up 23.3% compared with September of last year. Tacoma’s total sales for the three quarters ring in at 183,909, up 24.8% year over year. Tacoma is the top-selling midsize pickup in the United States for the year to date.
Nissan’s midsize Frontier pickup sold 8,718 units in September, a leap of 70.6% year over year. Sales for the first three quarters rose 7.9% to 59,574 units.
Honda Motor Co. Ltd. (NYSE: HMC) sold 2,536 midsize Ridgeline pickups in the month, down by 8.9% year over year. Honda Ridgeline sales of 22,804 units in the first nine months of 2018 are down 14.2% year over year.
GM’s midsize Chevy Colorado has sold 104,838 units through the first nine months of the year, and the GMC Canyon has sold 25,273 units.
Ford’s 2018 F-Series is new and has beaten both GM and FCA to market with a new truck. The 2019 GM trucks are due by the end of the year, and Ford is expected to have its new 2019 Ranger midsize pickup to dealers late this year or early next.
For the year to date, Ford has captured 40.9% of pickup sales among the Detroit Three. GM Silverado sales took 26.3% of sales, Sierra nabbed 9.4% and Ram took 23.3%.
In 2017, Ford’s share of the full-size pickup market came in at 39.7%, while Chevrolet Silverado nabbed 26%, GMC Sierra took 9.6% and Ram rang up 24.7%.
HONDA MAKES INVESTMENT
Tesla released Sep-18 production and delivery numbers this morning. While the numbers were in line with guidance, the update is incremental, given Tesla investors have been conditioned to brace for negative news. This is a good day for Tesla. The focus now shifts to the Sep-18 earnings report (likely late this month), specifically the update on cash flow and profitability.
Model 3 production totaled 53,239 vs Loup estimates of 53,398, compared to 28,578 in the Jun-18 quarter.
Model 3 deliveries totaled 55,840 compared to the Street at 51.9K.
S&X production totaled 26,903 vs Loup estimates of 24.8K.
S&X deliveries totaled 27,660 compared to the Street at 25.5K
Average weekly Model 3 production increased to 4,095 vehicles from 2,198, an 86% q/q improvement.
Vehicles in transit this quarter totaled 11,824, compared to 15,058 in Jun-18. While Jun-18’s high number could be attributed to gaming the U.S. tax credit, this quarter highlights the issue of delivering cars to customers at volume without a dealer network. This is a lower-order challenge and we don’t believe it will impact the company’s goal to sustain profitability.
The Cash Flow and Profitability Question Remains
As expected, Tesla did not include updates on cash flow and profitability in today’s announcement. Those details will be part of the formal Sep-18 earnings report. We believe, based on the level of Model 3 deliveries, of which 11.1K were vehicles in transit from the Jun-18 quarter, the company will likely be cash flow positive (excluding the impact of non-recourse lease financing) and slightly profitable. This is a step in the right direction, but more work remains. Specifically, the Dec-18 quarter will not enjoy quite as much of a vehicles-in-transit tailwind, and the Mar-19 quarter will face a demand headwind form the declining U.S. tax credit.
Cash on Hand
We estimate Tesla needs about $1.5B on hand to sustain operations, and they ended the Jun-18 quarter with about $2.3B. Conceptually as production volume grows faster than receivables in 2019, minimum cash needed to sustain operations will likely increase to our estimate of ~$2B. Bottom line is cash is tight. Based on today’s updated numbers, we expect the cash balance in Sep-18 to increase slightly. This assumes Model 3 will reach its target of 15% gross margin.
Tesla, of course, has three looming convertibles notes that are due in the next year, which will impact cash. The first is $230M due in November (conversion price is significantly out of the money), for which the company is sufficiently funded to service. The second is $920M due in March of 2019 (convertible at $360). Following the Dec-18 quarter, we expect the company will have cash on hand to service the $920M note. There is also a chance the debt converts if the share price is above $360 on the due date. The last note due in the next year is $566M due in November of 2019. Similar to the November ’18 note the conversion price is significantly out of the money.24/7 Wall St.
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Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.
OCTOBER NEWSLETTER 2
Stocks traded lower early Thursday after having hit all-time highs this week on the heels of a North America trade pact and after comments by Federal Reserve Chair Powell about the strength of the economy. The 10-year Treasury yield is now up to 3.20% and the 30-year Treasury yield is 3.36%, and now the 3% prior resistance may be support.
While the U.S. indexes are effectively at all-time highs, many investors have seen lower upside from buying on market pullbacks than in prior years. Now the investing community has to consider how to position their investments for the rest of 2018 and into 2019.
24/7 Wall St. reviews dozens of analyst research reports each day of the week to find new ideas for investors and traders alike. Some analyst reports cover stocks to buy, but some of them cover stocks to sell or to avoid.
Additional commentary has been added on most of the daily analyst reports, along with trading history. The consensus analyst price targets and other valuation metrics are from the Thomson Reuters sell-side research service.
These are the top analyst upgrades, downgrades and initiations seen on Thursday, October 4, 2018.
Ally Financial Inc. (NYSE: ALLY) was reiterated as Outperform and the price target was raised to $35 from $34 (versus a $26.85 prior close) at Oppenheimer.
Atlassian Corp. PLC (NASDAQ: TEAM) was downgraded to Equal Weight from Overweight at Morgan Stanley. Shares closed at $92.90 on Wednesday, in a 52-week range of $36.09 to $98.21.
Chesapeake Energy Corp. (NYSE: CHK) was started as Equal Weight and the price target was set at $5 (versus a $4.73 close) at Morgan Stanley. Chesapeake has a 52-week range of $2.53 to $5.60 and a consensus target price of $4.49.
Chipotle Mexican Grill Inc. (NYSE: CMG) was started with an Overweight rating and assigned a $500 price target (versus a $436.44 close) at KeyBanc Capital Markets. The stock indicated marginally higher on Thursday, and it has a consensus target price of $466.63 and a 52-week trading range of $247.52 to $530.68.
Cloudera Inc. (NYSE: CLDR) was up 1% at $17.08 on Wednesday but was indicated up 22.5% at $20.90 on Thursday after announcing a $5.2 billion merger with HortonWorks. Stifel reiterated it as Buy and raised the price target to $25 from $22.
Cummins Inc. (NYSE: CMI) was raised to Overweight from Neutral and the price target was raised to $188 from $143 (versus a $150.59 close) at Piper Jaffray.
Electronic Arts Inc. (NASDAQ: EA) was started with a Buy rating at Buckingham Research, which assigned a $143 price target (versus a $116.39 close). EA has a consensus target price of $140.92 and a 52-week range of $99.63 to $151.26.
HP Inc. (NYSE: HPQ) was reiterated as Buy and the target price was raised to $32 from $29 (versus a $26.06 close) at Maxim Group.
IAC/InterActiveCorp (NASDAQ: IAC) was reiterated as Buy and the price target was raised to $260 from $240 (versus a $212.31 close) at Jefferies.
Intuit Inc. (NASDAQ: INTU) was reiterated as Buy and the price target was raised to $265 from $250 at Argus.
Match Group Inc. (NASDAQ: MTCH) was reiterated as Buy and the price target was raised to $70 from $55 (versus a $57.29 close) at Jefferies.
McDonald’s Corp. (NYSE: MCD) was started with an Overweight rating and assigned a $185 price target (versus a $164.66 close) at KeyBanc Capital Markets. McDonald’s has a 52-week range of $146.84 to $178.80, and it had a consensus target price of $184.19.
National Storage Affiliates Trust (NYSE: NSA) was raised to Buy from Hold and the target price was raised to $31 from $30 (versus a $24.67 close) at Jefferies.
PepsiCo Inc. (NYSE: PEP) was down 1.1% at $107.52 on Wednesday and was indicated down another 0.85% at $106.60 on Thursday. Morgan Stanley maintained the shares as Overweight but lowered the target price to $125 from $127.
Snap Inc. (NYSE: SNAP) was reiterated as Sell and the price target was lowered to $7 from $9 at Evercore ISI, which cited lower user engagement as its app customers move to other platforms and based on the competitive threat from Facebook’s Instagram. Snap shares closed up 0.6% at $8.23 on Wednesday, in a 52-week range of $8.01 to $21.22. Its shares were indicated down another 4.6% at $7.85 on Thursday.
Splunk Inc. (NASDAQ: SPLK) was reiterated as Overweight and the price target was raised to $132 from $120 at KeyBanc Capital Markets.
Starbucks Corp. (NASDAQ: SBUX) was started with an Overweight rating and assigned a $65 price target at KeyBanc Capital Markets. Starbucks shares closed down 0.2% at $55.47 on Wednesday and were indicated down another 0.1% on Thursday despite the positive rating. The 52-week range is $47.37 to $61.94, and the consensus analyst target is $57.96.
Wendy’s Co. (NYSE: WEN) was started with a Sector Weight rating at KeyBanc Capital Markets. The stock closed up 1.5% at $17.22 on Wednesday and has a consensus target price of $20.10.
Yum! Brands Inc. (NYSE: YUM) was started with a Sector Weight rating at KeyBanc Capital Markets. The stock closed down 0.2% at $89.76 on Wednesday, and it has a 52-week range of $74.00 to $91.27.
Also, Jefferies has four top franchise picks that could be big winners in the fourth quarter.
Wednesday’s top analyst calls included Analog Devices, Halliburton, Neovasc, Nike, NXP Semiconductors, PepsiCo, Skyworks, Whiting Petroleum and many more.
DOMINATES THE MARKET
Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778
2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778
U.S. home prices rose 5.5% in August compared with the same month a year ago, according to data from CoreLogic released Tuesday in the research firm’s Home Price Insights monthly report. The data include sales of distressed properties.
The August index increase represents the slowest year-over-year growth in home prices since October 2016.
Month over month, August prices rose 0.1%, including distressed home sales. CoreLogic expects housing prices to rise by 4.7% year over year by August 2019 and to drop by 0.4% month over month in September 2018.
Home prices rose 6.2% year over year and 0.3% month over month in July. The August totals continue the drop in the index that began last month.
Since the housing market bottomed out in March 2011, the CoreLogic index has risen by 57%. As of July, home prices are now 5.1% higher than they were at the April 2006 pre-crash peak. Adjusted for inflation, however, home prices are 13.5% below the April 2006 peak.
CEO Frank Martell noted:
In some markets, homebuyers and sellers are remaining cautious and taking a pause as price appreciation continues to rise. By waiting to sell, homeowners believe they will get the greatest return on their investment; the more money they have for a down payment, the easier the purchase payments will be for their next home.
Chief economist Frank Nothaft added:
The rise in mortgage rates this summer to their highest level in seven years has made it more difficult for potential buyers to afford a home. The slackening in demand is reflected in the slowing of national appreciation, as illustrated in the CoreLogic Home Price Index. National appreciation in August was the slowest in nearly two years, and we expect appreciation to slow further in the coming year.
Including distressed sales, home prices rose the most year over year in Nevada (13.0%), Idaho (12.2%) and Washington (9.2%).
Through August, 38% of the top 100 metropolitan areas were overvalued, 18% were undervalued and 44% were at value. When looking at only the top 50 markets based on housing stock, 46% were overvalued, 12% were undervalued and 42% were at value. CoreLogic defines an overvalued housing market as one in which home prices are at least 10% higher than the long-term, sustainable level, while an undervalued housing market is one in which home prices are at least 10% below the sustainable level.
Among U.S. metro areas, Las Vegas has posted the largest year-over-year index gain, up 13.7%. Seattle was up 9.8%, while Denver and Los Angeles were up 7.4% and San Diego was up 6.0%, to round out the top five.