Center for Freelance Writing: Companies

Showing posts with label Companies. Show all posts

Thursday, January 23, 2014

Quick Look at IBM and Lenovo

It was reported this week that IBM will sell its x86 division to Lenovo for $2.3 billion. This came after IBM reported its seventh straight quarter of declining revenue, at $27.7 billion for Q4-2013. Details show that Software, Services and Global Financing divisions each grew, but Systems and Technology was the worst-performing division, declining in revenue by 26.1%. The deal with Lenovo allows IBM to offload the low-end server business. The x86 business is "the generic name for Intel processors released after the original 8086 processor."

This isn't the first deal between IBM and Lenovo. In 2005, Lenovo purchased IBM's PC business, and later acquisitions propelled Lenovo to be world's top PC company last year. While IBM had a disappointing 2013, being the only company in Dow Jones to decrease, Lenovo posted record-high revenue and profit in its latest quarterly financials released in November. Notebooks consisted over half of Lenovo's revenue, and its industry outlook cites that "customers no longer see Tablet as PC replacement."

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Sunday, September 22, 2013

Microsoft Nokia Deal Summary

Microsoft Corporation and Nokia Corporations announced a deal on September 3, in which Microsoft would pay $7.17 billion USD to purchase Nokia’s Devices & Services business and license Nokia’s patents. Microsoft will utilize its overseas cash reserves to complete the transaction. At the end of Q2-2013, Microsoft’s cash and short-term investments totaled more than $76 billion. Nokia’s mobile business, which Microsoft purchased for 3.79 billion Euros, generated nearly half of Nokia’s 30.2 billion Euro revenue. In all, the purchase was a bargain for Microsoft.

The challenge comes to integrating the businesses. More than 30,000 Nokia employees were brought into Microsoft, including former CEO Stephen Elop. The two companies have been in partnership since 2011, and this deal is the second largest acquisition Microsoft has ever done. The acquisition also marks a remarkable transition in the Windows business model: vertical integration, as Microsoft aims to introduce its Windows Phone software into the hardware units. Microsoft has long touted a separation of software and hardware in the PC era. But as mobile hardware has been less commodity-like than computer hardware, Microsoft expects this deal to be accretive to its adjusted EPS starting in fiscal year 2015. Microsoft had been receiving less than $10 in software licensing fees from Nokia, but now can make more than $40. The challenge becomes selling more Windows phones. Currently it lags behind Android and iOS. And with Apple introducing reduced-cost iPhone models, the challenge becomes even harder for Windows Phone to find its niche.

Two weeks after the Nokia deal, Microsoft announced that it would increase its dividend 22% over the previous quarter, and authorized up to $40 billion in share repurchases.

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Tuesday, March 19, 2013

Quick Glance into Ryanair

Ryanair, the Dublin-based airliner known for its operation of low-cost passenger airline service, is in the news for signing an order from The Boeing Company worth $15.6 billion. Ryanair is one of the few airliners that orders exclusively from Boeing, and has now expanded its fleet by 30% to over 400 units in order to grow its capacity to over 100 million across Europe by 2018. Boeing (NYSE: BA), which has seen its stock price soar by over 10% in the past month to close at around $85, welcomed the news, as its Commercial Airplanes CEO Ray Conner remarked the Next-Generation 737 "as the most efficient, most reliable large single-aisle airplane flying today," which "has been and will continue to be the cornerstone of the Ryanair fleet."

Ryanair Holdings (NASDAQ: RYAAY), the holding company for Ryanair, has market cap of around $12 billion. Its net profit margin in Q4-2012 fell to 1.87% after posting 12.76% for Q3. A visit to Ryanair's website indeed illustrates the low-cost business that it operates. There's a roundtrip from London to Dublin one month in advance available for only 44 GBP. On flight search websites that offer comparison, it becomes even more evident that the $56 value is significant that of its competitors, including $194 from British Airways. The low fares do come at some costs though; as users go on the website to search for flights, they are prompted to enter a "security code," which is obtained by viewing a short advertisement. Nevertheless, the colossal deal was signed today in New York.

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Tuesday, July 17, 2012

Facebook: Two Months Since IPO

See previous related post: Facebook Ready for IPO

To truly visualize the disappointment of Facebook (NASDAQ: FB) two months after its initial public offering, compare it with nothing else but LinkedIn (NYSE: LNKD) during the same period. From the IPO price of $38 launched on May 18th, Facebook has closed as low as 25.87. It made modest gains in June, climbing back as high as $33.10 on June 26th, before falling back down to close Tuesday at $28.09. This comes over the news that users in both the United States and Europe had fallen over the past six months. The research by Capstone, reported that US users declined by 1.1%, while 14 of 23 countries in which Facebook had over 50% penetration experienced "fewer users or saw little change." This report comes days after Warren Buffett, who's known to hold onto stocks for the long-term value, stated that "investors frustrated with the stock’s decline since its public offering are paying the price for betting on a short-term rally." Given the closing price of $28.09, that is a 26.08% drop during the period.

LinkedIn, the professional network, in the meantime saw its shares fall from the May 17th closing price of $104.95 to the present $103.84. That is only an 1.06% drop. What may be surprising is that the financial statements of Facebook look much more healthy. While people may claim is overvalued at its P/E ratio approaching 90, LinkedIn still has its ratio soaring above 600. Facebook's Q1 profit margin also trumped that of LinkedIn, 19.38% to 2.65%. But it's the growth that's raising the concern. Facebook's profit margin is actually down from 2011, when it was 26.95%, while LinkedIn has seen it soar from 2.28%. It's not just Wall Street that is punishing Facebook. In the latest American Customer Satisfaction Index E-Business Report, Facebook sank to a record low, falling behind Google+ and LinkedIn. Among the complaints of Facebook included "an excess of ads and privacy concerns."

Tumbling with Facebook over the past two months is Zynga (NASDAQ: ZNGA). From the $8.27 closing price of May 17th, it is currently at $4.58, representing a whopping 44.62% decline. Zynga is heavily reliant on Facebook to launch its social game services, and the Q1 profit margin was a dismal -26.59%.

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Monday, June 11, 2012

Micronetics Inc (NASDAQ: NOIZ) Merger with Mercury Computer Systems Inc (NASDAQ: MRCY)

On an overall dismal day for the markets Monday, as all three major US indexes fell over 1%, jumping a whopping 94.79% was Micronetics Inc. (NASDAQ: NOIZ). Headquartered at Hudson, NH, Micronetics "designs and manufactures high quality, reliable, microwave/RF components, multi-function subassemblies and highly integrated subsystems," according to its website. Over the weekend, it was acquired by Mercury Computer Systems, Inc (NASDAQ: MRCY) via a merger for $14.80 per share. Shares of Micronetics, which closed 7.49 last Friday, jumped to close at 14.59 on Monday.

Financials reveal that in the 12-month period ending in Q1-2012, the revenue and profit of Micronetics were at $45.97 and $3.41 million, up from $35.30 million and $1.52 million, respectively, the previous 12-month period. Shares of Micronetics have not been as high as the acquisition price of 14.80 since July of 2006. According to its website, Mercury, headquartered at Chelmsford, MA with market cap of over $360 million, is the "leading supplier of very high-performance digital image, signal and sensor processing solutions for prime contractor customers in the defense industry, as well as the Intelligence Community."

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Wednesday, June 6, 2012

Tempur-Pedic International Inc (NYSE: TPX)

It doesn't look like memory foams will not cushion this latest news for Tempur-Pedic (NYSE: TPX). Shares of the company tumbled over 48% on Wednesday, after it was announced that second-quarter profits will drop 50% from last year. Analysts had expected 86 cents per sharing of net income, but the expectation is now only 34 cents. Much of this is due to increased competition from mattress makers. An analyst from Gilford Securities is quoted in saying that Tempur-Pedic "needs to institute a strategy where they drive more brand loyalty, not only from consumers but also retailers."

The history of Tempur-Pedic goes back to the 1970s and NASA, which was "[developing] pressure-absorbing material to help cushion and support astronauts during lift-off." In 1992, the company was formed in Lexington, Kentucky, where it is headquartered now. From 2008 to 2011, profit had climbed over 270% from $58 million to $219 million. However, as CEO Mark Sarvary claims, the environment in North America has seen "unprecedented number of new competitive product introductions which have been supported by aggressive marketing and promotion." Notably competition has come from Sealy Corporation (NYSE: ZZ) and Select Comfort (NASDAQ: SCSS), which also saw losses of over 5% and 20% on Wednesday, respectively.

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Tuesday, June 5, 2012

Westport Innovations Inc (NASDAQ: WPRT, TSE: WPT)

On Tuesday, the stocks of Westport Innovations (NASDAQ: WPRT, TSE: WPT) climbed over 21% at NASDAQ to close at 27.02. Based in Vancouver, Westport trades not only on the NASDAQ but also on the Toronto-based TSE. According to its website, Westport "is a global leader in alternative fuel, low-emissions technologies that allow engines to operate on clean-burning fuels." Income statements show that Westport has had negative operating income in not only each of the past 5 quarters, but also annually for each of the past 3 years. Profit margin was Q1-2012 was -20% as the company lost $22.63 million USD.

The stocks climbed Tuesday after a deal was announced between Westport, which has market capitalization of slightly above $1 billion and Caterpillar (NYSE: CAT), which has market cap of over $54 billion. The would focus on "[developing] fuel systems for off-road vehicles," including natural gas engines in locomotives. The incentive to focus on natural gas comes from the substantial price difference between natural gas and diesel fuel, which results in "strong financial incentive to enable off-road applications to take advantage of low ... costs without sacrificing operational performance." Shares of Caterpillar climbed a meager 0.47% for the day.

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Wednesday, April 11, 2012

Alcoa Inc (NYSE: AA)

Alcoa, the manufacturer of aluminum products, is the first company in the Dow to announce quarterly results. Late Tuesday, Alcoa announced net income of $94 million for Q1-2012, or 9 cents per share, which is actually down 69% from Q1-2011; but it is up from the $-191 million incurred from Q4-2011. More importantly, the results were ahead of analysts' estimates of 4-cent loss per share. As of now, shares of Alcoa have climbed 7.74% to 10.04. Also notable is the climb in most of the US and European stock indexes. The S&P 500 finally stopped a five-day slide, triggered by lackluster March job reports and high borrowing costs in Spain and Italy, that saw its index fall 4.3%.

During the first quarter this year, Alcoa announced the closure of plants in the United States, Spain, and Italy, cutting over 500,000 tons of aluminum capacity. This cutback came after aluminum prices are down 23% on the London Metal Exchange in the past 12 months, averaging $2,219 a ton. Meanwhile, Alcoa is engaging in billion-dollar venture in Saudi Arabia, which it says will be the "world’s most efficient integrated aluminum production plant." Finally, Alcoa is boosting 2012 aerospace sales forecast by 3 percentage points, and projecting that the US automobile sales will grow 7 to 12%. Its view on the global market also remains optimistic, as it "reaffirms global aluminum demand growth projection of 7% and a global aluminum supply deficit."

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Friday, April 6, 2012

Comparison of Apple and GDP

Apple Inc. (NASDAQ: AAPL) has been dominating the news. Its shares opened the year at $409.40. Barely more than one quarter into 2012, the prices closed Thursday at $633.68. This is a whopping increase of 54.78%, and some analysts predict a climb as high as $1000 per share. Already with the current prices, the market capitalization (which is the simplest way to measure how much a company is worth) of Apple is around $590.82 billion. How does this compare to the GDP of major world economies? How do the per-employee figures of Apple compare with GDP per capita of major world economies?

The CIA World Facebook provides the latest figures of GDP. Specifically, the numbers are expressed in purchasing power parity (PPP), which is the "sum value of all goods and services produced in the country valued at prices prevailing in the United States." According to those figures, the GDP of the United States is just about $15 trillion, just slightly below that of the European Union. China comes second at $11.29 trillion. Apple's market capitalization of $590 billion puts it right underneath the GDP of Thailand at #25 ranking in the world. No African countries eclipse the figure, but South Africa would come right underneath with $555 billion.

According to 10-K form filed by Apple on September 2011, Apple claimed that it had "approximately 60,400 full-time equivalent employees and an additional 2,900 full-time equivalent temporary employees and contractors." Using the figure of 60,400 employees, Apple's worth per employee in terms of market capitalization would be around $9.78 million. In 2011, Apple reported $25.9 billion of net income, or about $430,000 per employee. In comparison, according to the CIA World Factbook, Liechtenstein, the Central European country with a population barely above 36,000, had the highest GDP per capita at $141,100.

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Thursday, April 5, 2012

Yahoo! Inc (NASDAQ: YHOO)

It was announced Wednesday by the ADP, the payroll processor, that the private sector in the United States added over 200,000 jobs in March. Nearly half of them were added by small businesses. On the same day, Yahoo announced that it would cut its workforce by 2,000, which is 14% of its employees and the largest layoff in the history of the company in its 17-year history. The cuts will help save about $375 million annually, and this was the first major decision under new CEO Scott Thompson, who was quoted to say that these cuts were needed to make the company “smaller, nimbler, more profitable and better equipped to innovate."

Shares of Yahoo actually climbed 9 cents to close at 15.27 Wednesday. But these figures are way shy of the company's heydays. Shares topped over $100 in early 2000, and even as late as 2005, topped over $40. While the S&P has recovered the losses since 2008, Yahoo's shares have not climbed above $20 since end of 2008. Financials show that total annual revenues have fallen from $7.2 billion in 2008 to just under $5 in 2011. In fact, Yahoo's revenue of $353,000 per employee is far below the $1.2 million mark observed in Google and Facebook, and also less than half of that of Microsoft. Much of these figure underscore the failure of Yahoo to capture social networking and competition it faces in advertisement. In recent months under Thompson, Yahoo has also sought to sue Facebook for patent infringements. Facebook has filed a countersuit against Yahoo.

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Monday, April 2, 2012

Groupon Inc (NASDAQ: GRPN)

Shares of Groupon are dropping Monday, after the company announced a revision of fourth quarter revenues. Groupon had reported a loss of $37 million for its fourth quarter, but on Friday the company further reduced the quarterly revenue by $14.3 million and net income by $22.6 million, after discovering that executives had failed to set aside enough money for customer refunds.

Launched in 2008, Groupon "features a daily deal on the best stuff to do, see, eat, and buy" according to its website. It earns revenue by offering discounted deals to its subscriber base and splitting the value of the deal with the merchant that offered the deals. While revenue has been growing, rising from $313 million in 2010 to $1.62 billion in 2011, Groupon still reported a negative income in 2011, as it has for every year in operation and all past four quarters.

The recent announcement was concerning for Groupon, which has been trying to build confidence with investors. The revised numbers correspond to the first quarter as a public company, and on top of reliability issue comes from the more-than-expected refunds. In explaining the revision, Groupon has explained that the company's move to offer more high-price deals has lead to a higher volume of refunds. Shares of Groupon has dropped over 11% today to 16.28 currently.

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Wednesday, February 29, 2012

LinkedIn Corporation (NYSE: LNKD)

Launched in 2003, LinkedIn has grown to be world's largest professional network with over 150 million users, with the majority located outside of the United States. In 2011, LinkedIn members performed over 4.2 billion "professionally-oriented searches" on the platform, on which over 2 million companies have public profiles. Remarkable, considering that it is almost nearing a decade in operation, is the continuous growth. For 2011, annual revenue was up 155% and stood at $522 million. This follows performances in 2009 and 2010, which saw revenue grow annually at 52% and 102%, respectively. Members, unique users, and page views in 2011 all increased around 60%.

LinkedIn still trumps Twitter and Facebook when it comes to use from recruitment companies. While the latter two are experiencing rises in the use for recruitment, LinkedIn maintains its edge as it is "geared up as a professional networking facility." The internal news section, LinkedIn Today, is filled with business- or career-oriented stories, and have Wall Street Journal, CNN Money, and Bloomberg as some of its top sources. This is a wide contrast to Facebook and Twitter, which are social networks without any specific categorizations.

This past week, Linked acquired the start-up Rapportive for 15 million in cash. Rapportive is a Gmail plugin that shows users the latest social network updates from others that the user corresponds with. CEO of Rapportive has mentioned that the services will be supported by LinkedIn. The service will allow users to skip the Google search of names, thereby "cutting off Google+’s opportunity to steal the click."

At the closing of trading on February 28, LinkedIn traded at 86.95. With a market cap of $8.38 billion and annual net income of $11.9 million in 2011, the P/E ratio is at a whopping value greater than 700. Google and Yahoo both have values at or around 20. In terms of price-to-sales ratio, the value of 16 is still significantly high, but is lower than Facebook's projected value. One reason for the high price ratios of LinkedIn is its relatively low profit margin. At 2.28% for 2011, it is drastically lower than Google's 25.69%. However, looking at the 2011 income statements, an amount of $132 million, or about 25% of the total revenue, was spent on research and development, nearly doubling Google's figure of 13.6%. Whether or not LinkedIn can sustain the recent growth, and whether or not the heavy research and development can lead to continuously innovative services will ultimately decide the trajectory of LinkedIn.

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Sunday, February 26, 2012

Otis Elevator Company

While the frontier of transportation may focus on long-distance travel, it is the short-distance travel that is at the foundation. When it comes to elevators, Otis Elevator Company has been manufacturing, installing, and maintaining elevators since 1853. Today, approximately 2.4 million Otis elevators and escalators are in operation worldwide. In 2010, the company generated $11.6 billion in revenue, with the majority coming from services, and nearly fourth-fifth coming from outside of the United States. Business outlook of Otis correlates directly with global economic outlook. In 2011, Otis estimated that over two-thirds of the expected new units will be installed in China. At the same time though, it is engaging in high-profile projects domestically as well; it won a contract last June to replace 68 original lifts in Empire State building, on top of a 10-year maintenance contract.

Otis Elevator Company is wholly owned by United Technologies Corporation (NYSE: UTX). Based in Hartford, CT, United Technologies Corporation registered over $58 billion in revenue in 2011 and over $75 billion in market cap presently. UTX provides "high technology products and services to the building systems and aerospace industries" and employs over 200,000 people worldwide. Annual revenue fell over 10% in 2009, but has been consistently increasing for each of the past two years. In terms of prices, UTX has not gained back the losses since last July, but has gained nearly 10% year-to-date, closing most recently at 83.97.

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Tuesday, February 21, 2012

Madison Square Garden, Inc. (NASDAQ: MSG)

New York Knicks fans may have been disappointed at their team's loss to the rival New Jersey Nets on Monday night, particularly given that it marked the return of Carmelo Anthony. That said, the team is still currently riding on the momentum and sensations built by the rise of Jeremy Lin. While Lin and the Knicks have been on the headlines in ESPN or CNN, they have been featured in the Wall Street Journal as well. Most people may know Madison Square Garden, or simply MSG, as the iconic arena that is home to he Knicks. But it is also a $2.49 billion market cap publicly traded company on the NASDAQ.

As of Monday, February 13th, or about a week since Lin's rise in the Knicks, prices of MSG stock rose over 10% during the period, finishing at $32.32. As of Monday, February 20th, which didn't see trading due to President's Day, the price is still $32.85. With Knicks' recent success, it has meant more viewers: "MSG said its ratings for Knicks games are up 52 percent during Lin's four starts compared to the rest of the season." The recent spike has also put pressure on MSG and Time Warner Cable to settle their disputes, which has affected 2 million subscribers since Jan 1st; the dispute has recently been resolved.

As far as the company goes, MSG is divided into the business segments of MSG Sports, MSG Media and MSG Entertainment. With James Dolan as the CEO, MSG owns not only the Knicks, but also New York Rangers of NHL. As far as its financial statements go, the total equity has exceed total liability for each of the last 4 years. Revenue for Q4-2011 dropped from Q4-2010, but that is largely attributed to the NBA lockout. The success of the Knicks, with its new face of Jeremy Lin, will ultimately dictate the success of MSG.

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Monday, February 20, 2012

Starbucks Corporation (NASDAQ: SBUX)

Founded in 1971, Starbucks is now the largest coffeehouse company in the world with over 17,000 retail stores in 55 countries. During its lifetime, expansion and acquisition have defined the growth of Starbucks, which now has over $11 billion in annual sales and a market cap of $36.5 billion. In 1996, when the total store count was only around 1000, Starbucks opened its first store outside of North America, with branches in Japan and Singapore. In 2003, Starbucks acquired Seattle Coffee Company, which includes Seattle’s Best Coffee. In 2010, Starbucks began to offer customers with free, unlimited Wi-Fi.

Since going public in 1992 at $0.53 per share, after adjusting for stock splits, prices climbed until reaching a peak in 2006. After hitting a low below $8 in late 2008, the shares have bounced back up to the high 40s, closing most recently at 48.45. For Q4-2011, Starbucks reported net income of $382 million, up over 10% from the same quarter previous year. Total revenue saw 16% increase across the same time. Starbucks has benefited from consumer products business, including the sales of Starbucks ice cream. While the P/E ratio of 29.22 may initially seem high, it is far below that of Dunkin' Brands Group (NASDAQ: DNKN) at over 100. Caribou Coffee Company (NASDAQ: CBOU) has P/E at around 10.45, but its market cap size is about two orders of magnitude smaller than that of Starbucks.

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Monday, February 13, 2012

Apple (NASDAQ: AAPL) Pushes Above $500

Apple has toppled the $500-per-share mark for the first time, but the climb may be far from over. Since the January 24th announcement that Apple posted net income in excess of $13 billion and sales in excess of $46 billion, which is more than double, and up 73% from previous year, respectively, Apple's share has soared from around $420 to climb over $80, nearly 20% gain, in less than 3 weeks. Apple had been in contest with Exxon Mobil as the largest company, but with a market valuation of $465 billion, it is now the conspicuous spearhead.

What's next for Apple? While the release of iPad 3 will be highly anticipated in March, the prospect of dividends has certainly fueled the continual rise. Former CEO Steve Jobs was opposed to dividends, but that could begin to change in the shareholder meeting on February 23rd. A 2.5 dividend yield would translate currently to around $12.50 annual dividend a share. Given the current count of 932.37M stocks and 502.60 closing price, it would cost Apple 932.37M * 0.025 * 502.60 = around $11.7 billion. Even that would only be a fraction of the $17.5 Apple brought in Q4-2011 in cash flow from operations itself. That said, Apple has recently used much of its cash in investments. In the 52 weeks closing at end of Q3-2011, Apple actually saw negative net cash flows. However, with cash and short-term investments totaling over $30 billion as of end of Q4-2011, Apple would still have a solid current ratio of 1.24 if $11.7 billion of short-term investments were removed.

While the shareholder meeting is highly anticipated, analysts believe that the price will continue climbing. Yahoo Finance, through CNBC, quoted Shaw Wu, a Sterne Agee analyst, with a $550 price target on the shares. This meeting and the reception of new iPad 3 will ultimately dictate the direction of the world's most valuable company.

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Wednesday, February 1, 2012

Facebook Ready for IPO

Facebook is just about ready to file for IPO. Morgan Stanley is said to be hired to structure the offering that could see Facebook raise more than $5 billion and see the company formed in 2004 be valued at as much as $100 billion. Most of Facebook's revenue comes from advertising, and that figure was $3.8 billion in 2011. Research firm eMarketer estimates that revenues in 2012 will increase over 50% to $5.78 billion. In the days leading up to today's public filing, much talk has been centered on this $100 billion figure.

Facebook will be three times more expensive than Google was during its IPO. Given Facebook's $3.8 billion revenue and $100 billion valuation, that is a price-to-sales ratio of around 26. For comparison, a Market Watch article discussed valuations of 76 IPOs from companies with at least $3 billion in sales in the 12 trailing months up to IPO. The results reveal that their average price-to-sales ratio was around 0.7, meaning that Facebook's ratio is nearly 40 times that of comparable companies at the time of IPO. Google, to which Facebook is often compared to, had a price-to-sales ratio of 8.7 during its IPO, or nearly 1/3 that of Facebook. According to the latest financials, Google in 2011 had $37.9 billion in revenue. Its latest market capitalization value is $188.61 billion, or about 5 times its latest annual revenue. For Facebook, even with the 50% growth estimates from eMarketer for 2012 revenues, the $100 billion valuable will be over 17 times the annual revenue.

The high valuation of Facebook may rest on the anticipation of continual fast growth. However, the $3.8 billion revenue in 2011 missed the forecast of $4.3 billion from eMarketer. Zynga, one of the biggest advertiser on Facebook, began trading on NASDAQ last December. Up until this past week, its price was consistently below the initial pricing of $10; the recent spike may be attributed to the imminent IPO of Facebook itself. Finally, eMarketer forecasts that growth rates of Facebook's ad revenue worldwide will drastically decrease from 152% in 2010 to 21.1% in 2013.

In an article written by Business Insider and posted on Yahoo, the $100 billion valuation was defended on the basis of Facebook's control of traffic on Internet, personal identity data, and the biggest social platform. Based on these three criteria, the future cash-flow discounted to today's value makes $100 billion a plausible amount. Facebook's high valuation rests on its continual fast growth. That success will ultimately determine whether the $100 billion valuation is appropriate or not.

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Thursday, January 5, 2012

Eastman Kodak Company (NYSE: EK)

Kodak, as it is commonly known, has been around since 1892, focusing on imaging and photographic materials. Excelling in photographic film for much of the 20th century, the 131-year-old company has struggled in recent years as use of photographic film has slipped. In recent years, Kodak has tried to focus on printers, but ranks fifth globally with a market share of only 2.6%. On Wednesday, it was announced that Kodak is "preparing to seek bankruptcy protection in the coming weeks," sending its stock below 50 cents, a dramatic decrease from when it was nearly $30 back in 2007. In the meanwhile as it tries to prevent Chapter 11 bankruptcy, Kodak is trying to sell patent portfolio.

A look at the financial statements for Kodak confirms its recent struggles. Net income has been in the negative each year since 2007, and most recently in 2010, it incurred 687 million loss. During that year, while the COGS margin stayed around 73%, sales weren't enough to cover even the operating expense. Looking at the balance sheet, there is negative equity as of 2010, as long-term debt made up most of the liability. It's interesting to note that the current ratio is above 1. It is plausible that Kodak prepares for Chapter 11 now while it still has the temporary liquidity to restructure the firm. Equity has been on a downward spiral from 2007 when it was at over 3 billion, to the latest 2010 figures of -1 billion. Cash flow statements show similar trends, as merely cash flow from operations has been on a downward spiral into the red.

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Monday, January 2, 2012

United Parcel Service (NYSE: UPS) & FedEx Corporation (NYSE: FDX)

UPS and FedEx are the leading companies in delivery services. The recent Holiday season showed signs of growth for the industry, as package volumes increased from the previous season. UPS expected to delivery 120 million packages in the week leading up to Christmas, up 6% from the period a year ago. It also expected to feature at least five days approaching or exceeding 25 million packages, the peak amount last year. FedEx shipped 17 million packages on December 12, marking the busiest day in company history, up 10% from last year's peak. To accommodate for these extra services, UPS and FedEx hired over 50,000 and 20,000 seasonal employees, respectively.

In financial analysis of the two companies, raw data was taken from Google Finance and ratio calculations were performed using Excel. The data for UPS was presented for the quarter ending in September 2011, while for FedEx, it was for the quarter ending in November 2011.

	UPS	FDX
2011 Close Price	73.19	83.51
2011 Open Price	73.18	93.54
Market Cap (Billion)	70.63	26.26
P/E Ratio	17.77	15.18
EPS	4.12	5.50

Latest Quarterly Data in Millions
Total Revenue	13,166	10,587
Cost of Revenue	9,829	7,892
Net Income	1,042	497
BOP Cash	4,691	1,959
EOP Total Receivables	5,584	4,837
BOP Total Current Assets	12,950	7,963
BOP Net PPE	17,489	15,820
BOP Total Assets	35,152	27,838
EOP Accounts Payable	1,974	1,646
BOP Total Current Liabilities	7,618	4,981
BOP Total Debt	12,161	1,668
BOP Total Liabilities	26,898	12,124
BOP Total Equity	8,254	15,714

Notable differences include the market capitalization, in which UPS nearly three-folds FedEx. Nevertheless, the size of the companies as measured by revenue or total assets doesn't differ drastically. In terms of total equity, FedEx's value actually almost doubles that of UPS. For better understanding, ratio analysis was conducted:

Annualized Ratio Analysis
	UPS	FDX
Returns on Equity	50.50%	12.65%
Profit Margin	7.91%	4.69%
COGS Margin	74.65%	74.54%
Asset Efficiency Ratio	149.82%	152.12%
Return on Assets	11.86%	7.14%
Fixed Asset Efficiency	301.13%	267.69%
AR Turnover	10.60%	11.42%
AP Turnover	5.02%	5.21%
Cash Level	8.91%	4.63%
Debt to Asset Ratio	34.60%	5.99%
Debt to Capitalization Ratio	59.57%	9.60%
BOP Current Ratio	169.99%	159.87%

UPS nearly doubles FedEx in terms of profit margin, despite similar COGS margin, asset efficiency levels, and comparable levels of sales. But drastically different for the companies is debt. The debt level of UPS is nearly 7-fold that of FedEx. As a result, debt to asset and debt to capitalization ratios are significantly higher for UPS. Despite the higher level of debt, UPS has a higher current ratio and cash levels, illustrating its sound liquidity. Furthermore, given that profits and equity levels have been solidly positive, carrying debt shouldn't be a great concern for UPS. The high level of debt is directly reflected in the higher liability and lower equity values for UPS. As a result of the lower equity, UPS features higher returns to equity (ROE) values.

While FedEx saw its stock price decrease in 2011, UPS barely saw any change. Both companies should see growth as the earnings from Q4 come out and reflect on the increased earnings over this year's Holiday season. Both companies are also likely to remain in close watch as financial troubles continue to plague USPS.

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Monday, December 26, 2011

Performances of Defensive Stocks from Pre-Crisis to 2011

Defensive stocks are those that perform well during a period of economic slowdown. They generally do not outperform the market during periods of rapid economic growth, and thus serve as low-risk securities. A MSN article from May 2010 lists 14 "safe stocks to stock up on." Of the 14, three are currently listed on the Dow Jones Industrial Average. They include Johnson and Johnson (NYSE: JNJ), which is involved in health care products, Proctor and Gamble (NYSE: PG), which focuses on consumer packaged goods, and Wal-Mart (NYSE: WMT). The historical performances of these stocks from mid-2008 to present were retrieved and analyzed. For comparison, similar data were retrieved for two companies not part of the Dow: Google (NYSE: GOOG) and Caterpillar (NYSE: CAT), and the Dow Jones Index itself. The results are as follows:

Name	High	Low	Decrease	Current	Increase
JNJ	72.22	46.60	35.47%	65.98	41.59%
PG	73.15	44.18	39.60%	66.67	50.91%
WMT	63.17	46.42	26.52%	59.99	29.23%
GOOG	685.33	257.44	62.44%	633.14	145.94%
CAT	115.41	22.17	80.79%	92.25	316.10%
DJI	13058.20	6626.94	49.25%	12294.00	85.52%

Indeed, as the figure shows, during the financial crisis of late 2008 and early 2009, the percentage decrease from the highest closing trades to the lowest closing trades was the greatest for Google and Caterpillar, which are not defensive stocks. Then came the Dow index, which featured a mix of defensive and non-defensive stocks. Finally, the three defensive stocks saw the smallest decrease during those economic downturn times. On the reverse, as the economy has been recovering over the past 2+ years and stock prices have been increasing again, the three defensive stocks saw the smallest percentage gain, while Google and Caterpillar both saw enormous gains, with the Dow motley in the middle.

All this goes to say is that defensive stocks have low risk and variance. In good times, they return less than the others, but in bad times, they don't lose as much as the others. Wal-Mart's low variance is exemplified in an even more profound way by realizing that its post-crisis trough was hit on February 2009; however, that price of 46.24 was actually higher than that during January 2008, and wasn't far off from the prices during much of 2006 and 2007, when the economy was growing strongly. Defensive stocks usually cover common products, used whether the economy is growing or shrinking. Think of the sectors the defensive stocks here cover: healthcare, consumer package, and retail, all of which are rather basic necessities and face relatively inelastic demand. In all, coming together in a group of ideas are: defensive stocks, common goods, necessities, inelastic demand, low risk, low variance, low returns, and low losses. Whether these are better than other stocks will ultimately depend on the state of being of the macroeconomics.

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