SAP Tags $60 Stock Price By Hanging On To CRM Market Share

Big upside ahead

SAP stills holds the number one position in customer relationship management (CRM) software market with an estimated share of around 23%. (1) However this share has declined gradually due to increased software-as-a-service (SaaS) offerings from companies like Advanced Micro Devices, Salesforce.com and Oracle.

While we expect SAP’s share to decline to 18% by 2017, the Trefis community predicts flat market share in the 22% to 23% range, corresponding to an upside of 5% to our price estimate for SAP’s stock.

We currently have a Trefis price estimate of $57.49 for SAP’s stock, about 15% above the current market price.

Increasing Adoption of SaaS

Companies like Salesforce.com and Microsoft have increased their SaaS offerings which work on the on-demand principle. With SaaS, enterprises can license only the amount of software required versus the traditional way of procuring the license per device. The service is provided through the Internet and the actual data and IT infrastructure resides with the host rather than the client. Hence the client does not need to bear extra cost of infrastructure and can also start using the solution immediately. SAP has also been slow in adoption of SAP Business ByDesign, a SaaS offering.

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Positive Results from Oracle’s Acquisition of Siebel

Oracle acquired Siebel in 2006 for its CRM offerings. Oracle could not immediately benefit from this acquisition due to the time required for the expected synergies to fall in place and struggled to increase its market share. We expect that Oracle would now be in a position to start benefiting from Siebel’s acquisition, adding another threat to SAP’s supremacy in the CRM market.

Trefis Community Forecast

The Trefis community forecasts that SAP’s market share in customer relationship software will remain within a range of 22% to 23% through 2017, compared to the baseline Trefis estimate of a decrease from 21% to 18% during the same period. The community estimates imply an additional 5% upside to the Trefis price estimate for SAP’s stock, which is already roughly 15% ahead of market value.

Our complete analysis for SAP’s stock is here.

Notes:

1)Estimated based on data from Gartner Research

Trefis members constitute more than tens of thousands of users of the Trefis platform, inclusive of investors, financial analysts, and business professionals who use the Trefis platform to create their own models and price estimates.

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Wal-Mart Stays Stingy On Discounting, Still On Target For $66 Stock Price

Prices are low but no lower than usual

Wal-Mart seems to be adopting a mixed approach to drive holiday sales instead of just purely discounting all the products to drive store volumes.

While this signals the retailer’s increased confidence for holiday shopping, it also represents a broader development that the U.S. consumer might finally be growing more confident with regard to economic outlook. ?This should also benefit other retailers that compete with Wal-Mart like Costco, Target and Sears.

This bodes well for Wal-Mart as we maintain our bullish take on the company driven by expected improvements in sales metrics (like revenue per square foot) and stable profit margins. Our price estimate for Wal-Mart’s stock currently stands at $65.42, which is about 22% above current market price.

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Retracting Some Initial Price Rollbacks ?

While the economic growth has been sluggish in 2010, there were indications that the fourth quarter might be stronger than expected from early reports. October data suggested that due to payroll increases and improved employment, the 4th quarter would be strong. ^[]

Then November retail sales data released last week prompted economists to boost their forecasts even further. ^[]With confirmation that consumers are willing to spend this holiday, Wal-Mart decided to ease up on its initial price rollbacks on many items. We believe this will help support margins as the retailer can drive sales without heavily discounting.

Smartphone Discounts Could be Strategic

Wal-Mart is maintaining its discounts on smartphones like Apple’s iPhone 4. ^[] Given that smartphones are some of the hottest selling items this holiday season and Wal-Mart wants to both attract customers and improve its sales metrics like revenue per square foot, this strategy makes sense. The retailer is increasingly moving into selling consumer electronics – a topic we discussed in a recent article Will Best Buy?s Earnings Miss Weigh on Wal-Mart? – and is one of the key beneficiaries of Best Buy’s recent stumbles in its holiday sales push.

As we enter the home stretch on holiday sales, we expect to see some strong numbers out of Wal-Mart.

You can see the complete $65.42 Trefis price estimate for Wal-Mart’s stock here.

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Costco Just Can’t Beat Best Buy In Electronics, Stock Price Headed South

Fighting an uphill battle in electronics

Recent reports suggest that retailers like Wal-Mart and Amazon are taking some of Best Buy’s consumer electronics market share with the help of their promotional discounts and offers as well as effective online sales strategies. For additional details you can see our recently published article Can Best Buy Correct Product Missteps?

Here we take one step further and examine whether warehouse clubs like Costco could also ride this bandwagon and grab market share in consumer electronics.

Costco traditionally competes with warehouse club operators including BJ’s Wholesale Club and Sam’s Club, in addition to large retailers. We maintain a price estimate of $49.76 for Costco, well below current market value.

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Costco Can Leverage Discounting Power

Costco offers bulk purchase of a variety of heavily discounted merchandise as well as a limited selections of branded goods. The retailer is able to provide deep discounts due to higher product turn-over from bulk buyers and business customers. Similar to Wal-Mart and Amazon, Costco could also leverage its discounting power to lure potential electronics customers that might otherwise go to specialty retailers like Best Buy.

Best Buy gains its edge by providing trusted service support and frequently being the first to display the latest electronics and gadgets. However, recent reports indicate that consumers might be tentative to adopt some of the latest technologies, instead opting for more established products. For example, consumers are commonly choosing established flat panel TV’s over the new 3D-TV technology. This trend could open a window of opportunity for Cotsco, as the company is able to utilize its personalized discount scheme to drive sales (particularly during holiday shopping). (See our previous article on Sam’s Club)

Stock Impact from Improved Revenue per Square Foot

Costco’s revenue per square foot stands much higher than that of Wal-Mart, despite selling similar merchandise. However, Costco still lags slightly behind Best Buy on this metric. We estimate that average revenue per square foot for Costco stood at around $814 for 2009 compared to $908 for Best Buy’s US stores.

If Costco is able to gain electronics share from Best Buy, sparking RPSF upside closer to the retailer’s levels, what impact might it have on Costco’s stock? We estimate that this scenario could generate 6% upside to our Costco price estimate, which at $49.76 remains well below market value.

Drag the trend-line in the chart below to see the impact of various US revenue per square foot trends on Costco’s stock value. We estimate that Costco generates roughly 43% of its stock value from merchandise sales in the US, with another 19% added by international merchandise.

But Costco Faces an Uphill Battle for Market Share

However, this potential upside is mitigated by the nature of Costco’s customer base, as well as its limited brand selection. Customers that are not currently Costco members might choose Wal-Mart when looking for a one-time discount, rather than bear membership fees. Additionally, many of Costco’s customers are small business owners that might not be inclined to purchase new gadgets. Hence the possibility exists that the electronics market share opportunity could quickly be gobbled up by Wal-Mart and Amazon, who maintain a clear head start over Costco. In order to successfully grab market share, Costco must entice both its existing customer base as well as customers who might initially be looking for a deep discount on a one-time purchase.

You can see the complete $49.76 Trefis price estimate for Costco’s stock here.

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Too Much Ad Spending By Colgate-Palmolive Could Knock 20% Off Stock Price

To spend or not to spend?

It comes as no surprise that Colgate-Palmolive Co. continues to be outspent in media and advertising by other big players such as Procter & Gamble, L’Oreal and Unilever and now also the increasingly aggressive GlaxoSmithKline.

Despite this, Colgate-Palmolive has managed to maintain and even gain market share in the past, which is no small feat given that for consumer products, advertising is a crucial business driver and constitutes a healthy share of operating costs. What does catch our attention though is, unlike before, there has been significant drop in Colgate’s market shares across all major products segments-toothpastes and toothbrushes, deodorants, dish soaps, body washes and pet foods.

While this does fuel speculations of an impending rise in media spending to match the competition, we’re not totally convinced that this would happen and even if it does, that it would have the impact that’s expected out of it. Here’s our take on it.

If Colgate-Palmolive were to ramp up advertising and media spending…

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Colgate spends close to 11% of its sales on advertising, which is in line with its peers globally. Why then this hue and cry over media under-spend? To begin with, media spending is thinly spread over 200 markets across the globe leaving the U.S. with disproportionately low ad-spend relative to competitors, which is spread over several categories ranging from oral care to pet food. Colgate gets outspent in each of these category.

In Deodorants & Body Washes, which as per our estimates constitute close to 25% of Colgate’s stock value, Colgate spent a total of $9 million on Softsoap, Irish Spring and Speedstick while P&G spent over $82 million (over 9X) on Old Spice and Secret. Compare this with Unilever, which spent $148 million on Dove alone and close to $267 million on Axe and Degree.

Even in Oral Care, which is the leading product segment within Colgate contributing over 44% of its stock value as per our estimates, Colgate’s advertising was exceeded by over 35% by P&G’s Crest toothpaste. P&G, which competes with Colgate in all product segments exceeds Colgate’s advertising spending by over 2.5X.

Would simply increasing advertising be the solution?

While increasing advertising is bound to have a positive impact on sales would the incremental sales match up to the increase in expenses incurred on media and advertising?

P&G for instance has long dominated the personal care industry in terms of advertising and competing with the likes of P&G solely on advertising would unnecessarily strain the operating margins. Also, competing on advertising spending in not a one-time cost but if Colgate chooses to play on this turf, it would need to sustain the heightened level of media and advertising spends in the future. Notwithstanding, the current gap that exists in advertising levels between Colgate-Palmolive and others is too wide to be bridged easily in the short-term.

If however Colgate were to scale up advertising to arrest the drop in market shares in Oral Care and Shampoos, Soaps & Deodorants segments, the two largest products segments within Colgate Palmolive, we would expect the profit margins (EBITDA margins) to decline sharply in the short term to historical lows of close under 25% and to remain flat thereafter, leading to a potential 20% downside to our current Trefis price estimate of Colgate-Palmolive’s stock.

While media and advertising can be reasonably assumed to be significant causes for a drop in Colgate Palmolive’s market shares, we believe simply ramping up the advertising spending doesn’t provide the solution.

See our full estimates for Colgate-Palmolive here

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McDonald’s Serves Healthier Foods But The Stock Looks Fat

McDonald's is a global phenomenon

McDonald’s competes with Wendy’s, Burger King and Yum! Brands in the fast food market and is the market leader with about 19% share. The company also competes with Starbucks in the specialty coffee market.

McDonald’s owns and franchises restaurants across the globe with 32,478 restaurants in 117 countries as of 2009. Of these 26,216 were operated by franchisees and the balance were company-owned. We estimate that franchisee rent & fees accounts for 63% of McDonald’s stock value with franchisee royalties generating 30% of the value and the remainder coming from company-owned restaurants.

We currently maintain a price estimate for McDonald’s stock at $73.58, roughly 6% below current market value.

Increasing its Focus on Healthy Foods

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McDonald’s remains the most prominent company in a market whose players are not known for healthy offerings. As domestic focus has increased on obesity and the push for healthier foods, partially due to strong government initiatives, ^[] McDonald’s has adapted its offerings. For example, fruits, salads, bottled water and 1% milk are now staples of the McDonald’s menu. McDonald’s is also part of the Council of Better Business Bureaus’ Children’s Food and Advertising Initiative and is continually positioning its product to better appeal to the rapidly expanding health-conscious demographic. ^[]

Should the company realize greater success in these initiatives, what is the potential upside to its stock value?

Annual customers per restaurant is a key driver of McDonald’s stock value. We currently project annual customers per restaurant to increase from an estimated 674,000 today to nearly 740,000 by 2016 as the economic outlook improves and McDonald’s customizes menu offerings to local tastes in expansion markets.

We note that any success in marketing to health-conscious U.S. consumers would have a limited impact to McDonald’s overall company value as the company generates roughly 65% of revenues overseas. ^[] Given the significance of this driver to the company’s business, small changes can present material upside or downside. Even a 50 basis point increase in annual growth of customers per restaurant beyond our projections would boost our price estimate by almost 3% assuming we hold the total number of restaurants and profit margins flat.

You can modify the chart above to examine the impact of various trends in annual customers per restaurant on McDonald’s stock value.

However, the upside from these initiatives is by no means a sure thing. In a recent study by Yale’s Rudd Center for Food Policy and Obesity, the McDonald’s Happy Meal offerings did not sufficiently meet nutritional guidelines. Competitors Subway and Burger King were the only quick service restaurants to meet the nutritional requirements of the study, which could indicate that other establishments are better positioned to benefit from the expanding health-conscious demographic.

So while McDonald’s is moving in the right direction with its health-conscious initiatives, work still remains to be done. If successful, both customers’ diets and shareholders’ returns could be better off in the future.

See our full analysis of McDonald’s here.

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Karachi stock brokers behind NICL scam: Niazi

Stock brokers also questioned about the role of the scions of two political leaders.

ISLAMABAD:?The multi-billion-rupee scam in the National Insurance Company Limited (NICL) took a new turn as its ex-chairman, Ayaz Khan Niazi, claimed that stock brokers from Karachi had also played a key role in the irregular deal. After being flown in from Karachi, Niazi told his interrogators that one of the board members of the NIC, Qasim Amin Dada, had played an important role.

Niazi alleged that Dada helped clear the multi-billion-rupee deal inked with the Warraich family, which is at the centre of this scam. This disclosure comes in the backdrop of news that pressure is being exerted on the FIA to stop its manhunt for Dada, believed to be hiding in Karachi.

The former board member has been declared an absconder by the FIA in the multi-billion-rupee land scam. The case is being probed on the orders of Chief Justice Iftikhar Muhammad Chaudhry. The Chief Justice had intervened in the last hearing of the case to ensure the handing over of Ayaz Khan Niazi to FIA ?Lahore for investigation.

Niazi was also questioned about the role of the scions of two political leaders who are believed to be shielding one of the accused persons in the case. But Niazi refused to spill the beans.

However, the change of air from Karachi to Lahore made Niazi talk more openly about some Karachi-based brokers who worked through Qasim Dada. Two recent attempts to arrest Dada have so far failed. His house was raided by an FIA team in Karachi after Dada’s name surfaced as one of the key players in the deal.

Niazi told the FIA that it was Qasim Amin Dada who had convinced the NIC board members to sign two deals with Habib Warraich and his son Mohsin Warraich to purchase 803 kanals of land in Lahore for Rs2 billion against their actual market price of a few million rupees.

Niazi recalled that Amin Dada had not only given a briefing to board members to make them fall in line and subsequently clear the two dirty deals, but he had also put his own signatures on three official papers that were connected to this transaction.

The statement of Ayaz Niazi about the active role of Qasim Amin Dada was further substantiated when it was revealed that surprisingly Amin Dada was the only board member, who had signed three official papers otherwise the rest of the members had signed only one paper to clear the two land deals.

Meanwhile, the FIA has sent a letter to the British government to freeze the bank accounts of principal accused Mohsin Warraich who is living in London, along with a request to repatriate him to Pakistan where he was facing several criminal charges in the NICL land scam.

The British government has sought replies to some questions from the FIA. Mohsin’s British wife Beenish, mother, two sisters and his father are also facing criminal charges.

Talking to The Express Tribune from Dubai before flying to the UK last month, Mohsin Warraich had denied the allegations in the two land deals and had claimed his family was being victimised.

Published in The Express Tribune, December 14^th, 2010.

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Foxy Deal For News Corp. Helps Drive Stock To $20

News Corp. is Glee-ful

News Corp’s 20th Century Fox Studios recently signed a deal with NCR’s Blockbuster Express to delay DVD rentals by 28 days for new releases. This follows a similar deal that NCR signed with Universal last month.

Fox studios signed similar deals with Netflix earlier this year and Sony and Time Warner have also announced similar deals with distributors. At its root, studios are trying to protect potential sales from new releases in exchange for offering content to distributors like NCR or Netflix.

For News Corp, we estimate that Fox Studios constitutes about 18% of the stock and majority of that value is derived from DVD sales.

We currently have a $19.91 price estimate for News Corp, which is about 30% ahead of the current market price.

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Rentals, Streaming Replacing DVD Sales

As a result of increased digital distribution, a shift towards rentals and streaming content and increased piracy, the global demand for DVDs has been declining. Additionally, lackluster adoption of the new Blu-Ray disc format has not offset DVD declines.

According to a research report published by the Strategy Analytics earlier this year, global DVD sales decreased by 9% in 2009 amounting to $33 billion and are expected to further decline by 12% in 2010. While global Blu-Ray sales are predicted to reach $6.50 in 2010, they are not expected to offset drop in DVD sales.

New Distribution Necessary

News Corp must find new ways of monetizing its content in view of declining DVD sales. More digital distribution deals with online platforms like Netflix, Hulu etc. as well as pay-per-view and on-demand business are likely to help.

If DVDs sold per household drop to 5 per year by the end of Trefis forecast period, our price estimate can see a downside of 5%. We did not factor in additional pricing pressure on DVDs due to reduced demand in this scenario but include the chart above for you to make your own estimates.

You can see the complete $19.91 Trefis price estimate for News Corp’s stock here.

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2010-12-03 17:36:00

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Why December 15 Could Be The Day Tax Hikes Crash The Stock Market

Leona Helmsley and Trouble

This week, we witnessed this spectacular moment in the history of the republic: Having just left a luncheon at the office of Rep. Ron Paul (R-Tex.), we were walking across the Capitol steps to get to Union Station. One of our party mentioned he had never been to the House gallery to view the floor debates. So we decided to drop in as tourists.

After negotiating the labyrinth of security, coat checks and corridors, we were ushered into three seats in the front row of Gallery booth No. 7, less than two feet behind the C-SPAN cameras installed there to monitor the proceedings. A scant five minutes passed and Rep. Joseph Crowley (D-N.Y.) walked to the podium with an easel and a 5-foot picture of the late hotel heiress Leona Helmsley holding her dog, Trouble.

“Under the Republican plan,” we gathered from his speech from press reports later, “if Trouble doesn’t get a tax break, nobody else should. Under the Republicans’ plan, this country will go to the dogs. They’ll protect this little dog, but they won’t protect the middle class of this country.”

“Ugh,” we said, “We can’t listen to this.” We got up and left. In Dr. Paul’s office, we had heard how everyone in attendance had planned to vote already. Surely, the grandstanding Mr. Crowley was just getting his arguments logged into the public record.

Ha. Fat chance. No sooner had we returned home but saw the same smug photo of Helmsley featured in the lead story on Nightly News With Brian Williams. Mr. Crowley’s absurdity had actually been taken seriously–nay, lapped up by the press. In the end, Democrats got their bill passed. The so-called Bush-era tax cuts were made permanent for individuals with incomes below $200,000, and couples below $250,000.

Three members of the Liberty Caucus we met for lunch – Ron Paul, Walter Jones and John Duncan – were the only Republicans who “crossed the aisle” figuring a tax cut for some people is better than for none. They say they’ll really get down to debating taxes when this lame-duck session of Congress is over.

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Meanwhile, employers across the nation are wondering how much money they should withhold from employees’ paychecks just four weeks from now. The IRS is dithering on issuing its new withholding tables, which usually come out in mid-November. Payroll departments need two or three weeks to plug the data into their computers.

What if nothing happens by, say, December 15? Our forecast: We’ll see one doozy of a stock market sell-off.

“Capital gains tax rate will increase from 15% to 20% if the tax cuts are not extended,” says analyst Daniel Clifton of Strategas Research Partners. “The last time the capital gains tax rate increased – on January 1, 1987, from 20% to 28% – investors realized their gains at the lower tax rate.”

Clifton says many of his clients will decide whether to hold on or sell by December 15 a week from next Wednesday. That’s the last day to trade stocks before index options cease trading in advance of options-expiration Friday. If Congress doesn’t act, investors will.

The Trouble With Tax Cuts by Addison Wiggin originally appeared in the Daily Reckoning.

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Stock Rockets To Ride The Resumption Of The Rally

Just a monster

This market has shown itself to follow a very technical path over the course of this rally. The market started the September run with a perfect gap and go scenario that ignited from a descending channel.?Since then, the move higher was calculated with a lot of participation from the strong leading stocks we list on the morning rundown often. All these leading stocks, many in tech, made new move highs before the indices, and that’s the way it’s supposed to be in a healthy market.

The S&P 500 peaked in the 1226-1227 area and gave us some clues that we were going to have our first “pull-back” The question was, how deep would it be??The S&P put a reactionary low in at the 1173 area around the 50-day moving average, which also happened to be the 25% retracement level of the move from 1040 to 1227 high. The confluence of factors gave us confidence this area would hold. We then had a nice oversold bounce back to the 1200 area!

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As we hit the reactionary low it was time to measure the action of the leaders. Most leaders pulled in less or the same percentage as the market, giving us further signs that the market would not “fall apart”. In a more perilous correction, leading stocks typically fall 1.5x to 2.5x faster than the index, but we didn’t see that type of action.

Netflix, salesforce.com, Amazon.com, Apple, Baidu.com, Riverbed Technology, ?Chipotle Mexican Grill, Las Vegas Sands and F5 Networks held in strong, and even somewhat forgotten stocks like?SanDisk, Cree, and VMWare started to perk up on that oversold bounce.?With today’s bounce some are already making new highs again.

So if you take a look at the headlines we’ve seen over the last several weeks, from Elections to QE2 to Europe to Korea, there have been plenty of reason for the markets to show indecision and possibly pull-in more strongly. But instead we have seen signs that the headlines are no longer the most important piece of the puzzle for the markets.

The correlation between stocks and bonds has lessened, and investors are choosing to focus more on the valuation and growth prospects of individual companies than macro risks. As traders, we have been able to focus on the actions of individual stocks and place less emphasis on the macro, a fact that is conducive to better trading if you can take advantage.

It’s never easy as the action unfolds, and we all continue to learn every day, but the charts are once again pointing the way. Right now, they are telling us there are some very exciting stocks out there that we should be looking to buy on pullbacks.

Have a Great Thanksgiving! Enjoy your family and friends. This is a great holiday to be thankful for what you have, take a deep breath and be happy you’re alive!

*Disclosure: Long AAPL, SPY

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Dish Faces Slew Of Issues But Stock Still Gets To $25

Stock poised to pick up 33%

Dish Network, the second largest satellite-based pay-TV service provider in the U.S., recently released its third quarter earnings. As a result of continued stunted growth in the subscriber base and mounting competitive pressure, we have lowered our price estimate for Dish Network’s stock to $24.87, which is about 30% ahead of the current market price.

Dish competes with satellite pay-TV service provider DirecTV, cable companies like Comcast & Time Warner Cable and telecom operators like AT&T and Verizon in pay-TV business.

One of the key takeaways from the earnings was that Dish Network’s margin outlook looks grim. Mounting competitive pressure, changing industry dynamics and the inability to grow its subscriber base are likely to put pressure on the company’s gross margins as well as lead to increased SG&A costs.

Currently we forecast gross margins to decline to a little over 44% by end of our forecast period. However, if they were to decline further to 40%, it can knock off more than 8% from our price estimate. Increased SG&A costs can further add to this downside.

1) Alternative Platforms a Threat

Only a few years ago, pay-TV service was the primary medium for video content however this is changing now. Alternative video platforms like Netflix and Hulu are emerging and posing threat to pay-TV industry’s profits. Dish Network acknowledged this threat in its recent earnings mentioning that while they may not lose customers as a result, they may lose ARPU (average monthly revenue per user) from that customer as more content is available on these alternate platforms.

2) Competitors Pressure Margins

Time Warner Cable hinted during their earnings that they will be introducing low-cost programming packages to address lower end of the market. Such competitor moves hamper Dish Network’s ability to raise prices and the company may be required to aggressively promote its own low-cost packages and possibly reduce prices for some packages in order to address the threat. This will further put pressure on gross margins.

3) Dish May Need to Spend More to Gain Subs

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While Dish Network is struggling to retain its subscribers, DirecTV has been doing fairly well. DirecTV gained about 174,000 ^[] net subscribers in Q3 2010 as opposed to a loss of net 29,000 ^[] subscribers for Dish. Its subscriber churn was significantly lower than that for Dish.

In order to compete, Dish Network may be required to things differently. The company may be forced increase its marketing spend and offer additional services like watching videos from its library over the Internet for free or minimal costs. This may increase subscriber acquisition costs for Dish Network, and consequently, SG&A.

Dish Network is in a phase of balancing subscriber growth while keeping costs in check. However from the looks of it, it seems that the company that will struggle with intensifying competition.

You can see the complete $24.87 Trefis price estimate for Dish Network’s stock here.

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Time Warner Squeezes More Money From Subscribers But Stock Is Still Too Chunky

Cable guy is getting paid

Time Warner Cable recently released its third quarter earnings. As a result of continued ARPU (average revenue per user) growth as well as reduced capital expenditures, we have increased our price estimate for Time Warner Cable’s stock to $55.46, which is about 12% below the current market price.

Time Warner Cable competes primarily with Comcast , AT&T and Verizon in both the pay-TV and broadband businesses as well as satellite pay-TV providers like Dish Network and DirecTV.

Market Share Gains and ARPU Growth

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One of the key takeaways from its recent earnings is Time Warner Cable’s success in the broadband market. Besides continued momentum in market share gains, the company is also experiencing growth in broadband ARPU.

We now expect ARPU to reach $48 by the end of our forecast period compared to $42 in 2009. If ARPU reaches $52 by end of our forecast period, this adds about 7% upside to our current price estimate.

2 Key Drivers to ARPU Growth:

1) Premium Services

Time Warner Cable’s broadband ARPU is benefiting from more subscribers taking premium services. Subscriptions for its Turbo service increased by 123,000 ^[] in Q3 while customers subscribing to Docsis 3.0 increased by 4,000. ^[] These services increase broadband speeds for its users for an extra charge to their monthly bill.

The company states that currently about 13% of its residential high-speed data subscribers now have these premium offerings. As premium tier subscribers are outpacing net subscriber additions, ^[] we feel that penetration will increase for premium tier broadband offerings.

2) 4G/3G Wireless Broadband

Time Warner Cable has also launched a combined 4G/3G wireless service in New York City. This service can deliver speeds of up to 6 Mbps ^[] making it one of the fastest mobile broadband networks available. ^[] Users can connect to this service using laptops, smartphones or other wireless devices.

Although the company is offering data plans for as low as $20 per month ^[] (with 250 MB data cap), these are not likely to replace its wire line broadband service. Instead, we believe this will provide mobile aiding ARPU growth.

You can see the complete $55.46 Trefis price estimate for Time Warner Cable’s stock here.

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Subscribers Flock To Dish, Stock Still Has Very Little Upside

Picking up subscribers

DirecTV recently reported its Q3 earnings. Based on continued subscriber gains and cost improvements in its Latin American business, we have increased our price estimate for DirecTV’s stock to $42.51 which is very close to its current market price.

DirecTV competes with satellite pay-TV providers like Dish Network, cable companies like Comcast and Time Warner Cable, and telecom operators like AT&T and Verizon in the pay-TV business.

One of the key aspects of the earnings were strong net subscriber gains in the U.S. given the amount of competition in the industry. DirecTV added about 174,000 ^[] subscribers in Q3 2010, which is about 28% higher than for same period in 2009.

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We now expect the company to have close to 19.1 million subscribers by end of 2010 which amounts to a pay-TV market share of 18%. Although we forecast stabilization in market share, if DirecTV adds another 2 percentage points of market share over the course of our forecast period, this increases our price estimate by almost 7%.

Interestingly, while DirecTV gained a significant number of pay-TV subscribers in its recent quarter, its competitor Dish Network lost about 29,000 subscribers ^[]. Dish Network seems to be struggling while DirecTV is flourishing. What is the company doing right?

1) Market Push Paying Off

The company spent about $420 million in marketing in 2009, ^[] which was about $110 ^[] million more than Dish Network’s marketing spend. Moreover, DirecTV reportedly spent a significant amount on new advertisement for NFL Sunday Ticket.

2) Avoiding Pricing Disputes

Dish Network got caught up in carriage fee disputes with content owners like Disney and Fox, which led to programming interruptions. We think blackouts hurt the brand value as a result. DirecTV has been successful in avoiding such disputes and inconvenience for its subscribers.

3) High Quality Subscriber Base

As DirecTV is seen as a premium brand, it attracts a higher quality subscriber base with customers more likely to have higher incomes and lower churn rates. Dish dolled out compliments to this effect in its recent earnings call ^[].

We believe DirecTV’s audience is more likely to take up promotional offers like free HD since a higher proportion might have high-definition TVs or be willing to commit to longer contracts. This leads to lower churn, higher net subscriber additions and market share gains.

You can see the complete $42.51 Trefis price estimate for DirecTV’s stock here.

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Cisco Plugs Into Network Security Business, Stock Eyes $24

Taking bigger steps into security

Cisco’s revenues from sales of network security products like Virtual Private Networks (VPNs) and firewalls have risen from an estimated $1.1 billion in 2005 to around $1.9 billion in 2009. ^[]

Though Cisco is not as dominant in this area as the routers and switches business, it still commands a respectable 35-40% market share. ^[] Cisco’s primary competitors like Juniper, H-P, Check Point and McAfee are also seeing revenue growth, contributing to the overall growth of network security market.

While we expect Cisco will continue with its gradual growth trend in network security sales, the Trefis member community predicts a slight decline. We currently have a Trefis price estimate of $24.04 for Cisco’s stock, about 24% above the current market price of $19.44.

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Growing Demand for Network Security

Cisco’s revenues in network security products are tied to its network routers and switches business. Customers generally tend to buy an entire solution to meet their network infrastructure requirements, and Cisco has capitalized on its ability to deliver both core network equipment and security products.

The network security market slowed in 2009 mainly due to restricted spending by companies due to the recession but is now beginning to pick up. According to Infonetics Research, network security appliance and software revenue increased 7% worldwide between Q1 and Q2 2010, totaling $1.4 billion.

The three top vendors saw firm sales growth in the most recent quarter: Juniper (+12%), Check Point (+9%) and Cisco (+8%). Cisco was held back in recent quarters by supply constraints on some of its components that are fixed now. ^[] This will allow it make up for lost ground vs. its competitors.

The Trefis community forecasts that the network security revenues will increase from $1.8 billion in 2010 to $2 billion by 2016 while Trefis estimates an increase from $2.1 billion to $3.1 billion during the same period. The lower community forecast corresponds with a slight decrease in price estimate.

Our complete analysis for Cisco’s stock is here.

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AMD Stock Price Sensitive To Intel Market Share Theft

Stands to gain nicely from market share steals

Intel dominates the notebook processor market with an estimated 86% market share while AMD controls almost 14% by our estimates. ^[] We currently have a Trefis price estimate of $25.53 for Intel’s stock and a price estimate of $8.07 for AMD’s stock.

While Intel dominates, competition is becoming more intense with each company rolling out newer integrated computing and graphics platforms. At the core of this is a fight for market share.

We forecast market share remaining stable for both currently but note that a hypothetical 5 percentage point increase implies 2.5% upside in our share price estimate for Intel and 11% for AMD. So the little guy clearly has more to gain. See our modifiable charts below.

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In September 2010, Intel launched its second-generation core architecture, Sandy Bridge, a 32-nanometer chip that can put CPUs and GPUs onto a single piece of silicon designed for tasks like handling high-definition video.

Intel management immodestly called Sandy Bridge the largest increase in computing performance in its history and places high expectations on its business impact. ^[] The company began large-scale production this past quarter and expects to start earning revenues on these shipments in Q4 2010.

In response, AMD introduced Llano accelerated processing unit in October 2010, a part of the company’s Fusion initiative. Some of tasks carried out by Llano include calculating the value of Pi to 32 million decimal places and decoding HD video from a Blu-ray disc, as claimed by AMD. ^[] Production is slated for earlier next year after rumors of some delays.

While performance tests for both have been good so far, we won’t see the data on a large scale until next year. So until then, who do you think will gain share?

Our complete analysis for Intel’s stock is here.

Our complete analysis for AMD’s stock is here.

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AMD Stock Price Sensitive To Intel Market Share Theft

Stands to gain nicely from market share steals

Intel dominates the notebook processor market with an estimated 86% market share while AMD controls almost 14% by our estimates. ^[] We currently have a Trefis price estimate of $25.53 for Intel’s stock and a price estimate of $8.07 for AMD’s stock.

While Intel dominates, competition is becoming more intense with each company rolling out newer integrated computing and graphics platforms. At the core of this is a fight for market share.

We forecast market share remaining stable for both currently but note that a hypothetical 5 percentage point increase implies 2.5% upside in our share price estimate for Intel and 11% for AMD. So the little guy clearly has more to gain. See our modifiable charts below.

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In September 2010, Intel launched its second-generation core architecture, Sandy Bridge, a 32-nanometer chip that can put CPUs and GPUs onto a single piece of silicon designed for tasks like handling high-definition video.

Intel management immodestly called Sandy Bridge the largest increase in computing performance in its history and places high expectations on its business impact. ^[] The company began large-scale production this past quarter and expects to start earning revenues on these shipments in Q4 2010.

In response, AMD introduced Llano accelerated processing unit in October 2010, a part of the company’s Fusion initiative. Some of tasks carried out by Llano include calculating the value of Pi to 32 million decimal places and decoding HD video from a Blu-ray disc, as claimed by AMD. ^[] Production is slated for earlier next year after rumors of some delays.

While performance tests for both have been good so far, we won’t see the data on a large scale until next year. So until then, who do you think will gain share?

Our complete analysis for Intel’s stock is here.

Our complete analysis for AMD’s stock is here.

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Cisco Plugs Into Network Security Business, Stock Eyes $24

Taking bigger steps into security

Cisco’s revenues from sales of network security products like Virtual Private Networks (VPNs) and firewalls have risen from an estimated $1.1 billion in 2005 to around $1.9 billion in 2009. ^[]

Though Cisco is not as dominant in this area as the routers and switches business, it still commands a respectable 35-40% market share. ^[] Cisco’s primary competitors like Juniper, H-P, Check Point and McAfee are also seeing revenue growth, contributing to the overall growth of network security market.

While we expect Cisco will continue with its gradual growth trend in network security sales, the Trefis member community predicts a slight decline. We currently have a Trefis price estimate of $24.04 for Cisco’s stock, about 24% above the current market price of $19.44.

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Growing Demand for Network Security

Cisco’s revenues in network security products are tied to its network routers and switches business. Customers generally tend to buy an entire solution to meet their network infrastructure requirements, and Cisco has capitalized on its ability to deliver both core network equipment and security products.

The network security market slowed in 2009 mainly due to restricted spending by companies due to the recession but is now beginning to pick up. According to Infonetics Research, network security appliance and software revenue increased 7% worldwide between Q1 and Q2 2010, totaling $1.4 billion.

The three top vendors saw firm sales growth in the most recent quarter: Juniper (+12%), Check Point (+9%) and Cisco (+8%). Cisco was held back in recent quarters by supply constraints on some of its components that are fixed now. ^[] This will allow it make up for lost ground vs. its competitors.

The Trefis community forecasts that the network security revenues will increase from $1.8 billion in 2010 to $2 billion by 2016 while Trefis estimates an increase from $2.1 billion to $3.1 billion during the same period. The lower community forecast corresponds with a slight decrease in price estimate.

Our complete analysis for Cisco’s stock is here.

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Nokia Has Wafer-Thin Margins But The Stock Is Still Worth Almost $13

Nokia cleans up in emerging markets

Rising competition in the handset market, lower phone prices, and rising R&D expenses have chipped away Nokia’s profit margins in recent years. Nokia competes with Research in Motion, Apple, Motorola, Samsung and Google’s Android devices in the smartphone segment and a host of players in the basic handset business.

From 2007 to 2009, Nokia’s EBIT margin (a measure for profitability) for mobile phones declined from 20% to around 13% on a firm wide basis. ^[] We expect this trend to continue over our forecast period, slipping to around 7.5% by 2016. However several items might turn margins around including new initiatives like its online app store called Ovi, an upgraded operating system and its push into smartphones.

The average Trefis member forecast suggests that emerging market profit margins will remain flat rather than decline steadily as we forecast, implying around 25% upside to our price estimate of $12.44 for Nokia’s stock, which is about 21% above the current market price of $10.31. We also pose the question of the corresponding impact on unit sales from its smartphone strategy below.

Symbian, Ovi Help Smartphone Sales

If Nokia can deliver on its improved Symbian operating system and the Ovi app store, we believe this will facilitate Nokia’ already strong push into the smartphone market. By upgrading its OS and providing more apps, games and services, this attracts new smartphone customers and help retains current ones.

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According to IDC research, Nokia’s smartphones shipments grew 61% year-on-year in Q3 of 2010. ^[] In our earlier article, we explained how emerging markets account for a major portion of Nokia’s smartphone sales, and how increasing sales can create potential upside to its margins.

By looking at the forecasts among Trefis users, a consensus is forming that Nokia’s emerging market profit margins will be supported by a greater mix of smartphone sales. Some think this implies that Nokia will lose market share on the low-end segment and erode its handset sales though we have not seen data to support this.

Above, the average forecast of Trefis members for mobile phones EBIT margin for emerging markets indicates that margins will stay flat at around 12.5%, compared to the baseline Trefis estimate of a decrease from 10.5% in 2010 to 7.5% during the same period. This translates to around 25% upside to our price estimate.

We realize that there will likely be an impact on unit sales as well and want to see more data before adjusting our estimates.

We include the chart below so that the reader can adjust market share data for emerging markets to see how this factor alone impacts our price estimates. To see the combined impact – higher EBIT margins and adjusted unit sales – please visit our site below.

Our complete analysis for Nokia’s stock is here.

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Time To Party In Tupperware With The Stock Pulling Back

Seal in a low basis in TUP

In case you missed the Tupperware party during the fall season, consider this week’s 2% correction an invitation to arrive fashionably late.

The “Tupperware space” was a big winner over the past two-plus months. Since September 2, Jarden Corporation, Newell Rubbermaid, and of course Tupperware Brands have rallied 12.9 percent, 10.7 percent, and 14.2 percent, respectively. This past week, Newell and Jarden bent to the market’s force, providing opportunities for those who didn’t join the party.

Since hitting a 6-month high in October, tupperware and diversified consumer products producer Jarden Corporation are down a little over 4 percent, serving to drastically repair Jarden’s technical picture. Over that time, Jarden’s relative strength index (RSI) has improved from an overbought position above 75 to a reading near 47, and the stock’s slow stochastics have fallen from an overbought reading above 80 to below 40.

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Jarden stock has been consolidating and building support following profit taking in the wake of Jarden’s third-quarter earnings report last month, potentially preparing for a new rally.

The charts for Georgia-based Newell Rubbermaid?appear even more favorable. The stock formed a rounding top pattern, but volume has been steadily declining on the downturn. Newell, who also produces writing instrument brands like Sharpie and Papermate, in addition to other products, features an RSI near 37 and slow stochastics below 12, both being indicative of an oversold position. Currently priced near $17.14, look for Newell’s technicals to form a bottom before a potential retracement to the 10-day exponential moving average and to the last strong-volume open price near $17.93 which occurred on November 5.

Newell?also has?the advantage being?priced at 19-times earnings, versus Jarden which trades at a rich price-to-earnings multiple of 47. Yet both stocks?have strong short-term potental based on the charts. Although Newell and Jarden offer extremely modest annual dividend yields of about one percent, compared with Tupperware Brands’ two percent, both stocks may be sending out?invitations to buy the dips.

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Dish Stock Still Has Big Upside But Not As Much If Promotional Pricing Persists

Watch those prices

Dish Network’s average subscription price for its high-definition TV service has declined in recent years from our estimate of $20 a month in 2006 to about $10 in 2009 amid increasing competition from DirecTV, AT&T and Verizon, which also offer HDTV services.

Dish Network, DirectTV and Verizon are extending promotional plans in the hopes of attracting new customers while Time Warner Cable does not charge extra for HD channels. This combined with ongoing disputes with content owners that provide HD programming are creating a challenging pricing environment.

We expect average subscription prices to stay around current levels in the near term; however, if promotional activities continue longer than expected or new content agreements adversely impact Dish, this could lower our price estimate of $25.84, which is currently 30% higher than the current market price.

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Promotional Extension Hurts Pricing

Dish Network’s recent marketing campaign offers to waive the $10 per month add-on fee for HD programming if customers commit to a two-year contract. Initially this offer was intended to last until the end of September 2010; however, the company recently extended this offer until January 2011.

We interpret this as a sign of poor pricing power as Dish is willing to sacrifice HD revenues in an effort to attract new customers. While we do not know how successful this strategy might be, the willingness to offer free programming hurts pricing for HD services overall. If Dish extends promotions even further, this will lead us to lower our estimates for average HD pricing.

Dispute with Content Owners

Dish has been in disputes with content owners like Disney and Fox over increases in HD programming costs and recently faced a complete blackout from Fox due to an impasse. The company argues that if it agrees to higher content prices, it would need to pass these costs on to its customers hurting its business and image as a low cost service provider.

While an agreement was finally reached with Fox, service interruptions frustrate customers and hurt brand value pointing to further pricing issues for the company. In these circumstances, Dish becomes more reliant on offering promotions to attract new customers or retain current ones, further eroding the perceived pricing premium associated with HD services.

Since competitors like DirecTV also offer free HD programming for new customers and Time Warner Cable is not charging for HD channels, Dish is forced to compete on price, which makes it more likely that further price cuts will come.

Lower Pricing on the Horizon

We currently forecast that average HD subscription prices will decline slightly and stabilize around $9.50. However as issues mount for HD providers, we believe that pricing might decline further. If average prices gradually reach $5.00 by the end of our forecast period, this subtracts 4% from our price estimate.

You can modify our forecast above to see how Dish Network’s price estimate is impacted by change in average HD subscription fee.

You can see the complete $25.84 Trefis price estimate for Dish Network’s stock here.

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