Tag: US Market

Business Strategy and Outlook:

With divestitures of Stubhub, eBay Classifieds, and Gmart largely in the rearview mirror, eBay’s business looks remarkably similar to its genesis: a customer-to-customer e-commerce platform connecting hundreds of millions of buyers and sellers worldwide, with an emphasis on non-new, seasoned goods. The core eBay Marketplace business should have plenty of room to run, considering management’s estimated $500 billion total addressable market for non-new, seasoned goods, and could benefit from swelling interest in resale markets and a strong pull-forward in e-commerce demand in 2020 and 2021.

eBay’s Marketplace generated the sixth-highest gross merchandise volume, or GMV, among global players in 2021, and renewed attention by management in core verticals like collectibles, used and refurbished goods, liquidation inventory, premium shoes, and luxury jewelry–often products without a benchmark average sales price, or ASP, index (limiting price comparison pressure and leaning into the marketplace’s edge in price discovery)-appears clever. The eBay’s, 147 million active buyer base, and recent platform improvements (including managed payments, promoted listings, and inventory management services) should prove sufficient to solidify advantages in many targeted verticals.

Financial Strength:

eBay’s financial health is sound. The company has access to a $1.5 billion commercial paper facility and a $2 billion line of credit represent attractive backstops, particularly when considering that the firm maintained only $4.2 billion in net debt at the end of 2021, with a further $5.8 billion available in short-term investments. eBay’s highly free-cash-flow generative business model, comfortable coverage of interest payments (7.8 times over the same period), and investment-grade credit rating suggest that the firm should have no trouble meeting its fixed obligations.

Management again raised its buyback facility again in the fourth quarter of 2021, to $6 billion from $2 billion prior. With $1.6 billion in cash and equivalents on the balance sheet at the end of 2021, eBay maintains a bulletproof balance sheet, with substantial flexibility to meet fixed interest and principal payments, invest in attractive internal investment opportunities, and return a generous amount of capital to shareholders through share repurchases and dividends.

Bulls Say:

• The firm’s managed payments rollout executed seamlessly, and offers optionality for auxiliary financial services down the line.
• Recent successes in higher-touch luxury resale and collectibles categories offer a blueprint for sustained growth in the C2C marketplace.
• The addition of auction-based items and offsite advertising could catalyze better sell-through rates and monetization in the promoted listings business.

Company Profile:

eBay operates one of the largest e-commerce marketplaces in the world, with $87 billion in 2021 gross merchandise volume, or GMV, rendering the firm the sixth-largest global e-commerce company. eBay generates revenue from listing fees, advertising, revenue-sharing arrangements with service providers, and managed payments, with its platform connecting more than 147 million buyers and roughly 20 million sellers across almost 190 global markets. eBay generates just north of 50% of its GMV in international markets, with a large presence in the U.K., Germany, and Australia.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Business Strategy and Outlook:

While COVID-19 is still materially impacting near-term travel demand in many regions of the world, we expect Marriott to expand room and revenue share in the hotel industry over the next decade, driven by a favorable next-generation traveler position supported by renovated and newer brands, as well as its industry-leading loyalty program. Additionally, we believe the acquisition of Starwood (closed in September 2016) has strengthened Marriott’s long-term brand advantage, as Starwood’s global luxury portfolio complemented Marriott’s dominant upper-scale position in North America.

Marriott’s intangible brand asset and switching cost advantages are set to strengthen. Marriott has added several new brands since 2007, renovated a meaningful percentage of core Marriott and Courtyard hotels in the past few years, and expanded technology integration and loyalty-member presence; these actions have led to share gains and a strong positioning with millennial travelers. Starwood’s loyalty member presence and iconic brands should further strengthen Marriott’s advantages. With 97% of the combined rooms managed or franchised, Marriott has an attractive recurring-fee business model with high returns on invested capital and significant switching costs for property owners. Managed and franchised hotels have low fixed costs and capital requirements, along with contracts lasting 20 years that have meaningful cancelation costs for owners.

Financial Strength:

Marriott’s financial health remains in good shape, despite COVID-19 challenges. Marriott entered 2020 with debt/adjusted EBITDA of 3.1 times, as its asset-light business model allows the company to operate with low fixed costs and stable unit growth, but reduced demand due to COVID-19 caused the ratio to end the year at 9.1 times. During 2020, Marriott did not sit still; rather, it took action to increase its liquidity profile, including suspending dividends and share repurchases, deferring discretionary capital expenditures, raising debt, and receiving credit card fees from partners up front. As travel demand recovered in 2021, so too did Marriott’s debt leverage, with debt/adjusted EBITDA ending the year at 4.5 times. If demand once again plummeted, we think Marriott has enough liquidity to operate at zero revenue into 2023.

Bulls Say:

• Marriott is positioned to benefit from the increasing presence of the next-generation traveler through emerging lifestyle brands Autograph, Tribute, Moxy, Aloft, and Element. 
• Marriott stands to benefit from worker flexibility driving higher long-term travel demand. Our constructive stance is formed by higher income occupations being the most likely industries to continue to work from remote locations. 
• Marriott has a high exposure to recurring managed and franchised fees (97% of total 2019 units), which have high switching costs and generate strong ROICs.

Company Profile:

Marriott operates nearly 1.5 million rooms across roughly 30 brands. Luxury represents 10% of total rooms, while full service, limited service, and time-shares are 43%, 46%, and 2% of all units, respectively. Marriott, Courtyard, and Sheraton are the largest brands, while Autograph, Tribute, Moxy, Aloft, and Element are newer lifestyle brands. Managed and franchised represent 97% of total rooms. North America makes up two thirds of total rooms. Managed, franchise, and incentive fees represent the vast majority of revenue and profitability for the company.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Business Strategy and Outlook:

Several secular trends are affecting Tyson’s long-term growth prospects. While U.S. consumers (81% of fiscal 2021 sales) are limiting their consumption of red and processed meat (71% of Tyson’s sales), they are consuming more chicken (29%). International demand for meat has been strong, and although Tyson’s overseas sales mix is just 12%, it is likely to increase over time, as this is an area of acquisition focus. Also, in order to feed the world sustainably, alternative proteins should play a key role. Tyson is actively investing in lab-grown and plant-based meats and should participate in this growth (albeit to a small degree). The beef segment has been a bright spot in Tyson’s portfolio in recent years, as strong international demand, coupled with a drought-induced beef shortage in Australia, has increased the segment’s operating margins to 10% over the past five years from 2% prior to 2017. Conversely, the chicken segment has suffered from executional missteps that have resulted in structurally higher costs relative to competitors.

About 80% of Tyson’s products are undifferentiated (commoditized), so it is difficult for them to command price premiums and higher returns. Although Tyson is the largest U.S. producer of beef and chicken, we do not believe this affords it a scale-based cost advantage, as its segment margins tend to be in line with or even below those of its smaller peers. The absence of a competitive edge, in the form of either a brand intangible asset or a cost advantage, leads us to our no-moat rating.

Financial Strength:

Tyson’s financial health is viewed as solid and there aren’t any issues to suggest that it will be unable to meet its financial obligations. While Tyson generates healthy cash flow and is committed to retaining its investment-grade credit rating, the business is inherently cyclical, with many factors outside of its control. But management has made changes to improve the predictability of earnings. Chicken pricing contracts, which now link costs and prices, and a greater mix of prepared foods (from 10% in 2014 to the current 19%) both serve as stabilizers. In terms of leverage, net debt/adjusted EBITDA stood at a rather low 1.2 times at the end of fiscal 2021, below Tyson’s typical range of 2-3 times. At the end of December, Tyson held $3.0 billion cash and had full availability of its $2.25 billion revolving credit agreement. Together, this should be sufficient to meet the firm’s needs over the next year, namely about $2 billion in capital expenditures, nearly $700 million in dividends, and $1.1 billion in debt maturities.

Bulls Say:

• China’s significant protein shortage resulting from African swine fever should boost near-term protein demand, while the country’s continued moderate increase in per capita consumption of proteins should drive long-term growth. 
• While investor angst over chicken price-fixing litigation has weighed on shares, Tyson’s recently announced settlements materially reduce this overhang. 
• In the current inflationary environment, Tyson’s cost pass-through model limits potential profit margin pressure.

Company Profile:

Tyson Foods is the largest U.S. producer of processed chicken and beef. It’s also a large producer of processed pork and protein-based products under the brands Jimmy Dean, Hillshire Farm, Ball Park, Sara Lee, Aidells, State Fair, and Raised & Rooted, to name a few. Tyson sells 81% of its products through various U.S. channels, including retailers (47% in fiscal 2021), food service (32%), and other packaged food and industrial companies (10%). In addition, 11% of the company’s revenue comes from exports to Canada, Mexico, Brazil, Europe, China, and Japan.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment Thesis:

• Leveraged to the structural growth story of electronics payments globally.
• Difficult to replicate technology platform which provides an element of high barrier to entry to new entrants.
• Largely defensive earnings and strong market position (second largest payments network globally). 
• Expansion into new markets / segments provides upside potential
• Value accretive acquisitions. Management aims for all acquisitions to be value-accretive by the third year of the transaction.
• Capital management initiatives 

Key Risks:

• Adverse currency movements and regulatory changes (data privacy / protection, governments’ intervention/protection policies). 
• Security and technology risks (including cyber-attacks). 
• Increased competition, potentially from new forms of payment systems. 
• Value destructive acquisition(s). 
• Macroeconomic conditions globally deteriorate, impacting consumer spending and business activity, especially given the coronavirus outbreak.
• Significant change at the senior management level.
• Company fails to meet market/investor expectations leading to analysts’ earnings downgrade – the stock is likely to come under selling pressure. 
• Outstanding litigation risk.

Key highlights:

• MA’s FY21 results came in above consensus estimates with revenue of $18.9bn (up +23%) vs estimate of $18.8bn and EPS of $8.76 (up +38%) vs estimate of $8.43 amid a spending rebound, with management forecasting YoY growth in FY22 as cross-border travel continues to improve. 
• MA’s fundamentals remain strong with highly defensible and recurring revenue streams, high incremental margins and superior Free Cash Flow (FCF) generation, and remains well positioned to capture management’s targeted $255 trillion in new payment flows. The impact of potential sanctions on Russia and broader valuation declines of tech stocks amid monetary policy tightening weigh on investor sentiment.
• Secular growth should remain strong from ongoing global shifts toward card-based and electronic payments with MA’s innovations and acquisitions to strengthen Buy Now Pay Later (BNPL), crypto currency and account-to-account payments providing further boost.
• Management sees significant opportunity by expanding in payments and has upgraded its total addressable market size estimate to $255 trillion, up +8.5% over prior estimate driven by driving growth in person to merchant payments through new wins across the globe, capturing new payment flows, including commercial, B2B accounts payable, bill pay and cross-border remittances, and leaning into payment innovation in areas like instalments, contactless acceptance and crypto currencies.

Company Description:

Mastercard Inc is a technology company in the global payments industry that connects consumers, financial institutions, merchants, governments, digital partners and businesses, enabling them to use electronic forms of payment instead of cash and cheques. The Company provides payment solutions and services through brands such as Mastercard, Maestro and Cirrus.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.