Tag: US Market

James Gorman and Morgan Stanley’s management team have deftly positioned the firm to key financial sector trends through acquisitions. They inked a transformative deal with the acquisition of Citigroup’s Smith Barney that increased Morgan Stanley’s proportion of stable, balance-sheet-light earnings after the enactment of higher regulatory capital requirements. 

Recent acquisitions of E-Trade and Eaton Vance further extend Morgan Stanley’s capabilities and deepen its competitive advantages. E-Trade is a technology firm that offers a leading self-directed brokerage, digital bank, and workplace services business. Eaton Vance is an asset manager that will benefit from Morgan Stanley’s international relationships, while Morgan Stanley’s investment management business can leverage Eaton Vance’s financial intermediary distribution channel and capabilities in environment, social, and governance investing and mass customization of financial products.

Morgan Stanley’s thoughtful acquisitions provide it the scale and scope to effectively compete with the largest financial sector players that are increasingly moving beyond their traditional industry silos. Given synergies and exposure to industry tailwinds, we expect Morgan Stanley’s returns on tangible common equity will increase over time and support the company’s valuation.

Company’s Future outlook

It is estimated that Morgan Stanley’s acquisitions and strategy have led to the increase in its valuation, management’s path to increasing the firm’s valuation to over 2 times tangible book value from 0.5 times in just a decade.” Morgan Stanley plans upgrading capital allocation rating to Exemplary from Standard and increasing fair value estimate to $85 from $70.

Company Profile

Morgan Stanley is a global investment bank whose history, through its legacy firms, can be traced back to 1924. The company has institutional securities, wealth management, and investment management segments. The company had about $4 trillion of client assets as well as nearly 70,000 employees at the end of 2020. Approximately 40% of the company’s net revenue is from its institutional securities business, with the remainder coming from wealth and investment management. The company derives about 30% of its total revenue outside the Americas.

(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.

a boom in the commercial real estate services industry since the nadir of the real estate-driven global financial crisis of 2007. As the third-largest player in the space by market cap, Cushman & Wakefield has benefited disproportionately from various tailwinds that have underpinned an impressive run of growth. Key to this success has been the company’s industry-leading brand reputation and a platform that melds complementary business lines in areas such as property sales, leasing, project management, and outsourcing to serve its corporate and institutional clients.

Although Cushman & Wakefield nominally reports its segments on a regional basis, it also discloses the amount of revenue coming from each business line. Among these, the property, facilities, and project management business is the largest and also the most stable, providing contractual revenue from corporate customers. This business line, which contributes around 54% of companywide revenue, is where Cushman & Wakefield provides many of the services needed by corporations that occupy real estate. 

Finally, the company’s valuation and other business line include several services for corporate and institutional clients, which include appraisals that are used for various purposes. The leasing business line is Cushman & Wakefield’s second largest, contributing around 23% of companywide revenue. In this business line, the company’s brokers work with owners and occupiers of commercial real estate during the leasing process, primarily by executing lease agreements. Similarly, the capital markets business line, which contributes around 14% of companywide revenue, is where brokers facilitate the sale and purchase of commercial real estate property.

Financial Strength

Cushman & Wakefield has somewhat concerning financial health. Commercial real estate is highly cyclical and is subject to significant volatility during downturns, meriting a more cautious approach. Cushman & Wakefield’s higher level of leverage is the result of an aggressive acquisition strategy that has helped cement the firm’s position as a global provider able to compete effectively with CBRE and JLL. In response to the corona virus crisis, Cushman & Wakefield announced it would issue $650 million in senior notes, bringing further attention to its borderline precarious financial situation. 

Bull Says

• As one of the largest of only a few truly international one-stop shops, Cushman & Wakefield is poised to continue taking share from competitors in a growing industry that increasingly rewards scale.

• The trend of corporate outsourcing represents a significant opportunity and area of growth for Cushman & Wakefield.

• Cushman & Wakefield is emerging as an authority on the topic of workplace protocols amid the corona virus era of social distancing, which will allow it to win new outsourcing contracts with major clients.

Company Profile

Cushman & Wakefield is the third largest commercial real estate services firm in the world with a global headquarters in Chicago. The firm provides various real estate-related services to owners, occupiers and investors. These include brokerage services for leasing and capital markets sales, as well as advisory services such valuation, project management, and facilities management.

(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.

. Its domestic operations are more concentrated in mortgages and auto lending. The international exposure gives the bank the potential for higher growth and return opportunities compared with peers, but it also exposes the bank to more risks.

The bank is in the middle of rationalizing its many back-end systems and improving efficiency bankwide.The bank is continuously focusing in digitalisation and has been spending the most on its technology and communication expenses. These efforts will ultimately pay off in the form of improved operating efficiency, customer engagement, and internal sales coordination. This leads us to believe that returns on tangible equity near 15% are sustainable over the longer term for the bank.

International Still a Drag, but Other Segments Mostly Positive for Scotiabank in Fiscal Q3

Bank of Nova Scotia reported decent fiscal third-quarter earnings. Adjusted earnings per share were CAD 2.01, representing solid year-over-year growth which is higher than last quarter’s EPS of CAD 1.90. Provisioning continues to be a major driver of improved earnings. Credit costs remained solid and provisioning was low during the quarter while the bank is still holding excess reserves for future credit losses

Revenue growth continued to be lackluster for Scotiabank, up only 1% year over year as the bank’s international segment remains under some pressure and fee growth for the global markets segment faced tough year over year comps. It is expected that the international fees to continue to recover as the economic picture is improving in essentially all of Scotia bank’s Pacific .

Financial Strength:

Bank of Nova Scotia holds strong overall financial health with net revenue of CAD 30729 million and net income of CAD 6582 million in the year 2020. Nova Scotia’s reported common equity Tier 1 ratio of 12.2% as of July 2021 which remains satisfactory. This is above the 11.5% goal that management has targeted and leaves the bank well positioned to absorb the upcoming rise in credit costs. With dividend payout ratios at manageable levels between 40% and 50%, we expect its capital generation will continue to provide growth in its capital position, leaving room for future bolt-on acquisitions, increased capital return to shareholders, or both

Bulls Say

• The Canadian market remains attractive; the government has placed barriers to entry that protect high returns.
• The international segment’s exposure to higher growth emerging markets in Latin America will offset Scotia bank’s slower growth in its home markets and offer a runway for higher growth and returns compared with peers.
• Scotiabank has consistently been one of the most efficient bankwide operators, and its higher relative level of spending on technology should allow this to continue.

Company Profile

Bank of Nova Scotia is a global financial services provider. The bank has five business segments: Canadian banking, international banking, global wealth management, global banking and markets, and other. It offers a range of advice, products, and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets. The bank’s international operations span numerous countries and are more concentrated in Central and South America

(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.

Additionally, an initial need for capital in the recession and then low interest rates and a strong stock market led to high capital-raising activity.

Stifel Financial has a long history of being an active acquirer. With several hundred million dollars of arguably excess capital, the company could make some decent-size acquisitions. The company may see some growth from a renewed commitment to its independent advisor business.

Stifel has been deepening its expertise in certain niche areas lately through acquisitions. The KBW merger improved the company’s presence in financial industry investment banking, and Stifel has made a series of public finance firm acquisitions over the past several years. In wealth management, adding Barclays’ advisors can help the firm move more upmarket. The investment banking and wealth management landscape is undergoing a decent amount of change from regulations, such as those related to capital requirements and fiduciary standards.

Financial Strength:

Stifel’s financial health is fairly good. At the end of 2020, the company had approximately $1.1 billion of corporate debt and over $2 billion of cash on its balance sheet. Its next large debt maturity is $500 million in 2024.The Company’s total leverage is less than 8, which is fair considering the mix of its investment banking and traditional banking operations. At the end of 2020, Stifel was at its disclosed target of 11.9% Tier 1 leverage ratio. Given that its Tier 1 leverage ratio is above management’s previously stated target of 10%, the company would resume more material share repurchases or pursue acquisitions. 

Bulls Say:

Stifel’s string of acquisitions has increased operational scale and expertise. Stifel is an experienced acquirer and integrator. A recession could provide ample acquisition opportunities. Net interest income growth over the previous several years at the company’s bank materially expanded wealth management operating margins, and the increased size of the bank and wealth management business provides diversification with its institutional securities business.

Company Profile:

Stifel Financial is a middle-market-focused investment bank that produces more than 90% of its revenue in the United States. Approximately 60% of the company’s net revenue is derived from its global wealth management division, which supports over 2,000 financial advisors, with the remainder coming from its institutional securities business. Stifel has a history of being an active acquirer of other financial service firms.

(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.

the company went from a startup to a globally recognized luxury automaker with its Model S and Model X vehicles. In addition to luxury autos, the company also competes in the mid-size car and crossover SUV market with its platform that is used for Model 3 and Model Y vehicles. Tesla’s strategy is to maintain its market leader status as EVs grow from a niche auto market to reaching mass consumer adoption. Tesla also invests around 6% of its sales into R&D, focusing on improving its market-leading technology and reducing its manufacturing costs. The company will also move upstream into battery production, with a goal to reduce costs by over 50%. 

Tesla’s extended range EVs are already at range parity with ICE vehicles, which should improve further with plans for its batteries to improve energy density. Tesla also continues to increase its supercharging network, which consists of fast chargers built along highways and in cities throughout the U.S., EU, and China. Tesla also sells solar panels and batteries used for energy storage to consumers and utilities. As the solar generation and battery storage market expands, Tesla is well positioned to grow in this market. 

Financial Strength 

Tesla is in solid financial health as cash and cash equivalents exceeded total debt as of June 30, 2021. Total debt was roughly $9.4 billion, however, total debt excluding vehicle and energy product financing (non-recourse debt) was around $4 billion. Cash and cash equivalents stood at $16.2 billion as of June 30, 2021.To fund its growth plans, Tesla has used credit lines, convertible debt financing as well as equity offerings and credit lines to raise capital. In 2020, the company raised $12.3 billion in three equity issuances. 

We are raising our fair value estimate to $600 per share from $570 for narrow-moat Tesla following AI day. Our largest key takeaway from Tesla’s AI day was the progress that the company is making on its Level 3 autonomous vehicle software known as full self driving. The biggest change to our forecast is our long-term outlook for Tesla’s Level 3 autonomous vehicle software. The software, which is currently still in beta testing mode, appears to be closer to a rollout than we had expected. 

Dojo is the supercomputer that Tesla is using to train its AV software. However, over the next several years, the company plans to begin selling AI training to other companies using extra processing space. This should generate operating profits in line with software companies. Finally, Tesla plans to develop humanoid robots that can be used to perform dangerous or repetitive tasks, by creating a repurposed version of the same camera-based autonomous software that it is developing for cars in the humanoid robots, which will be programmed to perform simple tasks.

Bulls Say’s 

• Tesla has the potential to disrupt the automotive and power generation industries with its technology for EVs, AVs, batteries, and solar generation systems.
• Tesla will see higher profit margins as the company achieves its plan to reduce battery costs by 56% over the next several years.
• Through the combination of its industry-leading technology and unique Supercharger network, Tesla offers the best function of any EV on the market, which will result in the company maintaining its market leader status as EV adoption increases.

Company Profile 

Founded in 2003 and based in Palo Alto, California, Tesla is a vertically integrated sustainable energy company that also aims to transition the world to electric mobility by making electric vehicles. The company sells solar panels and solar roofs for energy generation plus batteries for stationary storage for residential and commercial properties including utilities. Tesla has multiple vehicles in its fleet, which include luxury and mid-size sedans and crossover SUVs. The company also plans to begin selling more affordable sedans and small SUVs, a light-truck, semi-truck, and a sports car. Global deliveries in 2020 were roughly 500,000 units.

(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.

missing $16.5 billion estimate, as an increasing number of COVID-19 cases resulted in another round of store closures across Europe, Latin America, and Asia (excluding China). Even so, fiscal 2021 sales are 6% above fiscal 2019 revenue (adjusted for acquisitions), supported by Estee’s ability to pivot to ecommerce, which increased to 28% of fiscal 2021 sales, compared with 15% in 2019.

 The travel retail channel has remained surprisingly resilient, which increased to 29% of fiscal 2021 sales, versus 23% in 2019. While international travel is largely curtailed, domestic trips have been strong, particularly in China’s Hainan province. 

Other factors that helped the firm return to prepandemic sales levels despite continued store closures are Estee’s strong brands (which underpins its wide moat rating) and the firm’s expertise in developing compelling new products, with innovations representing 30% of fiscal 2021 sales, well above the 15% targeted by many consumer products companies. Skin care is well above prepandemic levels, but makeup continues to lag, as mask mandates curb demand. But the firm has promising innovations and marketing programs lined up that it will rollout as mandates relax.

Company’s Future Outlook

Fiscal 2021’s adjusted operating margin increased 420 basis points to 18.9%, given tight expense controls. This margin upside should continue into fiscal 2022, as management’s guidance for adjusted earnings per share of $7.23-$7.38 is above our $7.06 estimate, although sales growth guidance of 13%-16% brackets 15% estimate. No change is expected in $249 fair value estimate, as modestly higher operating margins should be offset by a higher tax rate, 

Company Profile

Estee Lauder Inc (NYSE: EL) is the world leader in the global prestige beauty market, participating across skincare (52% of 2020 sales), makeup (33%), fragrance (11%), and hair care (4%) categories, with popular brands such as Estee Lauder, Clinique, MAC, La Mer, Jo Malone, Aveda, Bobbi Brown, Too Faced, and Origins. The firm operates in 150 countries, with 26% of revenue stemming from the Americas, 44% from Europe, the Middle East and Africa, and 30% from Asia-Pacific. The company sells its products through department stores, travel retail, multi brand specialty beauty stores, brand-dedicated freestanding stores, e-commerce, salons/spas, and perfumeries.

(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.