Since PYPL’s 2Q results, a key question from investors has been around 2020 guidance. More specifically, eBay’s impact and the potential offsets that can support results being within the company’s medium-term outlook. eBay makes up 9% of PYPL TPV, with 70/75% of that being branded volume. In July 2020, eBay will transition its unbranded volume (~25/30% of its total) away from PYPL (operating agreement lapses), with branded volume being re-priced to a large enterprise level. While our estimate calls for eBay moving to only ~2% of revenues during 2H20 (versus double-digit contribution in 1H20), we see multiple tailwinds that should enable 17% growth (excluding any unannounced M&A) in 2020 including: 1) XB pricing, 2) return pricing, 3) commercial partnerships with MELI and UBER, and 4) product integrations—namely FB/Instagram and Paymentus.
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On Saturday (9/14), a series of drone and missile attacks debilitated Saudi Arabia’s oil industry after strikes on Saudi Aramco’s Abqaiq oil processing facility and Hijra Khurais oilfield removed ~5.7M barrels a day of crude production, representing roughly half of Saudi’s daily capacity. Houthi rebels in Yemen claimed responsibility, but U.S. intelligence refuted that claim and instead blamed Iran for launching more than 20 drones and at least a dozen ballistic missiles. Saudi officials, however, aren’t ready to assign responsibility to Iran citing insufficient evidence provided by U.S. intelligence that Iran was the staging ground.
We recently met with Andy Saperstein, Head of MS Wealth Management, and Head of IR Sharon Yeshaya. Meeting focused on sources of future growth, early Solium progress, earnings outlook in a recession, and treatment of WM in CCAR. Overall, tone was positive as Saperstein was optimistic about MS’ ability to grow its client base, gain share of client assets, and hopefully reduce CET1 requirements over time, with the WM narrative shifting to one of improving growth and higher profitability. With shares trading at <9x NTM EPS, and <1.2x P/TBV (vs. >12% ROTCE), risk / reward remains attractive.
Attacks on major oil plants in Saudi Arabia have shaken global oil markets. Estimates indicate that this has disrupted approximately 5% of the world’s oil supply. Due to this supply side shock, oil prices have risen approximately 13%. This represents an approximate 5x sigma move on oil prices.
On September 9/10, the price momentum factor suffered from a >6x standard deviation loss, two days in a row. On the same days, the book-to-market cyclical value signal reached a +5-sigma rally. We observe similar sell-offs globally in most regions and across all 11 sectors. However, the surge in the book-to-market factor has not been matched by other (more prominent) value strategies (e.g., earnings yield and EBITDA/EV). More importantly, in this note, we want to answer the question – does this reversal mark the fundamental shift from momentum/growth to value?
We wanted to flag a few highlights in today's Wolfe Research Auto Daily....
IHS September Revisions: New IHS forecasts imply some downside to supplier numbers
IHS released updated production estimates, cutting global production estimates 100+ bps in 3Q and 4Q. We believe that this may suggest risk to Q3 assumptions of suppliers.
GT: Fine-tuning our 2019 estimates, as 2020 tailwinds become increasingly clear
Michelin’s compilation of global tire demand data (July and August) reflected weaker than expected demand for replacement tires. We believe that this poses some risk to Goodyear’s Q3. But starting in Q4 we believe that improving Price-Raw material spreads will become the dominant earnings driver… 2020 tailwinds are encouraging
ADAS penetration rates continue to climb
According to Canalys Research estimates, AEB penetration has reached 63% in the US (up 20pts YOY) and 56% in Europe (up 9pts YOY).
This morning (9/16/19), ET announced a $1.4B acquisition of SEMG at a 65% premium with total enterprise value of $5.1B. We see the deal, inclusive of synergies, as roughly neutral to EV/EBITDA, 2.8% accretive to 2021 DCF/unit, and slightly dilutive to credit metrics (see p. 4). The purchase will be funded with over $800M of ET units and $540M in cash. The optics were not good as investors want ET to finish de-levering, sell Rover, reduce capex, get to BBB credit ratings, and buy back stock. That said, the reality is a $5B deal for a $90B EV company is quite modest to the overall value proposition so we see the stock falling 4.2% while higher beta peers rose over 2% as overdone. The ET value case – highly strategic assets at a 15% EV/EBITDA discount to the group remains intact and we stay Outperform rated.
The outlook for GPS’s equity is largely tied to the success of its planned spin-off of Old Navy next year. At its Meet the Management event last week on 9/12/19, we received details of the stand-alone financial expectations, dis-synergies (approximately 1% of sales at both Gap INC. and Old Navy), and one-time separation costs (approximately $700-$800mm between expenses and capital), and we built a segment EBITDA model around these assumptions (see page 5).
After the close (9/16/19), FDX announced its Express and Ground list rate increases for 2020. This is a normal announcement from FDX every year around this time. FDX plans to raise its U.S. Express, Int’l Express and U.S. Ground rates by 4.9% starting on Jan. 6, 2020. We estimate around 70% compliance with FDX’s list rate increases historically. See Exhibits 1-2 below.
Last week, we met with SAIA mgmt. at their headquarters in Johns Creek, GA. While the stock has already outperformed materially this year, we reiterate our Outperform rating as we see a compelling multi-year EPS growth story as SAIA expands its footprint in the Northeast, increases network density in its legacy operations, improves its cost structure, and realizes above-average LTL yield improvement.