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Persistent Oversupply Fears Keep Oil Down As Week Starts

By
Carol Harper
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There was no respite for global oil prices as the week began in negative territory. This is mainly due to lingering oversupply worries continuing to haunt traders. While demand continued to be weak, there was also no sign of any agreement to slash production. While Brent crude was trading 0.8% down at the London’s ICE Futures exchange, it was trading 0.9% down on the NYMEX. WTI Crude is down over 3% this morning.

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Dollar Strengthens

Last week, oil got some support due to a weak dollar though the weakness so far proves temporary as the dollar is up .5% today. Barclay’s analyst Kevin Norrish reportedly said that demand data looked weak and lacked fundamentals. Also currency-enabled gains for oil as opposed to supply/demand dynamics would not translate as durable gains.

Demand is also an issue. Demand for oil in the US and China is particularly low for this time of year. Demand for oil dipped 3.9% in January in the United States while China witnessed a flat demand in December though it was an improvement from November’s drop. However, Barclays said that it still accounted for the second weakest reading for the country.

No Hopes of Production Cut

OPEC signaled that it was still not interested in reducing their production since it wanted to retain its market share. For that purpose, it even scrapped the self-imposed production limitation per month towards the end of last year. Also, there were only a few production halts since the oil price started to drop in the later part of 2014. The rig count in the US also dropped more than 60% from the October 2014 levels in America, indicating that OPEC’s plan to retain its market share is working.

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Wells Fargo Maintains Outperform Rating For Acxiom (NASDAQ:ACXM)

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Acxiom Corporation (NASDAQ:ACXM), a marketing technology and services company, reported a solid quarter that has led Wells Fargo analysts to confirm their outperform rating on the stock. The bank particularly cited the improvement in its fiscal 2016 guidance as the reason for maintaining the Outperform rating. Improving capital allocation is another bright spot that the analysts see in the company.

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Fiscal Q3 2016 highlights

Acxiom posted top and bottom line numbers that improved from the previous year and also smashed the consensus estimate. Revenue in the quarter came in at $221.2 million and adjusted EPS came in at $0.18. Revenue rose 6.2% and EPS increased 8% from the previous year’s Q3. In contrast, Wells Fargo predicted revenue and EPS of $215.5 million and $0.11, respectively. The consensus estimate called for revenue of $213.6 million and EPS of $0.12.

On a constant currency basis, revenue rose 8% with U.S. revenue jumping 8% and international revenue growing 5%. It is worth noting that Acxiom’s reported revenue in the quarter benefited from a tax credit of $0.02 per share.

2016 Outlook

Following the earnings beat, Acxiom raised its annual guidance for the first time in two years. The company is now looking for 2016 revenue in the range of $835 to $840 million. EPS for the year is projected to be $0.54. The company previously modeled 2016 revenue in the band of $815 to $840 million and EPS of $0.45 to $0.50.

Wells Fargo adjusts its estimates

Excited by ACXM’s beating quarter and the surprise annual raise, Wells Fargo has also adjusted its estimates for 2016.  The firm has made a new estimate for revenue at $839 million and EPS of $0.52. However, the bank has kept its 2017 estimates for ACXM largely unchanged, expecting revenue of $900 million and EPS of $0.60. The prior target called for revenue of $901 million and EPS of $0.60.

Wells Fargo has a price target in the range of $23-$26 on the stock. Shares are presently trading at around $19.80.

Acxiom returned $10 million to shareholders in the form of shares repurchases in last quarter.

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U.S. Futures Down As Week Starts On Negative Note

By
Andy Parker
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Judging from the direction of U.S. stock futures, it looks like another broad selloff is in the wings today on Wall Street. Negative international markets coupled with renewed weakness in oil prices look like they will keep investors cautious as the week begins.

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Pre-trading signs

S&P 500 Futures are steeply down over 1% while Nasdaq Futures slipped 1.60% to 3,958. The losses continue last week’s turbulent markets. Stock traders will be attentive to what Federal Reserve Chair, Janet Yellen, has to say about monetary policy during her testimony to Congress on Wednesday.

Another development that could upset the market is the reversal in oil gains today for lack of any clear signs of an agreement between OPEC and non-OPEC members about an oil output cut. A formal meeting in between Saudi Arabia and Venezuela over the weekend, though termed as successful by political leaders, failed to boost the oil outlook.

Developments around the globe

On the other hand, European stock markets experienced an extremely rough ride today that pushed them to their lowest levels since 2014. Decline in business confidence in the UK alongside weak investor morale in the Eurozone intensified fears that the global economy is on the verge of a major slowdown. At the same time, Asian markets witnessed narrow low-volume trade as most of the key markets remained closed on account of the Lunar New Year in China.

Investors around the globe seem to have been OK with the third straight drop in China’s foreign reserves in January. Foreign reserves in China hit four years lows in December as the People’s Bank of China sold dollars to protect the yuan.

Given the volatility across the globe, Gold futures registered a hefty jump today as the metal traded near three-month highs. Gold for April delivery was up by 1.39% or $16.10 as it hit a high of $1,175.60 today.

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Apple (NASDAQ:AAPL) Graphic Tech Supplier Warns Of Operating Loss

By
Carol Harper
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London firm Imagination Technologies disclosed that its CEO, Hossin Yassaie, is leaving the organization even as the company issued a warning that it might suffer an operating loss this year. Incidentally, the company is a supplier of graphics technology to iPhone maker, Apple Inc. (NASDAQ:AAPL). Apple guided a drop in revenue for the first quarter for the first time in a decade. It is difficult to separate the two events as the British company is heavily dependent on the iPad maker.

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Interim CEO Named

Imagination Technologies named Andrew Heath, formerly a non-executive Director, as its interim CEO. While shares tanked on the London Stock Exchange, the company indicated that it would initiate efforts to reduce its operational costs. For that purpose, it is divesting from its digital radio unit Pure.

For Imagination, Apple is treated as an investor. The company’s business model is to license its video processing and graphics technology to semiconductor firms. Since 2012, it has been struggling to reduce its dependence on Apple. Currently, the company said that the slowdown in the market started in December and persisted due to ambiguity in trading prospects with China. The company the disclosed that there was also a shortfall of expectations for royalty revenue from certain major customers in the quarter ended in October. Aside from that, sales from licensing were also not particularly encouraging.

Slowest Growth Of iPhone Shipments

Apple disclosed the slowest-ever growth of iPhone shipments for the December quarter while its rival, Samsung Electronics also issued a warning on the soft sales of its smartphones. Market conditions appear are hence challenging for Imagination Technologies as it is heading for an operating loss for the fiscal year ending in April.

Analysts were expecting the British firm to report operating profit of £8.85 million. The proposal to divest from Pure is expected to reduce operating expenses by £15 million next fiscal year. Imagination Technologies has been trying to widen its product line by acquiring MIPS processing for $100 million in 2012. However, the acquisition failed to deliver the expected results.

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Alder is a Risky Allocation in a Crowded, but Rewarding Space

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At the end of June, 2015, Alder Biopharmaceuticals Inc. (NASDAQ:ALDR) reached its highest price since its 2014 IPO, reaching $53 a share. At last close, the company traded for $22.14 – a close to 60% decline across an eight-month period. Last Friday alone, Alder lost more than 8% of its market cap. From a fundamental perspective, however, there have been no major downside catalysts to underpin the selling pressure. Instead, it looks as though the action comes as collateral to wider market sentiment.

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At times like these, i.e. corrective phases, overselling can present opportunities to pick up value stock cheap, so here’s a look at whether Alder is one such opportunity, alongside its position in the space relative to its competitors and some catalysts that might have the potential to reverse the company’s fortunes.

Alder’s lead clinical development candidate – and in turn, the primary driver behind its valuation – is a migraine drug called ALD403. It’s a monoclonal antibody that targets and blocks the action of something called alcitonin gene-related peptide (CGRP). CGRP plays a role in the transmission of pain signals in the brain, and elevated levels of the peptide (which occur during migraines) lead to the vasodilation and pain associated with an attack.

The current SOC in the space are triptans, but a large portion of the patient population don’t respond to SOC, or experience reduced efficacy after prolonged use. As such, there is a pretty bug unmet need, and as always with an unmet need, a big reward for the company that can fill the gap. This hasn’t gone unrecognized across the biotech research and development space, and a few companies are working on treatments with a similar MOA to Alder’s lead. Perhaps the most high profile of the group, Merck & Co. Inc. (NYSE:MRK) sold its drug, along with development rights, Allergan plc (NYSE:AGN) last summer. As a quick aside, this sale may have been the catalyst behind weakness in the space, and probably accounted for some of the aforementioned selling pressure in Alder stock. Markets took Merck’s unwillingness to continue as a sign of skepticism for this type of therapy, and sold off on the associated treatments.

Back to Alder, the company is currently running a phase III in a frequent episodic migraine (FEM) indication and a phase II in a chronic migraine indication. These two trials serve as catalysts going forward, with the phase II set to report interim data this quarter. Data from a phase II in the FEM indication looked promising, and with a seemingly sound safety profile, if Alder can replicate the efficacy readout in the ongoing phase III it would have a good shot at an agency green light.

So what’s the downside? Well, it’s a crowded space. We’ve already addressed the Merck –turned-Allergen candidate, but in addition, Teva Pharmaceutical Industries Limited (NYSE:TEVA) and Eli Lilly and Company (NYSE:LLY) both have late stage CGRP candidates. Estimates put the FEM and CM market at between $8 billion and $10 billion annually, and big pharma is scrambling to be first to market. The comparably small resource pool that underwrites ALD403 when compared to some of its counterparts could drag on development pace, and if Alder gets pipped to the post, it could really hurt the company’s chances of gaining a significant market share. Additionally, mid stage data suggest ALD403 is less effective than at least one of the other candidates in the space – specifically, that of Teva.

Having said this, Alder is currently in the lead from a timeline perspective, and if it can maintain this pace and stick to its slated trial completion points, it has a good chance of getting an NDA with the FDA before its competitors.

So what’s the takeaway? Is Alder an opportunity at its current price? Well, as a potential allocation, it looks cheap. It’s a risky one though, and probably shouldn’t make for anything more than a speculative holding – at least until we get insight into the efficacy of ALD403 in the CM indication. Once we have that data – as mentioned, mid stage set for release this quarter – a comparison between the drug and Teva’s competing therapy will offer some much needed insight. Definitely one to keep an eye on, but be wary.

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A10 Networks Earnings on Tap

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A10 Networks Inc (NYSE:ATEN) will be reporting its 4Q2015 earnings after market close on Tuesday, Feb. 9. Rating firm D.A. Davidson has recently weighed in on the stock with projections of what investors can expect from the upcoming report. Overall, D.A. Davidson is looking for a solid 4Q, backed by strong U.S. and Japanese sales.

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The rating firm expects A10 Networks to report revenue of $53.5 million for 4Q, indicating an 18% increase from last year. The products segment is projected to contribute the majority of that revenue at 71% of the total with the services segment accounting for 29%.

In terms of segment improvement, D.A. Davidson expects Products revenue to increase 17% YoY, outpaced by services revenue growing at 20%.

In terms of regions, A10 Networks is expected to register strong top line growth in the U.S., accounting for about 50% of total revenue. Japan is also predicted to be a bright spot in the quarter, contributing about 20% of total revenue.

Flat gross margins

Material gross margin improvement is not expected, however. The firm is looking for a gross margin of 75.9% for the quarter, almost at the same level as the 75.8% it saw in the previous quarter and 76.3% in the prior year’s same quarter.

The reason for the limited gross margin growth is that A10 Networks is investing in two OEM partners. While the investments are taking a hit at gross margins, they are expected to pay back over the long-term.

Looking back

In the last quarter, A10 Networks posted an EPS loss of $0.07, which was better than the consensus estimate of EPS loss of $0.09. Revenue of $50.8 million for the last quarter also compared favorably with the consensus estimate of $50.5 billion.

D.A. Davidson has a BUY rating and price target of $9 on A10 Networks. The stock is presently changing hands in the vicinity of $5.

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London Trying To Attract Alphabet (NASDAQ:GOOGL) For Testing Its Autonomous Vehicles

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Local London government transportation chiefs are engaged in active discussions with Alphabet Inc (NASDAQ:GOOGL) in trying to persuade the organization to trial its driverless automobiles in the capital.

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The deputy mayor for transport, Isabel Dedring, informed the public that officials had a meeting with Alphabet to persuade the technology giant to extend its pilot scheme to London. It would be the first time that Alphabet’s autonomous cars have been tested extensively outside America.

Alphabet’s batch of prototype driverless cars depend on software as well as sensors to drive. Their shape is more curved than conventional automobiles to permit cameras, radars and lasers to sense objects in all directions. The automobiles are driven by electric batteries.

Trials have been restricted to Mountain View California and Austin Texas. However future testing will happen in Kirkland, Washington to see how the automobiles operate in wet conditions.

Google is presently trialing wireless charging products for its electric self-driving automobiles. Papers filed at the U.S Federal Communication Commission (FCC) suggest that the company is trying to eliminate charger cables and instead beam power to them.

The filings disclose that Google has been trialing two wireless charging systems for its prototype electric self-driving automobiles in California. A New York based startup Hevo Power obtained permission in February 2015 to install a charger at Google’s premises in Mountain View, California. In July, there was a similar filing from Philadelphia-based Momentum Dynamics. The address on the filing was of the X division, Google’s most top secret lab, where Google’s self-driving automobiles are being developed.

Both companies’ systems supply power from a transmitter embedded in land to a receiver placed below an electric automobile using a procedure termed resonant magnetic induction. Hevo’s system at the Googleplex had a prototype charger known as Alpha that can supply 1.5 Kilowatts of power from a circular transmitter from places like a manhole cover in the pavement. Momentum Dynamics says that it has made wireless transmitters with power capacities of up to 200 kW.

Interestingly, the UK government declared that it will invest £20 million in 8 driverless automobile projects. British Transportation Secretary Patrick McLoughlin said the technology would significantly impact the mode of traveling in the near future.

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Is Twitter’s (NYSE:TWTR) Algorithmic Timeline A Smart Move?

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Twitter Inc (NYSE:TWTR) announced that it will be making significant changes to its 140-character platform when it debuts an algorithmic timeline as early as next week. It’s not known if users will be required to utilize the new timeline that will reorder tweets based on what Twitter’s algorithm determines the user wants to see. Presently, Twitter shows tweets in reverse chronological order.

For power users, the algorithmic-based timeline may be problematic because many users in finance, news and other industries rely on Twitter for its power to update current info within seconds and see the most immediate developments first.

For average users, an algorithmic timeline could be more useful because it would keep out Twitter’s noise, is something that CEO Jack Dorsey has been pushing for. In July, Dorsey said that Twitter will continue to make fundamental changes in order to make the product simpler and more accessible to more people.

Twitter started playing around with algorithm-recommended content last year. The “While you were away” feature shows at the top of the user’s timeline and displays a recap of some of the top tweets the user might have missed from accounts he or she follows.

One of Twitter’s major problems is that it doesn’t make it simple for new users to get going on the service. If Twitter were to deploy the algorithmic-based timeline, it could deliver specific tweets to fresh users.

Twitter has persisted in making changes to its interface that apparently no one has requested. While the company says it had earlier tested the algorithm with a small group of users and the test did well enough to introduce the feature more broadly, the general opinion among most Twitter users doesn’t seem to be that favorable. Currently, those users involved in testing the algorithm comment that there is the ability to switch back to “most recent” view, although it’s a choice they have to choose manually every time they sign in. On the good side though, an algorithmic timeline is a solution for Twitter to highlight popular content and could resolve a number of Twitter’s signal-to-noise issues.

Only time will tell whether the new feature is more effective and will enjoy popularity among Twitter’s user base.

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Cisco (NASDAQ:CSCO) Forecasts Major Growth For Mobile Industry

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Cisco Systems, Inc. (NASDAQ:CSCO) came out with new forecasts for the data industry that have major implications for players in the space. Among the most notable are these four:

  • More people will have mobile phones (5.4 billion) than electricity (5.3billion), running water (3.5 Billion) and cars (2.8 billion) by 2020.
  • By 2020, more than 75% of the world’s mobile data traffic will be video.
  • By 2020, 4G connections will make up 72% of overall mobile data traffic, an increase of 47% of overall mobile data traffic in 2015.
  • By 2020, the average mobile connection speed will increase more than 3-fold to 6.5 Mbps from 2.0 Mbps in 2015.

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Cisco’s methodology in predicting these numbers involved surveying independent analyst forecasts as well as real-world mobile data usage studies based on the organization’s internal assessments and projections of mobile application adoption, minutes of utilization and transmission speeds. Other factors included in the findings are device computing power and mobile broadband speed.

Cisco’s major mobile momentum metrics utilized in creating their global mobile data traffic forecast include monitoring mobile user growth, mobile connections, mobile speeds and greater utilization of mobile video.

Global mobile data traffic growth is projected to increase at a Compound Annual Growth Rate (CAGR) of 53% from 2015 to 2020. Cisco discovered that in 2015, 3.7 exabytes of data per month, or 3.7 quintillion bytes, were utilized. Utilization is projected at 30.6 exabytes per month for 2020 which is an 8-fold rise from 2015.

Smartphones and tablets will still be dominating mobile data traffic while M2M (Machine-to-Machine) will also rise by 2020. Cisco forecasts that global mobile devices will rise from 76% from 2015 to 81% in 2020. M2M will have the largest percentage gain rising from 3% in 2015 to 7% in 2020.

Worldwide mobile users will rise from 65% (4.8 billion) in 2015 to 70% (5.5billion) of the world’s population by 2020. Africa and the Middle East will have a 4.4% CAGR, Asia-pacific will have 3% CAGR and Latin America will have 1.6% CAGR.  Average mobile speed will increase more than three-fold from 2.0Mbps in 2015 to 6.5 Mbps in 2020.

Smart mobile devices as well as connections are forecasted to make up 72% of total mobile devices and connections by 2020, an increase from 36% in 2015. Smart devices are also predicted to produce 98% of mobile data traffic by 2020. Cisco also discovered from the individual device perspective that smartphones will account for 81% of worldwide global mobile traffic by 2020 rising from 76% in 2015.

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Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) Earnings on Tap

By
Carol Harper
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The Coca-Cola Co (NYSE:KO)

While many companies have benefited from the drop in oil prices, for a variety of reasons beverage companies may have gained a particular edge. Major beneficiaries may be The Coca-Cola Co (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP), and the coming week should shed some light on how these two benefited as they prepare to disclose their financial numbers for the fourth quarter.

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Whenever consumers go to fill up their gas tanks, convenience stores are right there and many buy snacks and drinks. Americans have saved some money from the steep drop in gasoline prices, those savings should have come to the retail sector during the holiday season. But that has not happened, as holiday sales came in lower than expected. Therefore, the next possibility as to where the savings have gone could be food and beverage firms.

Convenience Stores At Gas Stations

Both Coca-Cola Co Pepsi enjoy big shelf space in convenience stores available at gas stations throughout the United States, i.e. few steps away from the car during fill-up time, which is conceivably more often now as Americans are driving more thanks to lower gas prices. For the first time since 2004, oil prices dropped below $30 per barrel while gasoline prices plummeted 50% in the last 18 months to trade below $2 a gallon on average.

According to a survey conducted by Wells Fargo & Co (NYSE:WFC), non-alcoholic beverages sales witnessed 5.5% growth in the December quarter in convenience stores in the United States. That was a much faster rate of growth than supermarkets. As a result, convenience-store operators aw soda sales grow 3.8% in the current year while the sale of bottled water, iced teas, and energy drinks witnessed a minimum of 7% growth each.

Beverage Firms Raise Prices

There is also another reason to expect that that Coke and Pepsi stand to gain as salty-snack sales witnessed 4.5% growth in the four weeks of January 23. Morgan Stanley (NYSE:MS) said that Pepsi products specifically have advanced 4.1%. For its part, the beverage firms have increased their prices in the recent past aggressively. Soda sales in America have stabilized following a two-year downturn.

However, some unfavorable data may give reason for concern. In the December quarter, personal consumption growth witnessed a growth of 2.2% compared to 3% in the September quarter. That was partly because not everyone chose to spend the extra money saved from low gas prices.

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