Synovus (SNV) Sets New 1-Year High and Low at $55.30

Shares of Synovus (NYSE:SNV) reached a new 52-week high and low on Tuesday . The company traded as low as $55.30 and last traded at $55.25, with a volume of 22906 shares. The stock had previously closed at $54.97.

SNV has been the topic of a number of analyst reports. Morgan Stanley raised shares of Synovus from an “underweight” rating to an “equal weight” rating and increased their price objective for the stock from $51.67 to $52.00 in a report on Wednesday, March 7th. Zacks Investment Research cut shares of Synovus from a “buy” rating to a “hold” rating in a report on Friday, April 6th. Piper Jaffray Companies initiated coverage on shares of Synovus in a report on Monday, April 9th. They issued a “neutral” rating and a $52.00 price objective on the stock. Keefe, Bruyette & Woods reaffirmed a “hold” rating and issued a $55.00 price objective on shares of Synovus in a report on Tuesday, February 27th. Finally, JPMorgan Chase increased their price objective on shares of Synovus from $56.00 to $57.00 and gave the stock a “neutral” rating in a report on Thursday, April 26th. One equities research analyst has rated the stock with a sell rating, ten have given a hold rating and six have given a buy rating to the company. Synovus has a consensus rating of “Hold” and a consensus price target of $53.40.

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The company has a market cap of $6.40 billion, a P/E ratio of 21.70, a PEG ratio of 1.89 and a beta of 1.06. The company has a current ratio of 0.97, a quick ratio of 0.97 and a debt-to-equity ratio of 0.66.

Synovus (NYSE:SNV) last released its earnings results on Tuesday, April 24th. The bank reported $0.86 EPS for the quarter, beating the Thomson Reuters’ consensus estimate of $0.78 by $0.08. The firm had revenue of $341.30 million for the quarter, compared to analysts’ expectations of $343.04 million. Synovus had a net margin of 19.87% and a return on equity of 12.29%. Synovus’s quarterly revenue was up 12.2% on a year-over-year basis. During the same quarter last year, the company earned $0.57 EPS. research analysts anticipate that Synovus will post 3.57 earnings per share for the current year.

Synovus declared that its board has approved a stock buyback plan on Tuesday, January 23rd that authorizes the company to buyback $150.00 million in outstanding shares. This buyback authorization authorizes the bank to reacquire shares of its stock through open market purchases. Shares buyback plans are generally an indication that the company’s management believes its shares are undervalued.

In other Synovus news, EVP Curtis J. Perry sold 2,000 shares of the firm’s stock in a transaction dated Wednesday, May 16th. The shares were sold at an average price of $54.36, for a total transaction of $108,720.00. The transaction was disclosed in a legal filing with the SEC, which is accessible through this hyperlink. 1.50% of the stock is currently owned by company insiders.

A number of institutional investors have recently added to or reduced their stakes in the business. Cerebellum GP LLC acquired a new position in shares of Synovus in the 4th quarter worth approximately $124,000. Summit Trail Advisors LLC grew its stake in shares of Synovus by 3,778.6% in the 1st quarter. Summit Trail Advisors LLC now owns 168,098 shares of the bank’s stock worth $168,000 after purchasing an additional 163,764 shares during the last quarter. Calamos Advisors LLC acquired a new position in shares of Synovus in the 4th quarter worth approximately $201,000. CIBC Asset Management Inc acquired a new position in shares of Synovus in the 1st quarter worth approximately $201,000. Finally, Cigna Investments Inc. New acquired a new position in shares of Synovus in the 1st quarter worth approximately $207,000. 79.77% of the stock is currently owned by hedge funds and other institutional investors.

About Synovus

Synovus Financial Corp. operates as the bank holding company for Synovus Bank that provides various financial products and services. It offers integrated financial services, including commercial and retail banking, financial management, insurance, and mortgage services. The company's commercial banking services comprise cash management, asset management, capital market, and institutional trust services, as well as commercial, financial, and real estate loans.

Not a Happy Anniversary: EM’s Taper Tantrum Began 5 Years Ago

A glance back over the years since the tantrum of 2013 casts today’s emerging-market ructions in a surprisingly rosy light.

It’s the fifth anniversary of the so-called taper tantrum — a bout of panic selling after Federal Reserve Chairman Ben Bernanke hinted at a reduction in stimulus. What followed was a sell-off that erased years of stimulus-led gains in currencies and stocks, spurring defaults globally.

But it didn’t last. When the Fed tightening actually began, developing-nations posted a turnaround and began outperforming the developed world.

Life After Taper Tantrum

Emerging markets are better off since Ben Bernanke's shocker exactly five years ago

Source: Bloomberg, JPMorgan Chase & Co., IHS Markit

.chart-js { display: none; } What happened?

Read the first account of the taper tantrum in this story from May 22, 2013

The concern that a reduction in U.S. stimulus would strengthen the dollar and lead to a capital flight away from riskier investments sparked a pre-emptive sell-off. But by the time the Fed raised interest rates for the first time in almost decade in December 2015, developing-nation economies had stabilized and valuations had fallen to a level too juicy to ignore.

The yield cushion that sovereign dollar bonds offered over U.S. Treasuries had risen to more than 5 percentage points, which attracted investors starved of returns in developing countries.

What Changed?

The rally that started in 2016 added about $8 trillion to stocks before the global “wobble” this January. Investors poured money into sovereign dollar bonds, doubling the market capitalization of the iShares JPMorgan USD EM Exchange Traded Fund to $11.7 billion.

The premium traders of credit default swaps demand to insure emerging-market debt against default in the next five years, has fallen by a third, or 82 basis pointsThe yield spread on sovereign dollar bonds over U.S. Treasuries has also eased by a third from its high, to 334 basis points

The biggest improvement came in investors’ risk perception. Emerging markets were an exotic, high-risk addition to global portfolios in 2013, but have now become a mainstream asset class, albeit one that’s developed its own quirky mantra of “sell on the rumor and buy on the news.”

With economic growth recovering and earnings estimates rebounding to May 2013 levels, the case for emerging markets is now on more solid ground.

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Today In Cryptocurrency: 'Operation Crypto-Sweep,' Study Reveals Massive ICO Returns

The cryptocurrency market couldn’t shake its Blockchain Week hangover on Monday, with most major currencies trading down more than 2 percent on the day. Here’s a look at some of the headlines that were moving the cryptocurrency market today, and which currencies were on the move.

Headlines

A group of Canadian and U.S. state regulators led by the North American Securities Administrators Association said on Monday it's launching “Operation Crypto-Sweep” in an effort to crack down on cryptocurrency investment schemes. The NASAA is comprised of 40 state and provincial regulators which have launched at least 70 investigations as part of the initiative.

Despite the fact that The Wall Street Journal reportedly found signs of fraudulent activity associated with nearly one in five ICOs, a new report from Mangrove Capital says diversified ICO investors may still be coming out on top. According to the report, which didn't disclose the ICOs included, Mangrove found ICOs have produced average returns of 13.2 times investors’ initial investments, even once the currencies that failed are factored in.

MarketWatch reported Atlas Quantum CEO Rodrigo Marques expects the price of bitcoin to more than double and hit $20,000 by the end of 2018. Atlas Quantum is one of Brazil’s largest cryptocurrency trading platforms, and Marques said Bitcoin’s dip below $8,000 in early 2018 was simply a temporary pull back.

Price Action

The Bitcoin Investment Trust GBTC (OTC: GBTC) traded at $13.70, up 1.2 percent.

Here’s how several top crypto investments fared Monday. Prices are as of 3:45 p.m. ET and reflect the previous 24 hours.

Bitcoin declined 1.5 percent to $8,392;
Ethereum declined 3.6 percent to $695;
Ripple declined 2.9 percent to 68 cents;
Bitcoin Cash declined 5.2 percent to $1,229;
EOS declined 5.0 percent to $12.97.

The three cryptocurrencies with at least $1-million market caps that have made the biggest gains over the past 24 hours are:

BunnyCoin: $6.8-million market cap, 96.6-percent gain.
Nullex: $5.2-million market cap, 67.4-percent gain.

Carboncoin: $2.1-million market cap, 56.4-percent gain.

The three cryptocurrencies hit hardest in the past 24 hours were:

PopularCoin: $1.1-million market cap, 30.6-percent decline.
MktCoin: $6.3-million market cap, 23.2-percent decline.
KiloCoin: $6.7-million market cap, 22.8-percent decline.

Related Links:

Today In Cryptocurrency: Cryptos Lose $50 Billion During Blockchain Week, VC Firm Explores Digital Currencies

Riot Blockchain's 10-Q Sheds Light On Crypto Mining Operation

Amgen Wins Another FDA Approval

Amgen Inc. (NASDAQ: AMGN) shares made a slight gain on Tuesday after it was announced that the U.S. Food and Drug Administration (FDA) approved its treatment of glucocorticoid-induced osteoporosis in men and women at high risk of fracture. Specifically, the agency approved Prolia (denosumab), driven by positive late-stage results.

This approval is based on data from a Phase 3 study that showed patients on glucocorticoid therapy who received Prolia had greater gains in bone mineral density (BMD) compared to those who received active comparator (risedronate).

Study results showed that Prolia demonstrated a significantly greater increase in lumbar spine BMD in the glucocorticoid-continuing subpopulation, compared to risedronate at one year (3.8% versus 0.8%, respectively). Similarly, in the glucocorticoid-initiating subpopulation, Prolia demonstrated a significantly greater increase in lumbar spine BMD compared to risedronate at one year (4.4% versus 2.3%, respectively).

Also, safety results were consistent with the known safety profile of Prolia.

Sean E. Harper, M.D., executive vice president of Research and Development at Amgen, commented:

As a leader in bone health with more than 20 years of osteoporosis research experience, we are pleased that Prolia will now be available for patients at high risk of fracture who are suffering from bone loss due to long-term glucocorticoid treatment. This is a serious condition that leads to rapid decreases in bone mineral density and increased risk of fracture. This approval gives patients and physicians a new treatment option.

Shares of Amgen were last seen up about 1% at $178.54, with a consensus analyst price target of $195.14 and a 52-week range of $152.16 to $201.23.

ALSO READ: 9 Companies Bracing for Big ASCO Reactions

What to Expect When Hewlett Packard Enterprise Reports After the Close

Hewlett Packard Enterprise Co. (NYSE: HPE) is scheduled to release its fiscal second-quarter financial results after the markets close on Tuesday. Thomson Reuters has consensus estimates of $0.31 in earnings per share (EPS) on $7.38 billion in revenue. In the same period of last year, HPE said it had EPS of $0.35 and $7.45 billion in revenue.

Following HPEs most recent earnings report, Merrill Lynch issued an Underperform rating with a $14 price objective.

The firm detailed its investment rationale as follows:

Our Underperform rating is based on 1) headwinds facing the server business from Tier-1 customers moving increasingly to lower-cost alternatives, 2) competitive pricing pressure, 3) reduced growth in Storage (ex 3PAR all flash which continues to show strong growth), 4) continued headwind from commodity costs (including DRAM), and 5) free cash flow still below historical levels on one-time payments related to restructuring, separation costs, tax payments, etc.

Merrill Lynch seems to be half right as the stock has dropped about 2.5% since that earnings report. However, over the past 52 weeks, HPE has outperformed the broad markets with its stock up about 22%. And in the past six months, the stock is up about 32%.

A few analysts weighed in on HPE ahead of the upcoming report:

OTR Global has a Positive rating. JPMorgan has a Neutral rating. UBS has a Neutral rating with a $19 price target. BMO Capital Markets has a Market Perform rating with a $19 price target. Deutsche Bank has a Buy rating with a $22 price target.

Shares of HPE were last seen trading at $17.62, with a consensus analyst price target of $19.13 and a 52-week range of $12.70 to $19.48.

ALSO READ: Why This Higher Guidance Looks Even Better for Micron

Estee Lauder: Valuation PE Of 32 Is Much Too High

Estee Lauder (EL), manufactures and markets skin care, makeup, fragrance and hair care products and is an avoid for the conservative investor. The management of EL is good and has continued to grow the business by using its cash to buy bolt-on companies. Estee Lauder is being reviewed using The Good Business Portfolio guidelines, being my IRA portfolio of good business companies that are balanced among all styles of investing. When I started looking at the company, I thought it might be a good investment but as I got in deeper I saw too many risks, and high PE ratio said not for me.

When I scanned the five-year chart, Estee Lauder has an interesting chart going up and to the right in a moderate growth for years 2014-2016 and then it took off in 2017, with a dip in 2018. This action is not the kind of volatile company I want in my retirement portfolio.

Chart
EL data by YCharts

Fundamentals of Estee Lauder will be reviewed on the following topics below.

The Good Business Portfolio Guidelines Total Return And Yearly Dividend Last Quarter’s Earnings Company Business Takeaways Recent Portfolio Changes

I use a set of guidelines that I codified over the last few years to review the companies in The Good Business Portfolio (my portfolio) and other companies that I am taking a look at. For a complete set of the guidelines, please see my article ” The Good Business Portfolio: Update To Guidelines and July 2016 Performance Review”. These guidelines provide me with a balanced portfolio of income, defensive, total return and growing companies that hopefully keeps me ahead of the Dow average.

Good Business Portfolio Guidelines

Estee Lauder passes 9 of 11 Good Business Portfolio Guideline, a good score (a good score is 10 or 11). These guidelines are only used to filter companies to be considered in the portfolio. Some of the points brought out by the guidelines are shown below.

Estee Lauder does not meet my dividend guideline of having dividends increase for 7 of the last ten years and having a minimum of 1% yield, with six of the last ten years of increasing dividends and a 1.1% yield. Estee Lauder is, therefore, a poor choice for the dividend growth investor. The recent five-year average payout ratio is low at 35%. After paying the dividend, this leaves plenty of cash remaining for investment in expanding the business. I have a capitalization guideline where the capitalization must be greater than $7 Billion. EL easily passes this guideline. EL is a large-cap company with a capitalization of $51.5 Billion. Estee Lauder 2018 projected cash flow at $1.8 Billion is fair allowing the company to have the means for company growth and increased dividends. I also require the CAGR going forward to be able to cover my yearly expenses. My dividends provide 3.2% of the portfolio as income, and I need 1.9% more for a yearly distribution of 5.1%. The three-year forward CAGR of 14% meets my guideline requirement. This future growth for Estee Lauder can continue its uptrend benefiting from the growth of the United States economy. My total return guideline is that total return must be greater than the Dow’s total return over my test period. EL passes this guideline since the total return is 107.53%, more than the Dow’s total return of 50.34%. Looking back five years, $10,000 invested five years ago would now be worth over $21,000 today. This makes Estee Lauder a good investment for the total return investor looking back. As an added plus we have President Trump cutting corporate taxes which will increase earnings. EL’s last year tax rate was 30% which should decrease to the mid 20’s this year. One of my guidelines is that the S&P CFRA rating must be three stars or better. EL’s S&P CFRA rating is five stars or strong buy with a target price of $170, passing the guideline. EL’s price is presently 15% below the target. EL is under the target price at present and has a PE of 32, making EL a poor buy at this entry point if you are an investor that wants to be able to sleep well at night. One of my guidelines is would I buy the whole company if I could. The answer is no. The total return is good, but the below average yield and high valuation make EL a poor business to own for now. The Good Business Portfolio likes to embrace all kinds of investment styles but concentrates on buying businesses that can be understood, makes a fair profit, invests profits back into the business and also generates a fair income stream. Most of all what makes EL interesting is the potential long-term growth as the increases in the economy continues. Total Return And Yearly Dividend

The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of the Good Business Portfolio. Estee Lauder over-performs against the Dow baseline in my 52-month test compared to the Dow average. I chose the 52 month test period (starting January 1, 2014, and ending to date) because it includes the great year of 2017, and other years that had fair and bad performance. The good total return of 107.53% makes Estee Lauder a good investment for the total return investor. EL has a below average dividend yield of 1.1% and has had increases for six of the past ten years making EL a poor choice for the dividend income investor. The Dividend was last increased in November 2017 to $0.38/Qtr. from $0.34/Qtr. or a 12% increase.

DOW’s 52.0 month total return baseline is 50.34%

Company Name

52.0 Month total return

The difference from DOW baseline

Yearly Dividend percentage

Home Depot

+107.53%

+57.19%

1.1%

Last Quarter’s Earnings

For the last quarter on May 2, 2018, Estee Lauder reported earnings that beat expected by $0.10 at $1.17 and compared to last year at $1.00. Total revenue was higher at $3.37 Billion more than a year ago by 17.8% year over year and beat expected revenue by $120 Million. This was a good report with the bottom line and top line beating expected values and having a good increase in earnings compared with last year. The next earnings report will be out in August 2018 and is expected to be $0.56 compared to last year at $0.51, a small increase.

Business Overview

Estee Lauder manufactures and markets skin care, makeup, fragrance and hair care products in the United States and foreign countries.

As per Reuters

Estee Lauder, incorporated on December 9, 1976, manufactures and markets skin care, makeup, fragrance and hair care products. The Company offers products, including skin care, makeup, fragrance, hair care and other. The Company operates in beauty products segment. The Company’s products are sold in over 150 countries and territories under brand names, including Estee Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, Tommy Hilfiger, MAC, Kiton, La Mer, Bobbi Brown, Donna Karan New York, DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors, Darphin, Tom Ford, Smashbox, Ermenegildo Zegna, AERIN, Tory Burch, RODIN olio lusso, Le Labo, Editions de Parfums Frederic Malle, GLAMGLOW, By Kilian, BECCA and Too Faced.

The Company’s range of skin care products addresses various skin care needs. Its skin care products include moisturizers, serums, cleansers, toners, body care, exfoliators, acne and oil correctors, facial masks, cleansing devices and sun care products. These products are developed for use on particular areas of the body, such as the face, the hands or around the eyes.”

Overall Estee Lauder is a good business with 14% CAGR projected growth as the economy grows going forward. The good earnings and revenue growth provides EL the capability to continue its growth by expanding across the United States and foreign countries by buying bolt-on companies.

Also as a tailwind, we have President Trump lowering corporate taxes on income. As the corporation tax rate is lowered, earnings of the Estee Lauder business earnings should increase going forward.

As a headwind, we have the weakness in Mall traffic with Macy’s being 8% of the company’s sales. We also have the risk of currency valuations hurting the earnings.

The FED has kept interest rates low for some years, and on March 21 they raised the base rate up 0.25%, which was expected. I believe that they will not raise the rates three more times this year, but will go slow at 1-2 for the rest of 2018, which should help keep the economy on a growth path. If infrastructure spending can be increased, this will even increase the United States growth going forward with better economics for the consumer. The recent market volatility may slow down the FED.

From May 2, 2018, earnings call Fabrizio Freda (Chief Executive Officer, and President) said

Our excellent performance continued in our fiscal third quarter, building on the momentum we generated in the first half of the year. Our strong growth was broad-based across all regions and product categories, which produced double-digit increases in both the top and the bottom lines. Sales rose 13% in constant currency, about double the robust pace of global prestige beauty, and we gained share.

We leveraged our higher sales into even greater profit growth, aided by further cost savings, efficiencies, and lower tax rates. Our adjusted diluted earnings per share increased 17% in constant currency. With these better-than-expected results and confidence in the fourth quarter outlook, we are again raising our sales and EPS guidance for the fiscal year, which should make our performance one of our best in the last decade even in the midst of high competitive environment.

Our global success came from bringing our brands into high growth markets, channels and retailers, and attracting consumers with compelling innovations, high-quality products and social media activities. We have been able to devote increased investments to our digital activities as a result of our Leading Beauty Forward initiative, which has freed up resources from other areas. Today, all our brands are amplifying their digital communications and aligning with inspiring influencers.

We have reengineered our financial structure to make this happen, and our results this quarter are proof of our ability to capitalize on positive industry trends. Our winning strategy is centered on activating and accelerating multiple engines of growth. As our business flourished around the globe, we continue to support the momentum of our fastest growing brands, countries and channels. They are gaining greater traction, as we develop more growth engines in each area.”

The quote above shows the feelings of top management to the continued growth of the Estee Lauder business and shareholder return with growth in future earnings.

I think the growing economy will increase consumer demand for the EL products. Giving EL’s strong growth in revenue and earnings, but not justifying the companies high average PE valuation of 32, I would avoid this company for now. A more normal PE would be 15-20 for the growth that is projected for EL.

Takeaways

Estee Lauder is a poor investment choice for the conservative investor with its below-average growing dividend that has been increased for six of the last ten years. Estee Lauder will not be considered for The Good Business Portfolio. If you want a momentum play at this time, EL may be right for you if you can take the valuation risk.

Recent Portfolio Changes

I was considering selling the small position in Kraft Heinz Corp. (KHC) that is 0.5% of the portfolio because of its bad performance, and I have better companies for investment. The last earnings showed growth, so I will wait another quarter to see if this continues.

On May 14th, I trimmed the position of Eaton Vance Enhanced Equity Income Fund II(EOS) from 9.2% of the portfolio to 8.9%. I still like EOS and don’t want to overweight this fund which is high in technology companies. On March 29 increased position of American Tower (AMT) to 0.8% of the portfolio, I will continue adding to this position as cash is available. On March 29 sold entire position of L Brands (LB), it does not look good for the company going forward. On March 23 increased position of Freeport-McMoRan (FCX) to 2.4% of the portfolio and will add to this position as cash is available. On March 20 increased position of Freeport-McMoRan to 2.2% of the portfolio and will add to this position as cash is available. On March 16 increased position of Digital Reality Trust (DLR) to 2.4% of the portfolio. I want to get this company to a full position of 4%. On March 1 increased position in AMT to 0.9% of the portfolio and will continue to add when cash is available.

The Good Business Portfolio trims a position when it gets above 8% of the portfolio. The four top companies in The Good Business Portfolio are, Johnson & Johnson (JNJ) is 8.0% of the portfolio, Altria (MO) is 6.8% of the portfolio, Home Depot (HD) is 9.8% of the portfolio and Boeing is 13.9% of the portfolio, therefore BA, JNJ, and Home Depot are now in trim position with Altria getting close.

Boeing is going to be pressed to 13% of the portfolio because of it being cash positive on 787 deferred plane costs at $316 Million in the first quarter of 2017, an increase from the fourth quarter. The second quarter saw deferred costs on the 787 go down $530 Million a big jump from the first quarter. The second quarter earnings were fantastic with Boeing beating the estimate by $0.25 at $2.55. The third quarter earnings were $2.72 beating the expected by$0.06 with revenue increasing 1.7% year over year another good report. The first quarter earnings for 2018 were unbelievable at $3.64 compared to expected at $2.64. I just can’t bring myself to sell Boeing.

JNJ will be pressed to 9% of the portfolio because it’s so defensive in this post-BREXIT world. Earnings in the last quarter beat on the top and bottom line and Mr. Market did not like it. JNJ has announced a dividend increase to $0.90/Qtr. which is 56 years in a row of increases. JNJ is not a trading stock but a hold forever; it is now a strong buy as the healthcare sector remains under pressure. Take this recent drop to pick up a great company in the medical products field.

For the total Good Business Portfolio, please see my article on The Good Business Portfolio: 2017 4th Quarter Earnings and Performance Review for the complete portfolio list and performance. Become a real-time follower, and you will get each quarter’s performance after the next earnings season is over in about one week.

I have written individual articles on JNJ, EOS, GE, IR, MO, BA, PEP, AMT, PM, LB, Omega Health Investors, Digital Reality Trust and Home Depot that are in The Good Business Portfolio and other companies being evaluated by the portfolio. If you have an interest, please look for them in my list of previous articles.

Of course, this is not a recommendation to buy or sell, and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account, and the opinions of the companies are my own.

Disclosure: I am/we are long BA, JNJ, HD, OHI, MO, IR, DLR, GE, PM, MMM, EOS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Kenya Drops Budget Cap to Reach Oil-Cash Deal, Lawmakers Say

Kenya agreed to drop budget-allocation limits for oil-rich counties in order to break a deadlock in passing a revenue-sharing law that’s delayed production.

The Petroleum Exploration, Development and Production Bill, which was presented to lawmakers in February and later withdrawn, proposed giving communities 5 percent of revenue and county administrations receiving 20 percent provided those amounts did not exceed budget allocations by the national government. The local community’s share was initially capped at 25 percent of the county’s revenue.

President Uhuru Kenyatta said on May 19 leaders from the northern Turkana county agreed for the central government to receive 75 percent of the oil income, while 20 percent will be earmarked for regional governments and 5 percent for the local communities. While lawmakers from the region originally wanted a 70:20:10 ratio, they dropped their demands after the government agreed not to peg normal county budget funding to the oil revenue.

“We reached a compromise to support the bill,” Turkana South Member of Parliament James Lomenen said by phone. “The caps have been removed. The only remaining hindrance to the early-oil program now is that the road has not been fixed.”

The president’s spokesman, Manoah Esipisu, confirmed the deal.

Initial transport of the early oil that’s been in storage at Lokichar in Turkana will be by road to the Indian Ocean port of Mombasa. Shipment of the 70,000 barrels will begin by June 1, according to the Kenyan presidency.

Early Oil

The nation has signed agreements with Tullow Oil Plc, Africa Oil Corp. and Maersk oil on a joint development study for a pipeline linking the oilfields to an Indian Ocean port being built at Lamu.

Passage of the proposed law is required before an early-oil program can continue. Tullow discovered crude in the north of the country in 2012 and is developing finds estimated at 1 billion barrels of crude. It was scheduled to start production in the first quarter of 2018.

The bill will be reintroduced in parliament when sessions resume in June, according to Aden Duale, the majority leader in the National Assembly. “We shall conclude the law by the second week of June,” he said by phone.

When oil shipments begin, they’ll earn Kenya much needed foreign exchange and help to diversify the mainly agricultural economy that’s the world’s biggest exporter of black tea and supplier of more than a third of the cut flowers sold in the European Union.

(Updates with spokesman’s confirmation in fifth paragraph.) LISTEN TO ARTICLE 2:23 Share Share on Facebook Post to Twitter Send as an Email Print

Charting a slow-motion breakout attempt, Dow 25,000 (still) under siege

Editors Note: This is a free edition of The Technical Indicator, a daily MarketWatch subscriber newsletter. To get this column each market day, click here.

Though the major U.S. benchmarks have flatlined of late, boring remains bullish, and notable technical tests are currently in play.

On a headline basis, Dow 25,000 remains under siege in slow-motion form while the S&P 500 is pressing less obvious resistance matching the May peak (2,742).

Before detailing the U.S. markets wider view, the S&P 500s
SPX, +0.05%
hourly chart highlights the past two weeks.

As illustrated, the S&P is rising from a successful test of the breakout point (2,710). Consecutive session lows have registered within one point.

Conversely, next resistance (2,742) closely matches the mid-March gap (2,741.4), and currently defines the May peak (2,742.10), established May 14.

Tuesdays early session high (2,742.24) has almost precisely matched the May peak.

Meanwhile, the Dow Jones Industrial Average
DJIA, -0.30%
has tagged a nominal new high.

More specifically, the blue-chip benchmark has gapped atop the 2017 peak, rising to challenge the 25,000 mark.

The slight breakout places the Dow in less-cluttered territory, better illustrated on the daily chart.

Against this backdrop, the Nasdaq Composite is holding the range top.

Recall that last weeks close (7,354) closely matched first support (7,353).

Slightly more broadly, the Nasdaq has maintained the 7,320 breakout point, better illustrated below.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has sustained the May breakout.

To reiterate, last weeks low (7,321) closely matched the breakout point, also the April peak (7,320). This is bullish price action, and dovetails with a similar successful retest on the S&P 500.

Looking elsewhere, the Dow Jones Industrial Average has staged a belated technical breakout.

Recall that resistance formerly spanned from 24,859 to 24,876, levels matching the April peak and the 2017 peak.

The Dow has ventured slightly higher this week, rising to challenge the marquee 25,000 mark.

The slight breakout resolves a double bottom defined by the March and May lows placing the index in less-cluttered territory. Until this week, the Dow was the lone widely-tracked U.S. benchmark still capped by the April peak.

Meanwhile, the S&P 500 is digesting the steep early-May rally.

To reiterate, the sustained May breakout is constructive, and dovetails with similar Nasdaq price action.

The bigger picture

Collectively, the bigger-picture backdrop supports a bullish bias, and it continues to strengthen.

On a headline basis, the S&P 500 and Nasdaq Composite have sustained the May breakout, effectively nailing well-defined support S&P 2,710 and Nasdaq 7,320.

Meanwhile, the Dow industrials have broken out belatedly, tagging a new high, and the 25,000 mark, just this week.

Moving to the small-caps, the iShares Russell 2000 ETF has extended its breakout, notching four straight record closes.

Recent strength resolves a double bottom underpinned by the 200-day moving average. The breakout point (160.00) pivots to well-defined support.

Meanwhile, the S&P MidCap 400 is challenging nearly four-month highs

Resistance broadly spans from about 357.10 to 357.90, and is currently under siege.

Conversely, the prevailing upturn originates from well-defined support. Recall that last weeks low (349.80) closely matched its breakout point, the April closing peak (349.75).

Against this backdrop, the SPDR Trust S&P 500 is vying to extend its uptrend.

To reiterate, resistance matches the mid-March gap (274.14) and the May peak (274.08).

Tuesdays early session high (274.24) has closely matched resistance, an area that continues to draw slight selling pressure. The retest remains underway.

Placing a finer point on the S&P 500s backdrop, its initial May breakout registered as directionally sharp, placing the index at two-month highs.

The subsequent pullback was comparably flat, underpinned by the 2,710 breakout point. Constructive price action.

Conversely, resistance matching the May peak (2,742.10) is currently under siege.

On further strength, an inflection point rests at 2,761, and is followed by firmer overhead matching its four-month range top spanning from 2,789 to 2,802.

Beyond technical levels, the U.S. benchmarks are making technical progress even amid pronounced cross currents across asset classes, detailed last week.

(For instance, rising Treasury yields and a U.S. dollar breakout have contributed to tandem gold and Japanese yen technical breakdowns.)

The U.S. stock benchmarks resilience, and relative stability, amid the cross currents also supports a bullish technical bias.

See also: Charting a bull-trend pullback, S&P 500 retests the breakout point.

Tuesdays Watch List

The charts below detail names that are technically well positioned. These are radar screen names sectors or stocks poised to move in the near term. For the original comments on the stocks below, see The Technical Indicator Library.

Drilling down further, the 30-year Treasury note yield
TYX, +0.19%
continues to press major resistance.

The specific area matches the February peak (3.22) as well as a nearly three-year range top.

Against this backdrop, the yield is rising from a bullish cup-and-handle pattern underpinned by the 50-day moving average. An eventual breakout opens the path to less-charted territory, though a near-term target projects to 3.31.

In related price action, the 10-year Treasury note yield is digesting its May spike to nearly seven-year highs, detailed last week.

Moving to U.S. sectors, the transports have come to life technically.

As illustrated, the iShares Transportation Average ETF has reached nearly four-month highs, edging atop well-defined resistance.

The prevailing upturn originates from trendline support, as well as a successful test of the 200-day moving average.

More immediately, the breakout point, circa 195, pivots to support. A sustained posture higher leaves the path open to a potential retest of record territory matching the January peak.

Looking elsewhere, the VanEck Vectors Oil Services ETF is acting well technically.

The group has recently staged a bull-flag breakout, rising to challenge 52-week highs.

Muted selling pressure near resistance, across three sessions combined with a relative strength index (not illustrated) that has reached four-month highs improve the chances of an eventual breakout.

More broadly, consider that the transports and energy sector are frequently inversely correlated. The prevailing tandem transports and energy sector resurgence is broad-market constructive, consistent with economic strength.

Initially profiled Oct. 30, Akamai Technologies, Inc.
AKAM, +0.37%
has returned 44.3% and remains well positioned.

As illustrated, the shares are rising from a bullish cup-and-handle defined by the April and mid-May lows.

More broadly, the range top matches major overhead, illustrated on the five-year chart.

Tactically, a breakout attempt is in play barring a violation of near-term support, circa 74.20. An eventual close atop the March peak (78.30) opens the path to less-charted territory, and potentially material follow-through.

Electronic Arts, Inc.
EA, -0.55%
is a well positioned large-cap video game producer.

Earlier this month, the shares knifed to record territory, rising after the companys fourth-quarter results.

The subsequent pullback has been flat, fueled by decreased volume, positioning the shares to build on the initial spike. Tactically, first support matches the breakout point, circa 130, and the rally attempt is intact barring a violation.

Momo, Inc.
MOMO, +0.15%
is a large-cap Beijing-based social networking platform operator.

As illustrated, the shares have rallied to the range top, rising to challenge nine-month highs.

Tactically, near-term support closely matches the 50-day moving average (36.95), a recent inflection point, and a breakout attempt is in play barring a violation. An intermediate-term target projects to the 46 area on follow-through.

Editors Note: This is a free edition of The Technical Indicator, a daily MarketWatch subscriber newsletter. To get this column each market day, click here.

Still well positioned

The table below includes names recently profiled in The Technical Indicator that remain well positioned. For the original comments, see The Technical Indicator Library.

Company Symbol Date Profiled
Industrial Select Sector SPDR XLI May 21
Deere & Co. DE May 21
Union Pacific Corp. UNP May 21
Twilio, Inc. TWLO May 21
SolarEdge Technologies, Inc. SEDG May 21
Intercept Pharmaceuticals, Inc. ICPT May 21
Energy Select Sector SDPR XLE May 18
Viper Energy Partners LP VNOM May 18
Energen Corp. EGN May 18
Boyd Gaming Corp. BYD May 18
Packaging Corp. of America PKG May 17
Range Resources Corp. RRC May 17
Ternium S.A. TX May 17
SPDR S&P Metals & Mining ETF XME May 17
SPDR S&P Retail ETF XRT May 15
Target Corp. TGT May 15
United Parcel Service, Inc. UPS May 14
Lowes Companies, Inc. LOW May 14
Toyota Motor Corp. TM May 14
Fabrinet FN May 14
Pegasystems, Inc. PEGA May 14
Texas Instruments, Inc. TXN May 11
Vale SA VALE May 11
PowerShares QQQ Trust QQQ May 10
Facebook, Inc. FB May 9
Electronics for Imaging, Inc. EFII May 9
Nutanix, Inc. NTNX May 9
SPDR S&P Oil and Gas Exploration & Production ETF XOP May 9
Tableau Software, Inc. DATA May 8
Coupa Software, Inc. COUP May 8
Now, Inc. DNOW May 8
Apple, Inc. AAPL May 7
McDonalds Corp. MCD May 7
American Express Co. AXP May 7
PDC Energy, Inc. PDCE May 7
Under Armour, Inc. UA May 2
Melco Resorts & Entertainment Ltd. MLCO May 2
Norfolk Southern Corp. NSC May 2
Advanced Micro Devices, Inc. AMD May 1
58.com, Inc. WUBA May 1
UnitedHealth Group, Inc. UNH Apr. 30
Nike, Inc. NKE Apr. 30
DSW, Inc. DSW Apr. 30
Home Depot, Inc. HD Apr. 27
Best Buy Co., Inc. BBY Apr. 27
Noble Energy, Inc. NBL Apr. 27
Sanmina Corp. SANM Apr. 27
Golar LNG Limited GLNG Apr. 26
Costco Wholesale Corp. COST Apr. 26
CSX Corp. CSX Apr. 26
Applied Optoelectronics, Inc. AAOI Apr. 19
Chipotle Mexican Grill, Inc. CMG Apr. 19
Wingstop, Inc. WING Apr. 19
F5 Networks, Inc. FFIV Apr. 18
Workday, Inc. WDAY Apr. 18
FedEx Corp. FDX Apr. 17
Pacira Pharmaceuticals, Inc. PCRX Apr. 17
Barrick Gold Corp. ABX Apr. 16
Valero Energy VLO Apr. 16
EOG Resources, Inc. EOG Apr. 11
Sarepta Therapeutics, Inc. SRPT Apr. 11
Autodesk, Inc. ADSK Apr. 10
NetApp, Inc. NTAP Apr. 9
GlaxoSmithKline GSK Apr. 9
AMC Entertainment Holdings, Inc. AMC Apr. 9
Guess, Inc. GES Apr. 2
Continental Resources, Inc. CLR Apr. 2
Whiting Petroleum Corp. WLL Mar. 22
Dominos Pizza, Inc. DPZ Mar. 21
Orbotech Ltd. ORBK Mar. 16
Eastman Chemical Co. EMN Mar. 16
Veeva Systems, Inc. VEEV Mar. 15
Autohome, Inc. ATHM Mar. 14
Burlington Stores, Inc. BURL Mar. 14
Baozun, Inc. BZUN Mar. 9
Marathon Petroleum Corp. MPC Mar. 9
Intel Corp. INTC Mar. 8
AxoGen, Inc. AXGN Mar. 8
Zebra Technologies Corp. ZBRA Mar. 7
TJX Companies, Inc. TJX Mar. 6
Chart Industries, Inc. GTLS Mar. 6
Macys, Inc. M Mar. 5
Five9, Inc. FIVN Mar. 5
LivePerson, Inc. LPSN Feb. 28
VeriSign, Inc. VRSN Feb. 26
Shutterfly, Inc. SFLY Feb. 22
ServiceNow, Inc. NOW Feb. 21
Palo Alto Networks, Inc. PANW Feb. 16
Adobe Systems, Inc. ADBE Feb. 16
Salesforce.com, Inc. CRM Feb. 12
Red Hat, Inc. RHT Feb. 1
Fortinet, Inc. FTNT Jan 19
Insulet Corp. PODD Jan. 17
Arrowhead Pharmaceuticals Corp. ARWR Jan. 11
Vericel Corp. VCEL Jan. 10
Sarepta Therapeutics, Inc. SRPT Jan. 3
Best Buy Co. BBY Dec. 11
Abercrombie & Fitch Co. ANF Nov. 20
MSCI, Inc. MSCI Nov. 20
Motorola Solutions, Inc. MSI Nov. 14
Splunk, Inc. SPLK Nov. 9
Akamai Technologies, Inc. AKAM Oct. 30
Lululemon Athletica, Inc. LULU Oct. 24
HubSpot, Inc. HUBS Oct. 4
XPO Logistics, Inc. XPO Oct. 2
Nvidia Corp. NVDA Sept. 27
Southern Copper Corp. SCCO Aug. 17
Bottomline Technologies, Inc. EPAY July 13
GrubHub, Inc. GRUB May 4
Square, Inc. SQ Mar. 3
Netflix, Inc. NFLX Oct. 4
Microsoft Corp. MSFT Aug. 5

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Quote References SPX +1.37 +0.05% DJIA -75.66 -0.30% TYX +0.06 +0.19% AKAM +0.28 +0.37% EA -0.72 -0.55% MOMO +0.06 +0.15% Show all references
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PayPal Getting Physical With iZettle Acquisition – Implications

Source: Muycomputerpro

A trend has been emerging recently in the pure-play Internet space, as companies like Amazon (NASDAQ:AMZN), and now PayPal (NASDAQ:PYPL), are looking to physical businesses as growth markets of the future.

What the main issue is, is there are only a limited number of related businesses companies in the tech space can enter in order to significantly boost revenue and earnings within the parameters of the expertise and market these companies compete in.

In the case of Amazon, it was obvious the company wanted to compete in the food market, as it lends itself to the retail business it is in, and represents a huge growth opportunity. The challenge was the way it operated its retail e-commerce business didn’t work with fresh produce in particular, which limited the growth prospects of the company, which is why it acquired Whole Foods.

I think PayPal has similar aspirations with iZettle, although it doesn’t reflect a market the size of the U.S. grocery market, even with the international potential it reflects.

The questions that need to be answered are how much will this add to the top and bottom lines of PayPal, and how long it’ll take to add value to the company.

The deal

PayPal paid a hefty $2.2 billion for iZettle, a little over 20 times 2017 revenue. Before the offer, it was preparing to go public, and it had been seeking a value of $1.1 billion for the IPO.

The company isn’t profitable yet, and the transaction will be dilutive for full-year 2018 at about $0.01 EPS on a non-GAAP basis, which means that could be the best-case scenario. I conclude that because non-GAAP usually is more favorable to management than GAAP is.

With a customer base of approximately 500,000, it means PayPal is paying on average about $4,400 per customer.

For 2018, revenue from iZettle should come in at about $165 million on $6 billion in volume. The company says it will “reach EBITDA profitability by 2020 on a standalone basis.” From 2015 to 2017, its CAGR was at 60 percent. With the added investment of PayPal, that isn’t likely to slow down.

Based upon the existing numbers, it could take several years before PayPal to pay for its investment in iZettle. I think it could reduce that period of time if it successfully markets its one-stop shop business in new markets.

Another element will be whether or not PayPal will be able to upsell some of iZettle’s customers and increase the amount of revenue and earnings per each business it serves.

Benefit of becoming an omnichannel or one-stop shop business

The most obvious benefit to PayPal’s acquisition of iZettle is it becoming an omnichannel, or one-stop shop for its customer base.

As iZettle stands at this time, PayPal will gain an immediate in-store presence in another 11 markets, including Brazil, Denmark, Finland, France, Germany, Italy, Mexico, the Netherlands, Norway, Spain, and Sweden. With only Brazil and Mexico being in the top 10 in population in the world, it represents a lot of upside potential for PayPal if it manages to successfully leverage the new benefit of being a one-stop shop in its coming marketing campaigns.

With consumers now wanting a variety of ways to pay for goods and services, small businesses want whatever options are available to meet that demand. Now whether on desktop, smart phones or in-store, PayPal will be able to supply a payment option at each point of sale (POS).

Not only should this generate meaningful revenue over time, but also it should be able to do so at a solid profit, as the company scales it around the world.

What I think the market may be underestimating at this time is the added potential of cross-selling and up-selling new products or services to customers.

As its customer base grows, it provides opportunities for new offerings and revenue from its customers. One already in place that could be offered to PayPal’s customers is the loan business iZettle has in place. Point of sales is a great way to gather data in order to customize loans to small businesses.

Because those that own the gateways in payments will be able to generate consistent, long-term fees; this is a battleground with a lot of competitors in it. With the acquisition of iZettle, PayPal has improved its competitive position and could build a moat that is defendable and difficult to compete against.

It of course has to successfully execute on its plans for iZettle, but it now has the pieces in play to grow market share on all important payment touch points in the retail market.

Potential growth over next several years

A 2018 report by Zion Market Research found that the size of the market by 2022 will be about $98.27 billion. Starting from 2017, that represents a CAGR of 13.5 percent during that five-year period.

That only deals with the point of sales, not the potential for ancillary sales once the payment system is scaled across other markets. In the short term, revenue should increase on the loan side of that specific business of iZettle. Concerning cross-selling and up-selling, it’s impossible to know at what level PayPal will be able to successfully market its other products, but it definitely has the potential to grow significantly. This is why I see the company maybe surprising to the upside and receiving the return on its investment quicker than the numbers at this time suggest.

Among the other markets iZettle already operates in, PayPal said it sees “near-term in-store expansion opportunities into other existing PayPal markets, and acceleration of omnichannel commerce solutions in Australia, U.K. and U.S.”

If it is able to execute in the important Australia, U.K. and U.S. markets in the near term, it could do even better than I think it’s going to do with the ancillary sales coming from the embedded small business customer base that comes with iZettle.

Conclusion

PayPal did pay a stiff premium for iZettle, raising a number of eyebrows in the financial world, but I think that while it does come with risk, the upside potential is worth the price.

With the online tech market in a number of areas maturing, it’s getting difficult to generate the type of growth that came in the past, which is why companies like PayPal and Amazon are looking to physical businesses for new revenue streams that can move the revenue and earnings needles.

There is no doubt the acquisition of iZettle provides PayPal with a stronger product line and marketing position, which it can now aggressively offer to small business owners.

I believe once the deal closes, PayPal is going to be aggressive in its attempt to enter new markets, scale the in-store business, and cross-sell and up-sell existing products, while develop new ones to further leverage the benefit of the deal.

From everything I’ve read concerning the acquisition, it appears this is the big play by PayPal for future growth. It has a lot riding on the outcome of the new business, and I think it’s going to provide all the capital and resources needed to give it the best chance at success.

Although it does have numerous competitors across a variety of markets, I think this is PayPal’s to win or lose. For it to be considered a company that can deliver value and growth, it’ll have to show the market and shareholders it can execute and make the deal work.

If it fails with iZettle, I think it’s going to go through a difficult period where it struggles to find catalysts that convince investors it still has opportunities to grow in the market it competes in.

My final thought is I believe it has a much better chance of making it happen than failing because of its past record and experience, along with growth potential coming from the retail payment market.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.