GOAL IS SMOOTH
Certified Public Accountants FAX 732-516-9778
328 Amboy Ave, Metuchen NJ 08840
ADIDAS COMING ON STRONG
Nike Inc. (NYSE: NKE) was the worst performing Dow stock in 2016 due to the emergence of its rivals Under Armour Inc. (NYSE: UAA) and Adidas. Although business has picked up for Nike as of late, the company is still facing strong competition from these rivals, especially Adidas, at least according to one key analyst.Wedbush recently released a report detailing a clear shift to Adidas from Nike. Overall the firm rated Nike with a Neutral rating. Nike does have definite bright spots, particularly on e-commerce, DTC and its lifestyle business.
The firm believes that nothing in Adidas’s fourth-quarter print this morning suggests any immediate change in this shift. To Wedbush, Nike generally lacks new innovation against a consumer preference that is largely skewed toward retro and fashion styles of footwear. This benefits companies like Adidas and Puma.According to retailers, Adidas continues to have a more compelling pipeline. Also, the success that Adidas is seeing in footwear is translating well to its apparel business providing another growth catalyst.
This morning, Adidas reported fourth-quarter currency neutral (CN) revenue growth of 18%, with the Adidas core brand up 22%. With Adidas updating its long-term growth targets (10% to 12% CAGR in CN sales, 20% to 22% CAGR in net income) through 2020, it is clear Adidas has momentum moving forward. Wedbush expects it to capture market share internationally.
Wedbush further detailed the Nike-Adidas relationship in its report:
Long term outlooks favor Adidas Group. In its latest report, Adidas updated it long-term 2015-2020 outlook. The company expects CN revenues to grow at a CAGR of 10-12% vs. HSD growth previously and net income to increase 20-22% vs. 15% previously. Contrast this outlook with NKE’s long-term outlook (last provided in its March 2015 investor day) in which NKE management predicted annual revenue growth in the high-single to low-double digit range through 2020 to $50 billion (likely ends FY17 at $34.5 billion) and EPS in the mid-teens. With the recent shift in consumer preferences away from Nike’s core products, we are skeptical if these projections for revenue will hold for NKE.
Shares of Nike were last seen at $56.54 on Wednesday, with a consensus analyst price target of $62.00 and a 52-week trading range of $49.01 to $65.44.
Under Armour was down 2.3% at $19.24, with a consensus price target of $22.55 and a 52-week range of $19.18 to $47.95
GROWTH OF HEALTH CARE COSTS
MARCH NEWSLETTER 3
Growth in private, nonresidential construction will slow in the coming year. The best news will be found in office construction set to grow about 10%, mostly in urban centers, not so much in surburban office parks. After a hot 2016, many projects remain in the pipeline, suggesting a continuation of the strong market,. Construction of medical facilities will see modest growth, as it did last year. Construction of medical facilities will see modest growth, as it did last year. The is less demand for dedicated buildings because there are more store front clinics. Growth will slow some what in construction of retail stores and warehouses. More retailers are focusing on mixed use buildings and renovating not building . Hotel construction growth will flatten in 2017, following a surge in 2016.
The White House has little direct authority to reform the Dodd-Frank law, which sets out financial regs that the President blames for keeping banks from lending more to small businesses. Virtually all of the rules were enacted by Congress and it will take Congress to make changes. The President's influence will grow once he appoints new heads of federal agencies, including the chairman of the Securities and Exchange Commission and the US Commodity Futures Commission. Both of these jobs are vacant. In addition, the terms of the comptroller of the currency and head of the FDIC end this year. The President may also decide to use the Financial Stability Oversight Counciel to push for Dodd-Frank changes
The Conference Board has released its latest monthly consumer confidence numbers. March’s Consumer Confidence Index reached 125.6 in March, up from 116.1 in February. The index is based on a figure of 100 established in 1985.The Conference Board’s two other primary monthly indexes also rose. The Present Situation Index rose from 134.4 in February to 143.1, and the Expectations Index increased from 103.9 last month to 113.8. The present situation is defined as “current conditions,” while the expectations index covers a “short-term” outlook.
Lynn Franco, Director of Economic Indicators at the Conference Board, said:
Consumer confidence increased sharply in March to its highest level since December 2000 (Index, 128.6). Consumers’ assessment of current business and labor market conditions improved considerably. Consumers also expressed much greater optimism regarding the short-term outlook for business, jobs and personal income prospects. Thus, consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months.
Several other factors of consumer confidence rose as well. The percentage of respondents who said business conditions are “good” rose from 28.3% to 32.2%, the Conference Board numbers showed. The research also indicated that the percentage of consumers stating jobs are “plentiful” rose from 26.9% to 31.7%.In terms of forward-looking data, consumers expect business conditions will improve over the next six months, with that percentage rising from 23.9 in February to 27.1.Consumers were also more optimistic about the jobs market. Those who expected “more jobs in the months ahead” rose from 20.9% last month to 24.8% for March.The Conference Board, a division of Nielsen, issues numbers once a month. For March, the cutoff date was the 16th
GLOCK LOSES BID
Health care costs are on a rapid upturn, and with a vengeance in 2015. According to an article in Health Affairs, nationwide spending reached $3.2 trillion last year, up 5.8% from 2014.
The article specified about health care spending growth:
On a per person basis, spending on health care increased 5.0 percent, reaching $9,990. The share of gross domestic product devoted to health care spending was 17.8 percent in 2015, up from 17.4 percent in 2014. Coverage expansions that began in 2014 as a result of the Affordable Care Act continued to affect health spending growth in 2015. In that year, the faster growth in total health care spending was primarily due to accelerated growth in spending for private health insurance (growth of 7.2 percent), hospital care (5.6 percent), and physician and clinical services (6.3 percent). Continued strong growth in Medicaid (9.7 percent) and retail prescription drug spending (9.0 percent), albeit at a slower rate than in 2014, contributed to overall health care spending growth in 2015.
Health care costs have an outsized effect on growth of gross domestic product and, thus, inflation. And inflation is one of the factors the Federal Reserve will examine as it looks toward a rate hike this month — the first in eight years.Affordability is at the core of the national debate on health care funding. With expense rates up nearly 6%, the ability to afford care not only becomes more difficult. It raises the friction among doctors, hospitals, insurance companies and patients.
If the economy continues to recover, health care costs should continue to spike
MARCH CONSUMER CONFIDENCE HITS 16 YEAR HIGH
In late January, the U.S. Army ended a nearly decade-long competition to supply the service with a new handgun, awarding a contract valued at $580 million to Sig Sauer. Glock was the second-place finisher and military watchers expected the company to protest the decision. Last Friday, Glock officially filed its protest with the U.S. Government Accountability Office.The Army’s January decision to replace the Beretta M9 that has been in service for about 30 years first attracted four bidders: Sig Sauer, Glock, FN America and Smith & Wesson, a division of American Outdoor Brands Corp. (NASDAQ: AOBC). The latter two were eliminated from contention in December.
Sig Sauer’s P320 MHS (modular handgun system) includes interchangeable grip modules and can be adjusted for frame size and caliber by the operator. Glock’s entries were its Glock 17 and Glock 19.The Sig Sauer P320 MHS can use 9mm, .357SIG and .40S&W rounds. The company is reported to have submitted both the 9mm and .40 caliber round for consideration, and the Army chose to stick with the NATO standard 9mm round.Unconfirmed reports in January indicated that the Army plans to acquire 280,000 of the weapons with a possible increase to as many as 500,000, including accessories and ammunition. The Army is also believed to be purchasing about 7,000 of the compact version of the weapon designed to fit smaller hand sizes.
Sig Sauer is a subsidiary of Germany’s Luke & Ortmeier Gruppe, with an operation based in New Hampshire.
The GAO has until June 5, 2017, to make a decision on Glock’s protest. The filing is available here.