S&P Capital IQ Equity Research Publishes Semi-Annual Industry Surveys
NEW YORK, Oct. 24, 2013 /PRNewswire/ -- S&P Capital IQ Equity Research has published semi-annual surveys for several industries, including Banking, Computers (Software), Household Durables, Insurance (Property-Casualty); Oil & Gas (Equipment & Services, Production & Marketing), Supermarket & Drugstores, Thrifts & Mortgage Finance, and Transportation (Commercial).
These industry surveys, which are about forty pages long and written by S&P Capital IQ equity analysts, include sections on each industry's current environment, an industry profile, industry trends, how the industry operates, key industry ratios and statistics, how to analyze a company in that industry, industry references, and comparative company analysis.
Following are short excerpts from each of the industry surveys listed above.
Banking: We note several risks to our generally positive outlook. We think many things could go wrong, especially as bank share prices have skyrocketed in anticipation of higher revenues, profitability, and returns of capital. Another Washington standoff on the debt ceiling and budget could lead to uncertainty, and could hurt economic growth. Risks include worsening employment trends and factory output. A further slowdown of China's economy could hurt global asset prices. A resumption of the Eurozone crisis could affect liquidity, interest rates, and credit quality.
Computer Software: In the software market, the true assets of a company are its people, software, and customers. In cases where a smaller company has carved out an attractive niche, the issue for a larger company often comes down to a build-versus-buy decision. We believe that most of the larger enterprise software companies can backwards engineer whatever a smaller company has produced. However, decisions are frequently based on time-to-market considerations: reverse engineering, while doable, can be slow and thus not the best call in a fast-growing market.
Household Durables: US appliance manufacturers are gaining sales traction in many of the key developing markets overseas. Among the emerging markets, major growth will come from Latin America (particularly Brazil), followed by China and India. Although China and India have billions of residents, many of whom are entering the middle class as those nations' economies grow, there are some concerns regarding the strong presence of domestic players within these countries. According to a study released in November 2010 by the Boston Consulting Group, a global management consulting firm, the number of China's middle-income and affluent consumers will likely triple in the next 10 years, with most of the growth coming from smaller cities. It anticipates there will be 270 million more consumers earning more than 60,000 yuan ($9,000) by 2020, raising the middle- and upper-class tally to 415 million from the current 148 million. The survey explained that smaller cities are expected to grow the fastest because of their lower living costs compared with cities like Beijing and Shanghai.
Insurance-Property/Casualty: The property-casualty insurance industry has emerged from the credit crisis and the "Great Recession" relatively unscathed—both financially and from a regulatory standpoint—especially when compared with other financial institutions. In addition, following several years of heavy storm and catastrophe losses in 2011–12, industry premium rates have started to firm. Many insurers reported that premium pricing strength has continued and momentum for an upturn in pricing increased as 2012 progressed. In 2013, the degree to which these pricing gains translate into revenue growth will depend on overall demand for insurance. An economic recovery in the US (even a modest one) should help the demand curve for insurance.
Oil & Gas-Equipment & Services: Ten years ago, hydraulic fracturing was a blip on the US land rig count. Today, it is ubiquitous and the most often used process for land drilling, not only of natural gas wells (where the phenomenon began), but also for crude oil extraction. Marrying the ability to drill horizontally with the ability to crack open otherwise impermeable rock, hydraulic fracturing enables energy companies to gain access to previously inaccessible reservoirs of crude oil and natural gas—those trapped in thin layers of shale rock or other so-called tight formations. Despite its huge potential, fracking has not gone over well with environmentalists. If fracking proponents can address critics' concerns, the technology could win huge worldwide support. New versions of fracking technology seem to be doing just that.
Oil & Gas-Production & Marketing: Over the past decade, oil and gas producers have shifted their focus toward development of unconventional resources as a new avenue for growth. The scarcity of global oil and gas resources, rising demand, tight supplies, geopolitical factors, and the increasingly competitive dynamics between international oil companies (IOCs) and national oil companies (NOCs) have all driven the increase in unconventional oil and gas production. North America, with its abundance of undeveloped shale and tight gas reserves, has been at the forefront of this developing trend. Now, the industry has begun a fundamental shift toward finding and developing unconventional oil prospects.
Supermarkets & Drug Stores: Despite near-term benefits from lower gas and food prices, and improved confidence from the wealth effect, retail food and drug operators faced increased competition from nontraditional formats. Retailers were particularly impacted by ongoing weak demand from lower-income households, whose spending is being hurt by the expiration of the payroll tax cut and who remain concerned over their employment status. In addition, traditional food operators were hurt as supercenter operators (such as Wal-Mart Stores Inc.) and dollar stores (Dollar General Corp., Family Dollar Stores Inc., and Dollar Tree Inc.) continued to gain market share in 2012 and into 2013 by targeting low-income households with low-priced offerings and through the implementation of new-store expansion strategies. Meanwhile, warehouse clubs (Costco Wholesale Corp. and Sam's Club, a division of Wal-Mart) and specialty store operators (Whole Foods Market Inc. and The Fresh Market) took market share by targeting higher-income households through a focus on higher-quality offerings at competitive prices.
Thrifts & Mortgage Finance: We expect the bank and thrift industry's financial position to continue to improve. This reflects our outlook for improved loan growth and credit quality, and slowly rising interest rates. We expect thrifts and large banks to generate higher profits in the next twelve months, leading to slightly higher capital ratios. We see net charge-offs and loan loss provisions gradually declining. This is partially offset by our forecast for increased competition for jumbo mortgage loans, uncertainty over Fannie Mae and Freddie Mac, increased FDIC fee expense, and lower Regulation E fee income.
Transportation-Commercial: Contending with rising operating expenses, like driver wages, fuel, and insurance premiums, trucking companies are trying to raise rates. However, given an environment where end demand is soft with a high degree of uncertainty, shippers are resisting these price increases. In fact, shippers are facing their own challenges with rising expenses and are looking for ways to reduce overall costs. One cost-reduction strategy that appears to be achieving widespread adoption is the containerization of domestic freight. This allows shippers to more easily shift their loads between truck and rail, using railroads for medium- and long-haul movements. It also has the added benefit of reducing a shipper's greenhouse gas footprint. For several years, the railroads have been investing in their intermodal operations. This includes raising clearance levels on bridges and tunnels along their networks to allow for double-stacking of containers, as well as expanding the number of containers in their fleet. More recently, the railroads have accelerated the buildout of special intermodal facilities, allowing for storage and an efficient handoff with trucking companies of intermodal freight. Add to this the truckers' push to be more environmentally friendly and the desire to reduce their total supply chain.
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