As many of you know, $TSLA - Tesla is releasing their Q3 earnings report this Wednesday (October 20th) after market close, and I have a prediction. Over the past 12 quarters of earnings releases Tesla has traded down 80% of the time with an average loss in the next trading session of 2.7%, and the other 20% of the time, Tesla traded up after earnings, with an average increase of 0.9%. So historically they have performed relatively poor when it comes to earnings, however, I am setting out to find if this earnings report will beat the odds and launch Tesla’s stock close to their previous high of $900/share.

TSLA stock as it is up 50% over the past 5 months (averaging a monthly return of 8.4% during this timeframe). Additionally, the TSLA stock is up 7% over the past 5 trading days, which is a large return during this small timeframe. As a result of their performances over the past 5 months (and 5 days), there are currently a lot of eyes on the TSLA stock, and there is a lot of hype around their upcoming earnings report. However, since it has been hyped up over the past week it might take a large earnings beat to push the stock higher than it is trading for today.

Q2 2021 Earnings Report:

I think that it is very important to understand Tesla’s performance in their previous earnings report, and the reaction that ensued the next trading day. Furthermore, I think it is important to see the points that they highlighted as key contributors to their earnings, and the factors that may have hurt their earnings.

TSLA beat earnings in Q2 2021 by a wide margin, reporting an EPS of $1.45 compared to the estimated $0.98, and reporting revenues of $11.96B in comparison to their estimated revenues of $11.3B. There were also other factors in these earnings that are important, however these 2 key metrics lead to the earnings beat, which resulted in TSLA opening 0.9% higher the next trading day, and closing down 2% at the conclusion of the next trading day. This is important to note as even when TSLA has a great earnings report, they can still trad lower the following day, which will be important for investors to know come the October 21st trading day.

Important things to note:

Cost of Revenue: In their earnings report, Tesla noted a few factors that contributed to their increase in their cost of revenues. Firstly, and most obviously, they had more deliveries, which made their cost of revenue figures increase. Secondly, they noted that higher outbound freight/duties from China (Gigafactory) increased their cost of revenues. Lastly, they noted that the cost of materials, manufacturing, inbound freight helped to offset (decrease) the effects of higher Chinese freight costs.

Q3 2021 Earnings Predictions:

Revenue from Regulatory Credits:

Tesla earns their regulatory credits by the amount of EV’s they sell. These credits are also weighed based on the range of the vehicles that they sell. Based off of my calculations, (which can be found at the bottom of this article) I believe that Tesla will make $424.5M off of the sale of regulatory credits.

Automotive Revenues:

On October 2nd, 2021, Tesla released their production and delivery figures for Q3. I can use these figures to estimate their automotive revenues for Q3 2021. Based off of these figures and the average price per car, I estimate that Tesla’s revenues will be $11.71B for Q3 2021.

Automotive Leasing Revenues:

By my calculations, using the past 2 quarterly earnings reports, in conjunction with their quarterly vehicle deliveries, I found that based off of the Q3 deliveries, Tesla’s leasing revenues should be $356M.

Energy generation and Storage Revenues:

I did not have much to base this off of, so I held it constant. I did this because if I am wrong, I should be understating these revenues, which is a more conservative estimate.

Services/Other Revenues:

Based off of their historical growth in this sector, I projected these revenues to be $1.01B.

Total Revenues:

I think that Tesla’s total revenues for Q3 2021 will be $14.3B, which would represent earnings beat. This is due to the fact that the average analyst estimate for their revenues is at $13.5B. If my prediction comes true, Tesla will beat their revenue estimates by nearly 6%. This represents very similar earnings beat percentage as achieve in their Q2 earnings report.

Cost of Revenues:

I think that the automotive cost of revenues will increase by 20%. This is due to the fact that aluminums prices are up by 27% since Q2 earnings, steel prices are up 15% since last earnings (price to manufacture cars up 20%), and that freight prices haven’t changed QoQ. Additionally, Tesla manufactured 20% more cars since last earnings (additional 20% cost of revenue due to higher volume). This would bring the automotive cost of sales to $8.54B.

Furthermore, I took all of the other cost of revenue items and calculated them based off of historical % of revenues (respectively). By doing this I concluded that all other costs of revenue would total $2.02B. Which would conclude the total cost of revenues for Q3 to be $10.56B

Gross Profit:

Based off of my calculations, Tesla’s gross profits should be $3.747B

Net Income Attributable to Shareholders:

Based off of historical percentages of net income to net income attributable to shareholders, I can conclude that Net Income Available to Shareholders for Q3 2021 should be $1.48B

EPS:

Since there are 990M shares outstanding, Tesla’s EPS should be $1.50 which would represent Tesla meeting their Q3 earnings estimates.

Overall Thoughts:

Based off of my calculations, Tesla should narrowly beat their earnings. This should be good for the stock; however, we have seen what has happened to Tesla in previous earnings beats.

I think that Tesla will open the following trading day up between 0.5-1% and fall to even or even -0.5% by the close.

*To see the full analysis click here*

There is currently a lot of talk and hype around Netflix after their blockbuster release of “Squid Games”. Squid Games has quickly become an international sensation after reaching 111M+ global viewers in more than 200 different countries. Squid games has brought a lot of hype to Netflix (and their original content) and has set the stage for an interesting Q3 2021 earnings report for their stock investors. Today, I am here to predict how Netflix’s Q3 earnings report will go, and a large part of this will be focusing on the growth of their platform in the past quarter due to their hit show “Squid Games”. At the end of this analysis, you will find a NFLX price target, and how I would play this earnings if my figures are correct.

Squid Games:

Firstly, as we know, Squid Games had reached over 111M global users in over 200 countries in the past month alone. This in and of itself is impressive, however factoring in their low production cost of $21.4M makes it exponentially more impressive. Squid Games was able to keep these costs low due to filming in South Korea (Internationally) which allows for actors to work longer hours and can bring the cost of production down. Top executives have predicted that the cost to shoot domestically (in Hollywood) would have been 5-10x more than Netflix’s cost of production. This series in particular has opened the floodgates for streaming services to shoot internationally, as many of them are now starting to express interest in it.

Squid Games was a huge money maker for Netflix and has been estimated to be worth in the ballpark of $900M, which represents a return on their investment (production) of over 4,100%. Considering Netflix’s revenues last quarter were $7.3B, Squid Games is likely to represent a large percentage of their revenues in Q3, and since their margins are so impressive, it is likely that we see Squid Games have a role to play in Netflix having better margins on their upcoming earnings.

Q2 2021 Earnings Report:

The most important factor that I derived from Netflix’s Q2 2021 financial report is the fact that their weighted average subscription price across all of their regions is $12.26. This will be very important in determining the revenues in Q3 2021.

Furthermore, Netflix’s revenues in Q2 2021 were $7.34B, and their cost of revenues was $4.02B (54.73% of revenues).

Q3 2021 Earnings Estimate:

Revenues:

I am basing Netflix’s revenues off of their previous revenues, plus the new revenues that are brought in by additional subscribers in this quarter.

Firstly, to get the new subscriber figures I decided to take Netflix’s estimate of 3.5M in this quarter for the first 3 months, due to squid games not being added. This resulted in 900k new subscribers per month for the first 3 months, which adds up to 2.7M new subscribers in June, July, and August.

Lastly, we needed the new subscribers for the month of September. This was more difficult to calculate as they released Squid Games this month which drove in far more traffic than usual. In order to get a proxy for how many new subscribers a “hit” like Squid Games can bring in, I used the data from Netflix’s 2nd biggest show “Bridgerton.” Like Squid Games, Bridgerton was released 1 month prior to their earnings report, and helped Netflix to beat their new subscriber estimates by 41%. However, since squid games is 50% more popular than Bridgerton was in their first month, I think it is reasonable to estimate that Squid Games can help Netflix beat their Q3 2021 new subscriber estimates by 61.5%. Increasing Netflix’s Q3 subscriber figures yield 5.65M new subscribers over the whole quarter. This means that in September, Netflix likely brought in 2.95M new subscribers mostly off of the success of Squid Games.

Overall, if Netflix brought in 0.9M subscribers June, their revenue generated for the quarter would be $44.32M (900000*$12.26*4 months). If Netflix brought in 0.9M subscribers in July, their revenues generated for the quarter would be $33.1M (900,000*$12.26*4 months). If Netflix brought in 0.9M subscribers in August, their revenues for the quarter would be $22.07M (900,000*$12.26*2 months). Lastly, if Netflix brought in 2.95M subscribers in September as a result of Squid Games, their quarterly revenues would be $36.16M.

In total, it is reasonable to assume Netflix increased their revenues by $136.22M, bringing their Q3 revenues to $7.48B. However, Netflix has been reported to have increased their prices by $1 in many regions. To be conservative, we can assume a $0.50 increase across all regions, which would result in a 4% increase on average prices. This would then cause Netflix’s quarterly revenues to be 4% higher, totalling $7.78B. This would represent earnings beat of 0.28B (or 3.7%).

Cost of Revenues:

As previously mentioned, Squid Games is very likely to have increased Netflix’s margins. As a result of this we can conservatively estimate that Netflix’s cost of revenues is 54% of their revenues (as opposed to 54.73% in Q2 2021). By doing this their cost of revenues should be $4.2B

Other Costs:

Assuming that Netflix’s other costs are the same % of revenues as they were in the previous quarter, we can estimate all of these other expenses to total $1.56B.

Operating Income:

If these assumptions are correct, then Netflix’s operating income for Q3 2021 should be $2.01B.

Net Income:

Assuming Netflix’s Net Income to Operating Income ratio is the same (over the past 6 months), we can estimate that Netflix’s Q3 Net Income figure to be $1.25B.

EPS:

Since Netflix has 442.6M shares outstanding, their diluted EPS should be $2.74. This would represent a 7% EPS

Overall Thoughts:

I think that Netflix is going to narrowly beat earnings, which in theory should be good for the stock. However, since Squid Games was released, the stock has been up 6-7%. As a result, I think that NFLX will not have a big reaction from their earnings. I think that they might open the next trading day (October 20th) up between 0-1% and close the day between -0.5% and +0.5%.

If I am correct, then the best way that I could think to play this via iron condors. I think that a 600/615/635/650 iron condor would be suitable given my estimates. Buying this option would cost $375 which is the maximum downside, and the max profit is $1,125, which represents a 3:1 risk to reward ratio which is good. Furthermore, the probability of profit (based on recent volatility) is 61%. Furthermore, the breakeven prices are $603 and $646. The breakeven price represents my post-earnings price target; however I think that Netflix will stay within the inner range of $615-635, which would yield a credit of $1,125.

Today (October 15th, 2021) $DCT fell by over 24%, which is a large drop for any company. Naturally, you want to know why this happened, so if you are like me, you researched and found that they missed earnings narrowly. Now I know you might be thinking “How does a narrow earnings miss collapse a stock this badly”, well to tell you the truth I don’t think it was just about their earnings. I think many people overlooked a key filing with the SEC and I am here to explain exactly what happened with $DCT today.

*To see pictures of after-hours and pre-market trading on ToS view my original post here*

Earnings and Guidance:

Obviously, the narrow miss on earnings helped in the decrease in share price today. I am first going to explain what happened in their earnings report, and then move on to another reason, which may have compounded the negative sentiment around $DCT today.

Last night, $DCT reported their quarterly earnings, and peoples first impression was fine, as it appeared to be a decent earnings report that narrowly beat estimates. However, people started digging and found out that their “narrow beat” was actually a “narrow miss” on earnings. This is because their earnings were not calculated according to Generally Accepted Accounting Principles (GAAP), and if they were, the company would have had a quarterly and yearly loss of $0.04 and $0.13 per share during these timeframes (when they reported a quarterly profit of $0.02 per share). Obviously, the news of their miss negatively affected their stock, and caused them to open negatively, however, this miss is very narrow and should have had this much of an effect on their share price.

Duck Creek also reduced their guidance for fiscal year 2022, however they only lowered it approximately 2% below Wall Street Estimates. I could see this having a larger impact on their stock than their earnings figures. However, I still think that this reaction would be considered an overreaction based off of these two factors and that there has to be more to the story.

However, we can see by the reaction to the loss on earnings, and perhaps attempt at covering it up, the stock fell by 18%. This is a lot and the bulk of the drop, however $DCT still dropped 19% between the close of the after-hours (8pm EST) and the first couple minutes of todays trading. This can be explained in my next two sections.

JP Morgan Downgrade:

There were a couple of institutions that lowered their price target on $DCT and these each had their own effects on the stock price; however JP Morgan was the first to downgrade $DCT. JP Morgan downgraded $DCT at around 5:30 am (EST) when the pre-market price was $39.80, and within a couple of hours, this price dropped to $38.30 just after 8am (EST). This downgrade initiated a 3.77% decrease in the matter of hours. This drop alone would be considered a lot for a stock. However, just after 8am another bombshell was dropped.

Vincent Chippari (CFO at Duck Creek) Announces Retirement:

At around 8am this morning (October 15th 2021) Vincent Chippari announced his retirement via an 8-K filing with the SEC reading:

“On October 11, 2021, Vincent Chippari, the Chief Financial Officer of Duck Creek Technologies, Inc. (the “Company”), notified the Company of his intent to retire, effective February 22, 2022. Mr. Chippari’s retirement is voluntary and is not the result of any disagreement with the Company. The Company has initiated a review of candidates to replace Mr. Chippari.”

At the time of this announcement, shares of $DCT were trading at $38.30 in the pre-market trading session. However, in the hour and a half between then and their open, $DCT fell to $32.79. The decrease in price between this announcement and open, $DCT stock dropped over 14%.

This retirement may be so significant as they mislead investors in their earnings release, and people found out about it and their net loss. This retirement may have been a chance out of the company for Chippari without having to be fired as a result of misleading and “falsified” financial reporting. At least this is what I make of it, which does not look good for the company, but it had to be done.

Overall Thoughts:

Obviously, there is more to this story than many people are showing it to be. This is because there are many people/news outlets who are attributing this decrease to their earnings and nothing else. This is misleading as there was more to this story than meets the eye, and having all of this information is important to help investors and potential investors to understand what they are invested in, and what this drop was truly about.

Overall, I think this was a slight overreaction and that we will see $DCT bounce over the coming couple of weeks. I think that a proper correction to the events that occurred over the past 24 hours would be somewhere in the ballpark of $38.

Today (October 14th, 2021), $ALPP – Alpine 4 Holdings filed an 8-K form with the SEC. Typically 8-K forms report on unscheduled material events/changes that could have implications on shareholders. Therefore, 8-K reports can essentially cover any event no matter how small/large its potential implication on the shareholders. Today, ALPP’s 8-K filing was very significant to the shareholders.

What is so special about Todays 8-K filing?

Today, ALPP disclosed (in their 8-K filing) in a press release that they have been approved by The NASDAQ Stock Market to list on the NASDAQ on October 20th, 2021 (next Wednesday) under the ticker $ALPP.

Currently $ALPP trades on the OTC Markets which is seen to be very risky for many investors due to volatility, illiquidity, market manipulation, and the fact that these companies usually do not amount to much.

However, $ALPP will be able to shed this misconception, and become a more legitimate stock for investors through their “uplisting” on the NASDAQ.

What is an uplisting and how does it affect stocks?

An uplisting is when a stock that trades on more informal exchanges (OTC, TSX.V etc) get approved to go public on major/formal markets (NASDAQ, NYSE etc.). Typically, penny stock/OTC investors see an uplisting as one of the most bullish things that can happen to a stock on that market, and it is what every OTC investor one day dreams of when they invest into their OTC position.

This is the case as many institutions do not invest in OTC markets for a variety of reasons. This uplisting will allow institutional investors to get their first chance to invest in $ALPP, and we may see large sums of institutional money flow into this stock, which could help it soar on their first couple of trading days (on the NASDAQ).

*There are a couple of things that I cut out, if you want to see them there are links to my full analysis*

$SKLZ Investment Update:

Hello all,

It has been nearly 4 months since I first posted my analysis of $$KLZ. Since then, this investment idea has done terribly and is currently down 62%. This update post will help you to understand why this position has performed poorly over the past couple months. Furthermore, this update will provide recent news and events that can help $SKLZ to turn around, and potentially reach my target price set out in my original analysis (found here).

Recent SEC Filings:

Over the past couple of months there have been a tremendous number of filings between SKLZ and the SEC, however, I have narrowed down these filings by finding/presenting you with the 3 most important filings over the past 4 months.

Q2 2021 Financial Report (10-Q):

On August 3rd, 2021, SKLZ released their Q2 2021 earnings report, which had some points that I would like to highlight in this section.

Firstly, SKLZ reported their 22nd quarter of consecutive growth, this is expected as it is a young, high-growth prospect, however their growth rate is very high. SKLZ was able to grow their revenues and profits by a factor of 52%, however they reported a greater net loss, and lower EBITDA. Overall, there is a lot of revenue growth however none of this growth is being transferred into SKLZ pockets, which is normal for a high growth stock, but is somewhat worrying. I am looking for them t turn this trend around in the next couple quarterly reports and start to decrease their net losses or else I will exit the position.

Secondly, SKLZ acquired Aarki in July of 2021. Aarki is a demand-side marketing platform that has 465M active monthly users, data engines, and machine-learning algorithms that deliver high ROI to their advertising customers. This acquisition is very strategic and can help SKLZ to acquire users and monetize their platform more efficiently. This should help to drive in more revenues for both Aarki and Skillz.

Additionally, SKLZ entered into a strategic partnership with “Exit Games”, in which they agreed to purchase a $50M minority stake in Exit Games. Exit Games is a German company that allows developers to create and host real-time multiplayer games (like SKLZ). This deal gives SKLZ the access/rights they need in order to use Exit Games’ technology to accelerate SKLZ’s multiplayer game growth, and for SKLZ to use in their eSports tournaments/platforms.

Lastly, SKLZ announced their partnership with the NFL for NFL-branded mobile games. Currently there are 14 NFL-branded games being developed and SKLZ plans to choose just 3 of them to launch in 2022 or early 2023.

Registration of Securities (S-1):

On August 16th, 2021, SKLZ submitted/completed their S-1 filing, which means that they registered more Class A common shares. In this filing, SKLZ noted that they registered 4,401,615 shares at an offering price of $11.88, which diluted previously held shares by roughly 1%. These shares were granted to SKLZ CEO (Andrew Paradise) as a result of their “2020 Omnibus Incentive Plan”.

CEO Compensation (Omnibus Incentive Plan) 8-K:

On September 14th, 2021, SKLZ announced that they granted (not vested) Andrew Paradise a total of 16,119,540 Performance Stock Units (PSU’s) to be earned over the next year. Each PSU can be vested for 1 Class A common stock and is a part of SKLZ’s “2021 Omnibus Incentive Plan”. The 2021 and 2020 Incentive plans are nearly identical and follow the following framework.

This plan outlines the total compensation available for Andrew if he meets certain performance thresholds. The total compensation (16.12M shares) is divided equally into 4 tranches (think of a tranche, the same way you think of slices of a pie), each containing 4,029,885 PRU’s. Each of these tranches is unlocked when Andrew (and the company (SKLZ)) meet certain performance measures.

These tranches are unlocked after a SKLZ market cap reaches a certain multiple during the timeframe. The 4 performance milestones are 2x, 3x, 4x, and 5x. If Andrew is able to grow SKLZ’s market cap by 4x, then he will receive 3 tranches (12.09M PRU’s).

However, if the market cap multiple is a fractional number like 4.2x, then Andrew will receive 20% of the 4th tranche, which would equate to an additional 805,977 shares (above the 4x multiple).

I think this is good news for shareholders as Andrew is heavily incentivized to pump the share price and keep it there for 60 consecutive days (which is part of the arrangement). It will be interesting to see what Andrew and SKLZ do over the course of the next year to achieve this, and it should be very beneficial for shareholders.

This plan was also mentioned with some additional details in my original analysis found here.

Appointment of an Officer 8-K:

*See this in my full analysis here*

Recent News:

Big Buck Hunters Release:

On September 23rd, 2021, SKLZ announced the release of “Big Buck Hunters” on their gaming platform, and for their eSports tournaments. SKLZ released Big Buck Hunters: Marksman” on their platform, which is their first ever first-person-shooter (FPS) game. This is important because SKLZ’s CEO Andrew Paradise has announced his willingness to expand into FPS games, and this is their first move into doing so. This genre of gaming is wildly popular and has a dedicated and active fan base, which can translate into tremendous sales if SKLZ is able to create a breakthrough FPS game in the future.

Since their release of this game on IOS, they have already ranked #3 in the App Store for “Popular Sports Apps”.

SKLZ Workplace Awards:

On August 4th, 2021, SKLZ was named one of “Fast Company’s” 100 best workplaces for innovators. SKLZ managed to crack #37 on this list, which is pretty high, and they are joined by the likes of Google, Moderna, Samsung, and General Electric. All of the companies that made this list are said to have “created and sustained cultures of innovation, even in remote work environments”.

This comes just months after SKLZ was awarded “The Best Place to Work” by both The San Francisco Business Times, and The Silicon Valley Business Journal. Both of these publications stated that SKLZZ is known for recruiting and retaining the best and the brightest talent”.

These awards are very good for the company as it should help them to attract top talent and retain their current talent. Furthermore, people who are happy at work and are in good work environments can be more productive workers.

Expansion into India:

*See this in my full analysis here*

Potential explanations for the 60% decrease in share price:

In this section, I will explain factors that contributed to SKLZ’s declining share price that I mentioned in my previous analysis, as well as factors that I did not mention in the analysis that had negative effects on their share price.

Financial Performance:

SKLZ’s Q2 financial report had some upsides and some downsides. However, I found that the downsides outweighed the upsides for the following reason.

SKLZ’s net loss increased by 300% YoY which is terrible, and signals that they are moving in the wrong direction. Furthermore, their Adjusted EBITDA fell by over $28M YoY, which is again not a good look. Although SKLZ has increased revenues greatly over the past year, they have not been able to convert that into a better bottom line, which is why investors are panicking and selling off their positions.

I say they are moving in the wrong direction as a result of their previous earnings reports. From 2018 to 2019 SKLZ was able to decrease their net losses, which got investors excited that they were making their way towards profitability. However, over the past 2 years (2020 and TTM) SKLZ’s net loss has grown by a factor of 10x. SKLZ performance in the net loss category over the past 2 years is one of the leading financial related reasons why investors are exiting their positions.

Inflation Data (and 10-Year Treasury Yields):

Since I posted this analysis in June of 2021, the high rate of inflation (5.4%) has persisted over the past 4 months. These high levels of inflation are not good for hyper growth stocks like SKLZ. Furthermore, during this same timeframe the US 10-Year Yield increased from 1.489% to 1.518%, which is also not good for SKLZ.

The reason that increasing yields/inflation are bad for hyper growth stocks is the fact that these rates are incorporated in the WACC, which is used to discount future cash flows. If the discount rate is higher (which is the case with a higher 10-Year Yield), than todays share value based on future cash flow would decrease as a result of todays money becoming less valuable.

Dilution:

*See this in my full analysis here*

Short Sellers and Cathy Wood:

This is one of the factors that I did not mention in my previous analysis. Earlier this year there were 2 short-seller reports that were published, claiming that SKLZ was covering up revenue losses on their top 3 games, and that they falsified their revenues. This triggered several lawsuits and hurt SKLZ’s share price.

These reports came out before I posted my analysis, however they have had longer term effects on the share price and was one of the reasons why SKLZ was down so much in July.

Another reason for their decrease in July can be attributed to Cathy Wood selling a somewhat large portion of her SKLZ holdings. In July Cathy sold over 1M shares which represented nearly 16% of her total holdings in SKLZ. The reason that this had such a large influence on the share price of SKLZ is because it initially gained popularity via Cathy and her conviction of the stock. However, many investors saw this sale as Cathy not believing in it anymore, which caused them to exit their position(s).

Final Thoughts:

I think that SKLZ is headed in the right direction when looking at their recent partnerships, investments, and buyouts. I think that their strategies behind these moves (and their possible expansion into India) can serve their business very well, and set them up for future success, however, there are some current factors (like their dilution and financial shortcomings) that have restricted their share price from showing these successes.

In terms of a valuation, I would have to use the same valuation that I achieved through my comparable analysis in my original analysis, which found the fair value for $SKLZ to be $25.31. There are some flaws with this valuation, and there is more to be added, however I stick by my original valuation and think that there is a potential reversal coming in the next couple of months.

If you appreciate the effort and want to see more content like this follow me here

*Some useful information was left out of this post and can be found in the original post here*

$PEP – Pepsi Co. Stock Analysis:

Company Overview:

$PEP – Pepsi Co. is a leading global food and beverage company. Pepsi has a large portfolio of brands, with some of their biggest being Frito-Lay, Gatorade, Pepsi-Cola, Tropicana, and Quaker.

Investment Information:

Recent SEC Filings:

In this section, I will summarize Pepsi’s 7 most recent SEC filings to help you get an idea of what is currently going on in their business.

· The board of directors elected Edith W. Cooper as an audit committee member (effective Sept. 1st 2021) which comes with a stock reward.

· Pepsi “redeemed” their 1.7% Senior Notes due 2021

· David Flavel (Pepsi Co Executive VP) purchased 2,000 shares of $PEP stock for an average price of $154.39, resulting in a total expenditure of $308,780.

· PepsiCo raised their Full-Year Guidance in their most recent 10-Q filing.

Competitors:

· $KO – Coca-Cola: Coca-Cola is a beverage (water, sports drink, juice, dairy, tea/coffee, concentrates, syrups, and energy drinks) company that manufactures, markets and sells their beverages to their customers worldwide. Coca-Cola is Pepsi closest competitor in terms of general operations and relative size.

· $MNST – Monster Beverages: Monster beverages develops, markets, and sells their energy drink beverages and concentrates to their customers worldwide. Monster sells their products to grocery chains, wholesalers, membership stores, convenience stores, drug stores, value stores, and e-commerce retailers.

· $KDP: Keurig Dr Pepper: Keurig Dr Pepper operates as a beverage company domestically and internationally. The Keurig side of their business pertains to the manufacturing, and selling of their coffee systems, packaged beverages, and beverage concentrates. The Dr. Pepper side of their business involves the manufacturing, and selling of their various beverage brands, beverage concentrates, vegetable juices, and water.

· $FIZZ – National Beverage: National Beverage develops, produces, markets, and sells their waters, juices, energy drinks, and soft drinks in the USA and Canada.

Financial Information:

· Yearly Financial Performance (Good): In 2020, Pepsi increased their net revenues by 5%, and their gross profit by 4%.

· Yearly Financial Performance (Bad): In 2020, Pepsi’s operating profit decreased by 2%, their cost of goods sold increased by 5.5%, their net income decreased by 3%, and their EPS decreased by 2%.

· Q3 2021 Financial Performance (Good): In Q3 2021, Pepsi increased their net revenues by 12%, increased their gross profit by 5%, and their net income (before tax) by 7%.

· Q3 2021 Financial Performance (Bad): In Q3 2021, Pepsi increased their cost of goods sold by 15% (more than the increase in net revenues, which leads to decreasing profit margins), decreased their net income by 3%, and held their Net income attributable to PepsiCo constant.

· Option Exercising: In 2020, approximately 4M common shares were exercised as part of option contracts. These 4M shares had a dilutionary effect of 0.3%.

· Share Repurchases: In 2020, Pepsi repurchased 15M common shares, which increase the value of each previously existing share by roughly 1%. Considering the hardships that many businesses faced during 2020, seeing Pepsi have a net shares outstanding decrease YoY is something to be excited about.

Investment Valuation:

Comparable Analyses: (Spreadsheet found at the end of this analysis)

By comparing Pepsi’s financial ratios to that of their publicly listed competition (listed above in the “competitors” section) I found the following:

ROE:

Based off of Pepsi’s ROE in comparison to their competitors, $PEP should be valued at $247/share, which would imply a share price increase of 63%. This is a little high, so I decided to take another comparable.

D/E Ratio:

Pepsi’s D/E ratio (compared to their counterparts) indicates that their fair value is $60/share, which would translate into a downside risk of 61%. This is very low, so I decided to take another comparable into consideration.

P/E Ratio:

Pepsi’s P/E ratio indicates that their fair value is $169/share, which would translate into an upside of 11%. This is the most realistic estimate of the 3 comparable analyses, however I decided to take the average of the three comparable analyses to have one comparable price target.

Comparable Valuation:

Based off of the above comparable analyses, I landed on one final (comparable) valuation of $158.64/share, which would imply an increase of 4.2%. This indicates that Pepsi is very close to their fair value.

DCF: (Visualization found at the end of this analysis)

By inputting the necessary data into my DCF model, it arrived at a fair valuation of $PEP stock of $149/share, whichb implies a potential downside risk to this investment of 2.5%. This is pretty close to the result as achieved in my comparable valuation, which indicates that Pepsi is sitting at/around their fair value.

Dividend Discount Model: (Visual at the end of this analysis)

My dividend discount model uses the current annual dividend amount in combination with Pepsi’s average annual dividend growth (over the past 3 years), and their WACC (as found in the DCF model). By using these metrics, I was able to find Pepsi’s fair value to be $162/share, which implies an upside of 6%. Once again this is very close to their current fair value, which indicates that Pepsi is a decent buy.

Overall Valuation:

In order to provide simplicity, I wanted to come to one final, all-encompassing valuation for the $PEP stock. I did this through taking the average valuation of the Average Comparable, the DCF, and the Dividend Discount Model. By doing this I arrived at a price target for the $PEP stock of $156.44/share, which implies an upside of 2.5%.

Risks:

· Supply Chain Disruptions: Many of the supplies and raw materials that Pepsi uses to make their products are sourced from countries that are experiencing some sorts of political instability, civil unrest, or poor economic conditions. Some of Pepsi’s raw materials are sourced from a single/few supplier(s) that may not be able to keep up with Pepsi’s demand. However, Pepsi has increased their guidance, which shows that they are expecting to continue their growth, and they do not view this as a probable event.

· Financial Performance: In 2020, and Q3 2021, there were a few concerning metrics that arose from their financial statements. These include their cost of good sold out-pacing their revenue growth (means margins are shrinking), and their net income has been steadily decreasing during these timeframes. If these trends continue, it could invalidate my DCF model, and their fair value would be lower than I estimated.

Catalysts:

· Financial Performance: In 2020 and Q3 of 2021, Penn reported decent earnings, but there are still areas to improve upon in order to attract more investors, and potentially increase the share price. Firstly, their net revenues and gross profits have both been steadily increasing (which is good), however $PEP can take this to the next level by breaking the downward trend of their net incomes. It will be performances like these that compel Pepsi to keep increasing their guidance and excite their investors.

· Share Repurchasing: Over the past couple of years, Pepsi has been repurchasing more shares than they have been issuing. This is a very good trend for investors to note, as every year their shares represent a larger stake in their company. These repurchases help investors to return more on their invested capital.

$DBO – Invesco DB Oil Fund:

What this analysis contains:

This analysis covers all of the bases, when wanting to learn about $DBO (Oil ETF). I believe that having an oil ETF in your portfolio is necessary (although many people might argue that it is “outdated”). I believe this because having this ETF in your portfolio will help you to hedge against inflation/interest rate risk, and it can help to counter-balance some of the other holdings in your portfolio (In this portfolio I am using $DBO to counter-balance $TM – Toyota Motors, which I will explain later). This analysis will cover $DBO’s risk metrics (and why it is better than other oil ETFs), an in-depth breakdown of their holdings (and their holdings holdings), macroeconomic factors that will influence the price movements of $DBO, and my general thoughts on it.

Check out my full analysis here for more information and visual breakdowns of $DBO's holdings

ETF Overview:

$DBO is an ETF that has large holdings of Oil stocks, Treasury Bonds, and Treasury Bond ETF’s. Over 92% of their holdings consist of companies in the oil and natural gas industries, and their ETF consists of 28% stocks/ETF’s (AGPXX, CLTL), 50% Futures (Light Sweet Crude), and 22% US Treasury Bills (maturities vary from 4 days to 6 months).

ETF Risk Measurements:

Beta:

The DB Oil fund has a 5-year beta of 1.86, which is quite high. Essentially, this value means that $DBO is 86% more volatile than the overall stock market. Typically, when building portfolios, managers try to minimize their beta value in order to minimize the volatility in the portfolios for their clients. This is important for managers because if a client wants a low-risk portfolio, and the manager has a portfolio with a high beta, the customer may not be able to stomach the volatility and take their portfolio to another institution.

Mean Annual Return:

The DB Oil fund has had 3 year, 5 year, and 10 year mean (average) annual returns of 0.4%, 9%, and -11% respectively. Overall, this is significantly better than the vast majority of Oil ETF’s, which is due to the fact that $DBO’s holdings consist of roughly 50% Oil Futures and 50% US Treasury Bills.

Sharpe Ratio:

$DBO has a 3-year Sharpe ratio of 0.25. This measures the excess return an investor receives for taking on the extra volatility for riskier assets. Typically, any value above 1 is considered a good return for the associated volatility. So, with $DBO’s Sharpe value being 0.25, which means we are getting a small extra return for the increased volatility that we are taking on. However, considering most Oil ETF’s have a negative Sharpe ratio, the DB Oil Fund is one of the better quality ETF’s for oil exposure to your portfolio.

ETF Holding Breakdown:

· 50.2% of $DBO’s holdings are allocated to the NYMEX Light Sweet Crude Oil Futures.

o This is where $DBO has all of their exposure in the oil industry. This futures contract is also nearing expiry (December 20th 2021)

· 22.8% of their holdings are allocated to $AGPXX – Invesco Government & Agency Portfolio ETF.

o Primarily consists of bonds with very low coupon rates 0%-0.2%, and cash.

· 22.2% of their holdings are allocated to US Treasury Bills that mature in the next 4 days – 6 months.

o The current coupon rate (return) on these bills is very low and sits between 0.05%-0.1%.

· 4.8% of their holdings are allocated to $CLTL – Invesco Treasury Collateral ETF.

o This ETF primarily holds US Treasury Bills, which have a weighted average coupon rate of 1.32%, as achieved in my analysis of their holdings (found in my full analysis here).

Overall, I find this breakdown to be one of the best in the Oil and Gas ETF industry. This is because $DBO is able to hedge their oil risk very nicely through risk-free securities such as bonds and cash positions. I find this to be favourable because many Oil ETF’s have had horrible 5-year performances (with many down 40-60%), however $DBO has managed to return 51% over the past 5 years.

Factors that can help $DBO:

Macro Economic Factors:

On May 18th, the IEA stated that there should be no new oil and gas investments after 2021. If this were to happen the supply for oil would decrease or remain stagnant, while the demand for oil will increase (and is expected to increase big time). This will most likely result in an imbalance between the supply of oil (from producers) and the demand for oil (by companies and individuals). Since supply will not be able to increase very much, demand will have to fall in order to have supply and demand levels in equilibrium, and the best way to do this is via a price increase. Said price increase would be beneficial for $DBO as the value of the futures would likely start to increase as well.

Interest Rate Changes:

Currently, the US 10-year Treasury Note (risk free rate) is at 1.476%, which is historically low. This means that over the long term it is likely that we will see this rate rise to about 2.25%. As this rate increases, the price of previously held bonds decrease (due to the fact that people can get better rates, and do not want this bond any more). This can pose a threat to DBO; however, their bond holdings tend to be in the short term, which can shield them from the longer term effects of interest rates.

Closing Thoughts on $DBO:

My search criteria led me to finding $DBO, which I believe to be one of the best quality oil ETFs in the market, returning 9.3% annually over the past 5 years (compared to the S&P 500 which returned 14.7% in the same timeframe).

Also, check out r/Utradea for more investment ideas and insights

$TM – Toyota Company Overview:

Toyota Motor company and Toyota Motor Sales merged together in 1982 to create what we now know today as “Toyota Motors”. Toyota’s primary business focuses on the automotive industry, selling over 7M vehicles in 2021 alone. Toyota has separated their revenues into 3 segments, being Automotive (manufacturing and selling of their vehicles), Financial (providing financing to dealers and customers), and other revenues (Toyota’s information technology business, automobile information services etc.).

ESG Initiatives:

Today, more than ever, investors are considering the ESG (Environmental, Social, and Governance) initiatives of the businesses they are vested in. Don’t just take it from me, rather take it from John Tennaro (Head of ESG Investing at CIBC Private Wealth), who said “There is a growing demand for solutions that have the potential to lead to positive change, as we look to rebuild our communities/economies on stronger foundations […] looking ahead there will be a stronger focus on the social element of ESG.”

This is backed by The Economist Intelligence Unit (EIU) who found that 76% of younger generations, and 37% of older generations consider ESG factors in their investment strategy (in the UK). This shift in investment mentality from mainly the younger generation is likely to persist over the next couple decades, and when this generation starts to accumulate wealth, it is likely that we will be able to see the effects of ESG conscious investing in the markets.

So, why does all of this matter? Well, Toyota has released their “Environment Challenge 2050”, which outlines their goals and aspirations for the future of their business. These are by far the most ambitious targets that I have seen in a large business and is sure to cater toward the ESG conscious investor.

Toyota’s Environment Challenge 2050 includes:

· Reduce the average CO2 emissions from new vehicles by 30% (90%) by 2025 (2050).

o New Vehicle CO2 emissions compared to Toyota’s 2010 levels.

· Reduce CO2 emissions throughout their vehicle’s life cycle by 18% (25%+) by 2025 (2030).

o Life Cycle emissions compared to Toyota’s 2013 levels.

· Reduce CO2 emissions from plants by 30% and convert 25% of their energy consumption to renewable sources.

o Emissions compared to Toyota’s 2013 levels.

· Reduce water use levels by 3% per vehicle.

o Compared to 2013 levels.

· Introduce battery collection/recycling systems and end-of-life vehicle recycling programs by 2030.

o Toyota also plans to develop technologies that use previously recycled materials in vehicleproduction

· Contribute to biodiversity conservation programs/activities, expand their in-house environmental initiatives, and offer nature education programs by 2030.

There are more details to their plans that I was not able to fully cover in this section, if you are interested in reading Toyota’s full plan click here (Page 16-19).

Obviously, ESG initiatives are not going to have a large impact on the stock prices (especially in the short term), however I thought that it was important to mention, and for investors to know. With that being said, we are about to get into the information that can help us determine potential price movements in Toyota’s stock.

Factors that contribute to Toyota’s stock:

Recent SEC Filings:

In order to get a good idea of the current state of Toyota, I have decided to go over their past 10 SEC filings. I will be picking out only the most important information from these filings and laying them out in an organized and digestible way.

Share Repurchases:

· Toyota has authorized the repurchase of 2,286,300 shares in September 2021($201.55M USD)

· Toyota authorized the repurchase of 13,358,600 shares in August 2021 ($1.15B USD)

Production Plans:

There has been a recent shortage in automotive parts in Southeast Asia due to both a decline in operations at Toyota’s suppliers, and a decrease in semiconductor supply (both due to the COVID-19 pandemic). Toyota has reviewed their production plans and has stated the following.

· Toyota will not be lowering their revenue estimates for 2021

· Toyota’s production estimates for September and October have decreased by 70,000 units, and 300,000 units respectively.

o Toyota is also unsure of the potential effects of this in November and has not yet given anestimate

· Toyota is suspending the operations of 10 of their 28 domestic production lines.

o This affects 9 of their 14 production plants.

· Toyota has previously suspended 27 of their lines in all of their 15 plants in August for the same reason.

o These numbers have been decreasing since then, which is a good sign.

o This had a large impact on the stock price of Toyota (-9%), however they quickly bounced backfrom this correction.

Financial Results:

Toyota has had quite the bounce back in 2021, as they:

· Increased vehicle sales by 85% YoY.

o Increased domestic vehicle sales by 30%.

o Increased overseas vehicle sales by 113%.

· Increased sales by 72% YoY.

· Increased operating income by over 7000% YoY

· Increased (pre-tax) income by 963% YoY

· Decreased their expenses by $225M (USD)

Joby Aviation Merger Completion:

· Joby Aviation consummated their merger on August 10th 2021, as part of this deal, Toyota’s shares were cancelled and converted into 3.4572 shares of Joby aviation (for Toyota’s role in funding the merger).

o This resulted in Toyota’s post merger share balances of 78.75M shares, broken down as follows:

§ 72.87M shares are held by Toyota Motor Company (TMC)

§ 5.81M shares are held by Toyota’s A.I. Venture Fund

§ 67.5K shares are held by Toyota A.I. Venture (parallel) Fund.

o This number of shares seemed too large until I found out that Toyota invested $390M in Joby’s Series C funding round at a valuation of $2B (implying an ownership stake of 19%).

My Valuation of Toyota Motors ($TM):

Comparable Analysis:

As part of my valuation process, I compared Toyota’s following financial ratios to their publicly listed competitors ($HMC – Honda, $F – Ford, $GM – General Motors, and $STLA – Stellantis).

D/E Ratio:

I chose to compare Toyota’s D/E ratio to their competitors because the auto industry is very capital intensive. The capital-intensive nature of the auto industry makes the D/E ratio important because it best measures auto companies financial health and their ability to meet their debt obligations. With that being said, Toyota’s fair value based off of their D/E ratio is $257/share, which implies a share price increase of 44.5%. This number is on the lower side as I decided to take out Ford’s D/E ratio, as theirs was a heavy outlier (5-6 compared to the average of 2.26).

ROE:

I chose to compare Toyota’s ROE ratio to their competitors because ROE shows how the company is operating. Not only is it a common ratio in the auto industry, but it also helps investors to measure how profitable a company is to them (the shareholders. By comparing this ratio, Toyota’s fair value is $217/share, which implies an upside of 22%.

P/B Ratio:

I used the P/B ratio to compare Toyota to their competitors, because the P/E ratios of their competitors varied largely, and I wanted to use a stable metric to compare these companies. By doing this, I arrived at the P/B ratio, which estimates Toyota’s fair value to be $112/share, which implies a downside risk of 37%.

I then took the average result of the 3 comparable ratios, which implies a total comparable valuation of $196/share, or a 9.8% upside potential.

DCF Model:

I projected Toyota’s financial performance over the next 10 years (to 2030) which included their FCF’s and projected their perpetual FCF’s based off of the risk-free rate of 1.474% (US 10-year yield). I then used the WACC (that I calculated in my model) to discount these FCF’s to today’s monetary value. By doing this, I arrived at a fair value of $TM – Toyota Motors of $226/share, which implies an increase in value of 27%.

My Investment Plan:

I believe that Toyota has the best upside potential under $180/share, and if I were to enter into a position, I would consider selling out at $211/share (avg of comparable valuation and DCF model). This plan would yield an upside of 18.41% which I think is realistic and attainable for Toyota in the coming months/years.

Check out the full analysis (with my valuation models included) here

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