Financial Analysis

Financial Analysis

Business overview and recent developments

EBay

PayPal's EBAY offline growth strategy took a big step forward with Wednesday's announcement of a partnership with Discover Financial DFS, which will allow the credit card company to accept PayPal's digital wallet as a payment method across its existing base of more than 7 million U.S. merchants. Discover expects to enable all merchants within its network to accept PayPal by the second quarter of 2013, and to expand the program to international merchants in the future. We view this transaction favorably for both companies, as it immediately makes PayPal more competitive as an offline payment alternative for consumers and provides Discover with additional network volume (while also neutralizing a potential threat to its core credit card business). The announcement is consistent with our long-standing thesis that PayPal's offline potential had been underappreciated by the market, though our long-term valuation assumptions for PayPal (which forecast top-line growth of 30% in 2012 and 2013 before fading to the low teens between 2014-16 while also expanding segment margins to approximately 25% by 2015) could prove conservative if consumers increasingly adopt PayPal as a payment option.

Clorox

With 14% of total sales derived from bleach, 13% from trash bags, and another 11% from charcoal, Clorox is a consumer-packaged firm in a tough spot. Leading brands, including its namesake bleach, Glad, and Kingsford, haven't entirely insulated the firm as its categories have continued down the road of commodification over the years. Input cost inflation has compressed margins along the way, and while we still accord Clorox a narrow economic moat for its brand equities and economies of scale, the company's returns on invested capital have eroded. The company is a leading Clorox's CLX fourth-quarter and full-year results, reported Thursday, came in about where we expected (fiscal 2012 earnings of $4.10 per share versus our forecast of $4.08). We continue to think that spending to support its brands (both in terms of advertising and product innovation--about 11% of consolidated sales) as well as investments to improve its cost structure are the right moves for the long-term health of the business.

Alaska Air

Alaska Air has a strong operational network. Horizon provides air transportation to a number of destinations in Arizona, California, Idaho, Montana, Nevada, Oregon, Washington, and Alberta and British Columbia, Canada, and La Paz and Loreto, Mexico. Additionally, the company operates marketing alliances with other international airlines. The company also has marketing alliances with regional airlines Era Aviation, PenAir, and Kenmore Air. The company's strong network infrastructure enables it to gain access to key markets as well as enhance the quality of its delivery services.

Financial Overview

2009-2010

2010-2011

2011-2012

Alaska Air

$ mil

$ mil

$ mil

Total current assets

1634

1662

1596

Total non-current assets

3351

3355

3600

Total assets

4985

5017

5195

Total current liabilities

1258

1425

1510

Total non-current liabilities

2855

2486

2512

Total liabilities

4113

3911

4022

Revenue USD Mil

3,400

3,832

4,318

Clorox

Total current assets

1180

1124

1279

Total non-current assets

3396

3431

2884

Total assets

4576

4555

4163

Total current liabilities

1937

1647

1365

Total non-current liabilities

2814

2825

2884

Total liabilities

4751

4472

4249

Revenue USD Mil

5,450

5,534

5,231

EBay

Total current assets

8460

11065

12661

Total non-current assets

9948

10938

14659

Total assets

18408

22004

27320

Total current liabilities

3642

4517

6734

Total non-current liabilities

979

2185

2656

Total liabilities

4621

6702

9390

Revenue USD Mil

8,727

9,156

11,652

Key Ratios

Ebay

Clorox

Alaska Air

09-10

10-11

11-12

09-10

10-11

11-12

09-10

10-11

11-12

Gross Margin %

71.6

72

70.3

43

44.8

43.5

68.2

65.1

59.3

Operating Income USD Mil

1,457

2,054

2,373

998

1,089

659

267

472

449

Operating Margin %

16.7

22.4

20.4

18.3

19.7

12.6

7.9

12.3

10.4

Net Income USD Mil

2,389

1,801

3,229

537

603

557

122

251

245

Working Capital USD Mil

4,818

6,549

5,927

-757

-523

-86

376

237

86

Net Margin %

27.37

19.67

27.72

9.85

10.9

10.65

3.58

6.55

5.66

Return on Assets %

14.05

8.91

13.09

11.57

13.21

12.78

2.48

5.02

4.79

Return on Equity %

19.21

12.38

19.44

 

 

 

15.85

25.4

21.46

Debt/Equity

 

0.1

0.09

 

25.59

 

1.95

1.19

0.94

Recommendation

Considering the overall analysis of the three companies, ...