Rich Duprey


The electronic cigarette industry is poised to irreversibly change next week. Manufacturers face a Sept. 9 deadline to submit premarket tobacco product applications (PMTA) to the Food & Drug Administration or face having their e-cigs and e-liquids pulled from store shelves.

Because the cost of complying with the regulations is staggeringly high, many manufacturers will not be able to make it over the hurdle, and the e-cig market will be left largely to the tobacco giants.

Crunch time

Some 650 PMTAs have been submitted to the FDA as of June, the most recent data available, but each application covers a separate product. Philip Morris International (NYSE:PM), the first company to file an application, had four separate PMTAs approved: one for its IQOS heated tobacco device and three for flavors of its disposable Heatsticks.

Although the FDA estimates a single PMTA costs anywhere from $117,000 to $466,000, those figures are considered low by the industry. The Rocky Mountain Smoke-Free Association estimates a single PMTA costs between $8.6 million and $11.1 million per stock keeping unit (SKU). It forecasts 14,000 small vape businesses employing 166,000 workers will be destroyed, representing $24 billion in economic activity.

The problem is it’s not just e-cig manufacturers that need to comply with the regulations, but also manufacturers of the e-liquids the devices use, as well as the vape shops that sell them.

A disproportionate burden

Amanda Wheeler, the owner of five Jvapes vape shops in Arizona, Colorado, and Oklahoma, explained the situation this way: “Let’s say I have 100 products and each of the flavors has five nicotine levels, which means five SKUs per flavor, legal and other fees will cost my stores in excess of $5.5 billion. There’s not a small business owner in the United States who can afford $5.5 billion for SKU applications.”

She likens the situation to what would occur to a liquor store if it had to pay and apply for every SKU in its store. “We wouldn’t have liquor today,” Wheeler said.

Where British American Tobacco (NYSE:BTI) and Juul Labs (which is backed by Altria (NYSE:MO)) can afford to pay such rates, the vast majority of businesses serving the industry are small ones and will find the technical hurdles difficult to surmount.

The favored few

The FDA doesn’t identify companies that have submitted applications until it takes action on them. However, several other companies have applied, including Imperial Brands, which says it has submitted PMTAs for a “wide range of its myblu electronic vaping products,” as well as Japan Tobacco, which submitted one for its Logic brand of e-cigs.

At least one independent vape manufacturer was also able to see it through to the end. E-Alternative Solutions, the maker of the Leap brand of devices and pods, submitted over two dozen applications for flavors and nicotine strength, as well as for its devices. Avail Vapor, one of the biggest vape shop chains (in which Altria has a minority interest), says it also has submitted PMTAs for its products.

It’s possible then this small coterie of companies account for the vast majority of PMTAs submitted. With applications running several hundred thousand pages long and containing scientific studies and data to support the application, only the most well-financed company can afford to submit an application.

Up in smoke

Philip Morris, of course, is the only e-cig maker that’s successfully made it all the way through, getting approval to market its IQOS as producing less harmful chemicals than cigarettes and reducing exposure to them. It gives the tobacco giant a competitive edge over even its well-heeled rivals.

At least one or two of the PMTAs others have submitted will likely be approved — maybe even Juul, despite being excoriated regularly for its contribution to teen use of e-cigs. Without these other devices, the IQOS will have a monopoly on the market, and it seems doubtful tobacco regulators would want or allow that.

Yet the e-cig market is about to become significantly smaller in just a few days, a change that is not necessarily better for trying to wean smokers away from traditional cigarettes.

Author: Rich Duprey

Source: Fool: The clock is ticking down for e-cig makers to submit premarket applications to the FDA for approval.

Demand in China for the Model 3 sedan looks to be huge.

Tesla (NASDAQ:TSLA) is going to benefit so much from pent-up electric vehicle demand in China that one analyst says his best-case scenario for the stock will see it rocket 70% higher to $3,500 per share from its current price of $2,050.

Wedbush analyst Daniel Ives told investors in a note Tesla’s recent price cuts coming at a time when demand for its Model 3 was welling up created a “perfect storm of demand” that alone would be worth an additional $400 per share or more being added to the stock price.

As a result, he increased his “bull case target” price for Tesla from $2,500 to $3,500 per share.

Gigafactory 3 is Tesla’s advanced, state-of-the-art facility in Shanghai designed to produce both its Model 3 and Model Y electric motors and battery packs, as well as Tesla’s Powerwall and Powerpack energy storage products.

The factory is currently dedicated to Model 3 production, but is undergoing a second phase of construction that appears to be nearing completion that will handle production of the Model Y.

According to, Ives wrote the factory’s demand appears to be suggesting a 150,000 unit run rate for the Model 3 in its very first year of production. He noted the China component of Tesla’s electric vehicle growth story could add $35 in earnings per share by 2025 or 2026, compared to prior estimates of $20 to $25 per share. It’s the reason he hiked his best-case scenario price target.

However, it’s notable Ives’ primary outlook for Tesla maintains a neutral rating on the stock and a $1,900 price target.

Author: Rich Duprey

Source: Fool: Analyst Says Tesla Best-Case Scenario Could See Share Price Spike 70% to $3,500

Its Zillow Offers iBuying program will be difficult to restart.

Zillow (NASDAQ:Z) says new home listings plunged over 27% by the beginning of April compared with last year as the coronavirus pandemic upended the traditional start of the homebuying season.

Having seen the trends develop, the online real estate specialist stopped making offers to buy homes for sale through its Zillow Offers program and began canceling contracts it already had in place to purchase houses.

Although CEO Rich Barton said the company plans “to restore Zillow Offers’ full operations once health concerns pass and local health orders are lifted,” it’s possible the real estate giant’s homebuying program might not be resurrected for a very long time.

A shaky foundation

The Zillow Offers program was always a risky proposition for the company because it opened up the potential for Zillow to be holding large amounts of housing inventory if and when the market soured.

The program let Zillow make instant cash offers on houses that were listed for sale. Through a combination of internal computations, owner-supplied information, local real estate agent contacts, and an on-site inspection, Zillow came up with an offering price on a home.

It was a potentially attractive option for sellers because they had the surety of selling their home without the rigmarole of waiting for qualified buyers to make an offer and come up with financing. They might not be getting top dollar (sort of like selling your car back to a dealer rather than through a private-party sale), but sellers could be out of their homes and into new ones quickly.

The risk for Zillow, though, was that it required a rising housing market. Finding buyers in a down market becomes difficult, and when housing collapses, as it just did, it’s all but impossible to find them.

No easy way out

Even if the pandemic begins easing up, as many experts say should start happening soon, Zillow might not start ramping up the program right away despite data from Freddie Mac indicating mortgage rates sank to just 3.33% in the most recent period.

The pandemic has created tumult not only in the housing market, but also in most industries. Massive numbers of people are suddenly unemployed, and though most companies have merely furloughed workers, meaning they should get their jobs back once the crisis passes, their finances have been dramatically upended.

Worse, many small businesses might not survive, and even some large companies, like retailers and department stores that were already financially strapped, might not be able to come out of it.

As consumers struggle to get their lives back in order, buying a new house is going to be far down the list of priorities. Even those who have fared well through the crisis will only reenter the market timidly at first. It’s doubtful all segments of the economy will roar back to life once the all-clear signal is given, and not all housing markets will revive at the same rate.

And a hard road back

That suggests Zillow won’t restart its iBuying program anytime soon, and if the housing market remains moribund for a prolonged period (which is quite possible), it might not restart it at all.

Zillow had 2,700 houses in its inventory at the end of the last quarter, but wanted to be buying as many as 5,000 homes a month through the iBuying program. Had it been able to ramp up Zillow Offers to that level and run on it for a while before disaster struck, it would be left holding a lot of inventory that would be costly to unwind.

Luring new sellers back to the program may not be easy, either, as they may be leery of being left in the lurch should times turn tough again, and depressed pricing will also make it more difficult to find sellers.

All of which means Zillow may survive its first real test and become a growth stock again, but the iBuying trend that had sprung up in response to the housing boom may not.

Author: Rich Duprey

Source: Fool: Why Zillow Might Not Buy Houses Again Even After the Pandemic Ends

The cruise line operator took steps to survive the downturn that made its depressed stock look undervalued.

Embattled cruise line operator Carnival (NYSE:CCL) is sailing higher Monday after Saudi Arabia’s sovereign wealth fund disclosed a large stake in the company and analysts suggested it has sufficient liquidity to survive through November even if it’s unable to sail any ships.

The two new developments sent Carnival’s stock soaring almost 20% in morning trading.

Not quite smooth sailing

The Public Investment Fund, Saudi Arabia’s official investment vehicle, disclosed it owns 43.5 million Carnival shares, the equivalent of an 8.2% stake in the cruise line operator. It makes the Saudi government the third largest shareholder. Because the sovereign wealth fund share purchase increased its stake above a 5% threshold, it was required to disclose the holding.

Carnival was also bolstered by the news that even though it’s burning through about $1 billion a month, it has plenty of money to survive its cruise ships being idled in port, even under a worst-case scenario.

However, since Wells Fargo analysts see a more favorable scenario developing with at least some of its ships being able to sail again this summer, it foresees Carnival coming out of the coronavirus pandemic in a much better position than many believed. Wells Fargo does see Carnival’s profits taking a hit, with operating cash flow turning negative to the tune of about $2.2 billion this year versus a $5.7 billion in positive cash flow last year.

Carnival raised $6.25 billion in debt and equity last week to make it through the downturn. It also suspended its dividend and halted stock buybacks to preserve cash.

Author: Rich Duprey

Source: Fool: Carnival Stock Soars 20% on Saudi Investment and New Liquidity Assessment

Cable and telco’s death grip on internet service is about to loosen.

Just as cable TV operators were learning to cope with the impact cord cutting was having on their business, sometimes by even launching their own streaming TV services, the next phase of the phenomenon is suddenly looming on the horizon, and this round could be fatal.

SpaceX is poised to launch its high-speed home internet service this year with the promise of undercutting the rapacious cost of legacy ISPs. While most of the current alternatives to the cable companies and telcos for internet haven’t been impressive, this new satellite-based broadband system, along with the one (NASDAQ:AMZN) is looking to build, seems to offer consumers the best opportunity for finally severing the last strands tethering them to their existing providers.

And if consumers grab at these low-cost options with both hands — and why wouldn’t they, as that has been the point of cord-cutting all along — it will be devastating to the old guard.

Heading into orbit

SpaceX is expected to be the first out of the gate. With around 175 satellites in orbit now and some 12,000 planned overall, SpaceX has the lead over Amazon, OneWeb, and Telesat to begin offering broadband from space, possibly in December.

Last August the spaceship company requested Federal Communications Commission (FCC) approval to launch its satellites in three separate orbital planes instead of the one it was originally permitted. By doing so, SpaceX said it could populate the skies with more satellites faster, and provide coverage to more areas “by the end of the next hurricane season.” It says it might be able to reach the rest of the U.S. before the start of the next season.

The Atlantic hurricane season runs from June 1 to Nov. 30; the Pacific season begins in mid-May.

It’s unknown yet just how much SpaceX’s internet service will cost, but Elon Musk has said his goal is to provide broadband connectivity to areas that are currently underserved by existing ISPs and as a low-cost alternative in more urbanized areas. It will all depend on what his definition of “low-cost” is.

Astronauts need not apply

Similarly, Amazon says its Project Kuiper broadband system is expected to have a constellation of over 3,200 satellites in low-Earth orbit to provide “connectivity to unserved and underserved communities around the world.”

Although the FCC has yet to approve them, the e-commerce giant has hundreds of job openings available for the enterprise, most recently posting positions for a number of senior hardware, design, and electrical engineers, suggesting Amazon is looking to hit the ground running when it gets the nod.

Amazon also anticipates a lot of people are going to want to sign up for the service because, Jeff Bezos says, the company can only afford to do big things now. He told attendees at Amazon’s global artificial intelligence conference last year:

So Project Kuiper has that. It’s also a very good business for Amazon because it’s a very high-[capital expenditure] undertaking. It’s multiple billions of dollars of capex … Amazon is a large enough company now that we need to do things that, if they work, can actually move the needle.

Providing worldwide broadband service would certainly move the needle, especially if it’s cheap enough.

Lost in space

While others are also beginning to offer new internet service — T-Mobile is rolling out its LTE-based service that costs $50 per month with no data caps — the satellite broadband services seem to be the ones most likely to do the most damage to existing providers.

It was the advent of streaming that forced the likes of AT&T and Comcast to launch their own streaming services, but the next evolution in cord-cutting is almost here and the only effective response they may have available is to cut prices, which will eat into profitability.

SpaceX is looking to ramp up its rate of rocket launches to put more satellites into space and Amazon could follow if the FCC gives it approval. While satellite broadband is still a small, niche, well, space, 2020 could be the year when the grip cable and the telcos have on providing internet finally breaks free.

Author: Rich Duprey

Source: Fool: SpaceX Readies 2020 Satellite Broadband Launch and Amazon’s Not Far Beyond

The auto parts retailer has a chance to jump-start sales at a bargain price.

There wasn’t much of anything left of value at Sears even before its bankruptcy, but of the assets it did still possess that retained monetary worth, the DieHard battery brand was arguably the most important.

However, Sears — or Transformco, as it’s officially known now — sold DieHard to Advance Auto Parts (NYSE:AAP) for $200 million at the end of December, a seemingly deep-discount price that should help the auto parts retailer boost sales and expand into new markets.

Enduring value

It was only a few years ago the value of Sears’ KCD trio — Kenmore, Craftsman, and DieHard — was collectively pegged at around $3 billion. The Craftsman tool line was sold off to Stanley Black & Decker for $900 million, and though Kenmore had at one time been a premiere appliance brand, its star had long since faded, eclipsed by more innovative devices from Whirlpool, LG, and Samsung.

Yet DieHard endured. Unlike Craftsman and Kenmore, which were closely associated with Sears and its many failings, DieHard continued to command consumer interest. One of the smartest moves Sears Chairman and CEO Eddie Lampert did with the brand was to link it to the broader automotive market by rebranding one of its Sears Automotive Centers as DieHard Automotive Center.

Unfortunately, the concept was otherwise allowed to lie fallow, missing out on a rare opportunity to capitalize on the brand’s inherent goodwill. It was so strong, in fact, that DieHard tires were the third most popular brand with consumers even though there were no DieHard tires at the time (there are now).

An anchor to its growth

On paper, DieHard probably looks as aged and threadbare as Kenmore. The market analysts at TraqLine say that as of the end of September, DieHard’s share of the automotive battery market had shrunk to around 2.4%, down from 5.5% some five years prior.

But that was also due to the exclusivity Lampert imposed on the brand, only allowing it to be sold at Sears stores. With customers abandoning the retailer in droves and sales plunging from one year to the next, DieHard’s ability to maintain any market share was an achievement.

Lampert did relax his grip on DieHard a bit in 2017 when he signed a deal with allowing the batteries to be sold on its website. He also partnered with LED flashlight maker Dorcy to manufacture DieHard-branded flashlights and other kinds of batteries beyond the automotive market. Those were some of Lampert’s best decisions, but by then, Sears was too much of a foregone conclusion for them to actually matter.

But Advance Auto Parts has a chance to make a real difference with the brand.

A chance to spur big sales

In October 2018, Advance signed an agreement with Walmart (NYSE:WMT) to begin selling parts in a branded store, first on the retailer’s website and then in its physical stores. It only really began rolling out in the second quarter of 2019, but now business is picking up, and as management mentioned during its most recent earnings call, the company already expects it to boost results next year and then materially contribute over the long term.

Introducing the DieHard brand into Walmart could substantially accelerate sales, especially as the next phase of the partnership could have shoppers buying automotive parts on Walmart’s website but picking them up at an Advance Auto Parts store.

Advance has been investing heavily in its own “buy online, pickup in-store” initiative, and the company said results are positively impacting overall sales as they’re becoming an increasing percentage of the total. Parts and batteries already account for over two-thirds of the retailer’s revenue, so just breaking DieHard’s tether to the Sears store should help Advance boost battery sales further.

Even greater opportunities ahead

But it’s more than just batteries that Advance Auto Parts is looking at — the company believes DieHard can open up completely new marketing opportunities, and it mentioned breaking into non-automotive markets such as sporting goods, lawn and garden, work clothes, and other new categories.

Because DieHard does still have a positive reputation with consumers despite its declining market share, having it owned by a company with some vision on where the brand can go in the future means Advance Auto Parts likely got this battery brand for a song.

Author: Rich Duprey

Source: Fool: Advance Auto Parts Acquires the Last Thing of Value Sears Owned

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