Hi Folks!
Credit for this rabbit hole I found myself going down goes to my brother-in-law Andre The Giant u/Difficult_Quality255. White collar, white hat business analytics type. Thanksgiving dinners have been interesting since GME round 1. The following is his assessment. I'll add my contributions of fundamentals and TA/options at the bottom.
TLDR: Pantone will now require a subscription to use their color schemes in Adobe. Even for templates or images already made. $15/month for millions of users. Fundamentally, it leads it's industry=Bullish. TA = bullish. Analysts= Bullish. Way OTM call OI= Bullish. Tits=Jacked.
: Price Trajectory – Danaher
It has come to my attention that Danaher is about to experience growth in earnings. You may have heard about Pantone moving to a subscription model to use its colors in Adobe products. This means that for color matching requirements of print shops, they will have to purchase this subscription for each active user to meet customers’ demands. This affects more than just the print industry; housing designers and graphic artists will also be affected. It is important to note that the product already exists. They did not have to build digital color pallets, instead are now charging for a product that was initially free.
The number of adobe cloud service users is 21,000,000, according to Adobe, in 2021. The Subscription fee for Pantone is $15.00/month on top of the need to purchase new physical swatches as needed. We can assume that anywhere from 1%-80% of adobe users will require to purchase this subscription based on need or having images already built with Pantone’s colors. (For clarification, old images will not retain their colors and only be black and white. This is a forced update for adobe cloud users).
We could see anywhere from 260,000 subscriptions to 20,800,000 subscriptions. This will negligibly affect the COGS/Op Margin of Pantone’s Parent Company XRite/Danaher.
Total Adobe Cloud Customers 26000000
Customers Monthly Income Annual Income Percent of DHR Rev
1% Conversion 260,000 $3,900,000 $46,800,000 0.20%
80% Conversion 20800000 $312,000,000 $3,744,000,000 16.21%
Compared with the Direct Leverage Calculations below, we can see that a 16.21% change in Revenues will result in a 13.13% increase in EPS. This free revenue will also improve DHR’s ratios across the board depending on the actual conversion of the Pantone subscription. With enough of a push on calls and purchasing of stock, in combination with Danaher’s increased performance, I believe that the price will surge beyond $350.00.
Direct Leverage Calculations
2022 2021 Delta
Rev ($MM) 23102 21305 8.43%
EPS 6.76 6.33 6.79%
EBIT ($MM) 6234 5685 9.66%
Results
DOL 1.14
DFL 0.70
DCL 0.81
Seems legit right? Moving forward with fundamentals and TA/Options
Fundamentals:
Company is a powerhouse without the incoming mass injection of cash from the color scheme going from free to subscription.
Revenue was 29.5 Billion in 2021, projected to increase by 4.4% for 2022 and 2023. The projection doesn't take into account the new subscription revenue.
Gross margin and operating cash yield has beat industry average 5 years in a row.
EPS beats 12 Qs in a row, all >2%.
All this while paying a dividend.
Technicals:
On the daily candles, it had a false breakout of its expanding triangle last week, and has consolidated near the top with a green spinner. Could see a new breakout attempt this week.
Options: Interesting things happening on the call side with way OTM before, but especially after the new year. OI at 370 and 380 strikes really caught my eye.
POS: Started small today with 5 Calls 370 Strike Mar 17, 2023(yes, the only 5 traded today). I intend on low balling my way to 50 calls by EOM. 250 by EOY.
Cheers folks.
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