General Electric Company

GE Details 

GE Completes Gas Turbine Project in Rome: General Electric Company (NYSE: GE) is a worldwide digital industrial company, whose products and services include jet engines, energy production solutions, power generation, medical imaging, industrial & financing products. Recently, the company stated that it finalized the gas turbine development project at Tirreno Power’s Torrevaldaliga Sudplant, situated in Rome. The completion of the gas turbine upgrade project is expected to increase the current performance and reliability of the power plant.

GE to Divest its Lighting business: On 27 May 2020, the company updated the market about its plan to divest the Lighting business to Savant Systems, Inc. for an undisclosed amount. The divestment is in-line with the company’s endeavours to transform into a more focused industrial company.

GE to Supply Wind Turbines: On May 21, 2020, the company stated that its GE Renewable Energy unit received a contract to supply onshore wind turbines to Powerica Ltd. for an undisclosed amount. Notably, GE will supply 38 units of 2.7-132 onshore wind turbines to Powerica. The above deal is expected to add ~102.6 MW of wind capacity in Gujarat, India.

1QFY20 Key Financial Highlight for the Period Ended 31 March 2020: During the quarter, the company reported adjust EPS of 5 cents, which decreased ~62% year over year. Notably, the company’s Industrial’s free cash flow was negatively impacted by $1 billion, whereas Industrial profit was impacted approximately by $0.8 billion. Revenues for the period stood at $20,524 million, depicting a decline of ~8% year over year. The quarterly results were impacted by softness in Industrial and GE Capital’s performances. During the quarter, the company’s cost of sales declined 3.2% on pcp and came in at $15,695 million. The company reported a loss of $194 million, against the earnings of $171 million reported in the year-ago period. The company exited the period with a cash balance of $89.6 billion, whereas borrowings amounted to $85.2 billion.

1QFY20 Highlights (Source: Company Reports)

Outlook: The company is making necessary progress to increase the production of personal protective equipment and remove supply-chain hurdles. For 2020, GE expects cash preservation of $3 billion and operational cost out to be over $2 billion. For 2QFY20, the company expects a sequential decline in its financial results.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

 

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock closed at $7.05 with a market capitalization of ~$61.7 billion on 2 June 2020. Currently, the stock is trading close to its 52-week low of $5.48. The stock has corrected by ~37.11% and ~25.32% in the last three months and one year, respectively. The company remains on track to boost its long-term growth prospects, lowering leverage and improving business prospects. Considering the current trading levels, we have valued the stock using the EV/Sales multiple based relative valuation method (illustrative) and arrived at a target price of low double-digit upside (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $7.05, up 4.29% as on 2 June 2020.

 

GE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

 

Levi Strauss & Co.

LEVI Details 

Senior Notes Offering: San Francisco-based, Levi Strauss & Co. (NYSE: LEVI) is a global leader in jeans wear. The company is engaged in selling jeans and casual wear under the brand names Levi's, Dockers, Signature by Levi Strauss & Co., and Denizen. On 14 April 2020, the company stated that it is starting a private placement of $300 million aggregate principal amount 5.00% senior notes due 2025. The company will utilize the net proceeds to pay fees and expenses related to the offering, and the remining amount will be used for general corporate purposes.

1QFY20 Key Financial Highlights for the Period Ended February 23, 2020: During the quarter, net revenues went up 5% year over year and came in at $1,506 million. The company's direct-to-consumer business increased 13% year over year on a constant-currency basis during the quarter. The increase was mainly due to the added net revenue benefits from Black Friday along with improved performance of the retail network and e-commerce growth. Nonetheless, unfavorable impact of COVID-19 and the continuing turmoil in Hong Kong was a potential headwind during the quarter. The company's wholesale business inched up 1% year over year on a constant-currency basis. Adjusted diluted earnings came in at 40 cents per share as compared to 38 cents in the year-ago quarter. Gross profit during the quarter was $839 million, depicting an increase of 7% on a reported basis as compared to pcp. Selling, general and administrative (SG&A) expenses stood at $661 million, as compared to $582 million reported in pcp.  Adjusted EBIT came in at $189 million during the quarter, down 8% year over year, on the back of advertising timing and higher charges associated to equity-settled awards.

Financial Highlights (Source: Company Reports)

Geographical Performance in the First Quarter: The Americas segment reported net revenues of $746 million, up 4% on a year over year basis. Revenues in Europe came in at $513 million, up 10% on a year over year basis. Asia Revenues declined 2% year over year, valued at $248 million.

Balance Sheet & Cash Flow Details: The company ended the quarter with cash and cash equivalents of $874 million. Net debt stood at $56 million at the end of the quarter. Operating cash flow during the quarter came in at $198 million. During the quarter, the company paid dividends of 8 cents per share.

Outlook: Due to the uncertainty surrounding the business and global impact led by COVID-19 outbreak, the company withdrew its previously provided.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock closed at $14.28 with a market capitalization of ~$5.66 billion on 2 June 2020. Currently, the stock is trading below the average of it 52-week low and high level of $9.09 and $23.74, respectively. The stock has corrected by ~20.09% and ~26.47% in the last three months and one year, respectively. The company’s strategies have continued to drive momentum and will help the business to grow in the long-term. We have valued the stock using the EV/Sales multiple based relative valuation method (illustrative) and arrived at a target price of low double-digit upside (in percentage terms). Considering the above factors, we give a “Buy” recommendation on the stock at the market price of $14.28 per share, up by 3.4% on 2 June 2020.

LEVI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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