Darling Ingredients Inc.

DAR Details

Darling Ingredients Inc. (NYSE: DAR) is a global developer and producer of natural ingredients from edible and inedible bio-nutrients for clients in the pharmaceutical, food, pet food, feed, industrial, fuel, bioenergy, and fertilizer industries.

Result Performance – For the First Quarter Ended 3 April 2021 – (Q1FY21)

• Rise in Net Sales: The net sales of the company stood at $1.05 billion, up 22.7% YoY, primarily led by a 27.1% YoY increase in Feed Ingredient revenue to $651.4 million which has been a major contributor to the total revenue of the company. In addition, revenue from Food Ingredients and Fuel Ingredient also recorded a positive growth of 10.3% and 39.0%, respectively over the same quarter last year.  
• Rise in EBITDA: Combined adjusted EBITDA stood at $284.8 million over $213.3 million in Q1FY20. Diamond Green Diesel (DGD) reported a record $2.77 EBITDA per gallon, contributing $108.2 million of EBITDA to Darling's fuel segment.
• Net Income Jumped: The net income attributable to the company was reported at $151.8 million, up 77.5% YoY.

Key Data (Source: Company Reports)

Recent Updates

On 22 July 2021, the company  announced the opening of an advanced facility to support its customers to develop innovative new meat and savory products. At the new Sonac Product and Application Research Center (known as SPARC), product experts and clients will try multiple recipes and application possibilities using Sonac's QRange animal proteins. These food ingredients are 100% natural.

Risk:

The company is exposed to the fluctuation in the prices of multiple products associated with commodities markets. In addition, the company’s business is reliant on the sourcing and procurement of raw materials which is a competitive part. Further, the DGD Joint Venture is dependent on governments  energy policies and programs.

Outlook:

Given the backdrop of the strong performance of the global ingredients business at the early months of the year and a strong outlook for DGD, the company has increased the combined adjusted EBITDA guidance from $1.075-$1.150 billion for FY21. This revised guidance range is 28%-35% stronger than FY20 performance and sets up the path of continued growth and improved profitability into the future for the company’s global business.  

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

Over the last six months, the stock was up by ~+5.4% while, over the last nine months, the stock was up by ~+56.6%, and in 1 year the stock increased by +145.8%. The stock is trading above the average price of the 52-week low-high range of $27.34-$79.65, respectively.

We have applied EV/EBITDA multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to peer average EV/EBITDA multiple (NTM basis) considering improved Cash conversion cycle of 53.9 days in Q1FY21 versus 63.8 days in Q1FY20 and lower Debt to Equity of 0.49x in Q1FY21 versus Industry Median of 0.54x.

Considering the aforementioned factors along with its healthy liquidity position and growth strategy, we give a “Buy” recommendation on the stock at the current market price of $68.64 per share, down by 0.62% on 2^nd August 2021. 

Walgreens Boots Alliance, Inc.

WBA Details

Walgreens Boots Alliance, Inc. (NYSE: WBA) is an international player in retail pharmacy. Augmented by Walgreens brand in the U.S. and Boots in Europe and Asia, the company is reaching customers through its convenient retail locations, digital platforms, and health and beauty products.

Result Performance – For the Third Quarter Ended 31 May 2021 – (Q3FY21)

• The Rise in Sales: Sales grew 12.1% YoY to $34.0 billion, an increase of 10.4% on a constant currency basis, indicating a significant rise in the international segment, supported by the joint venture in Germany, and a strong rise in the United States segment
• Operating Income: Operating income stood at $1.1 billion in Q3FY21 versus a loss of $1.7 billion in Q3FY20, mainly due to $2 billion non-cash impairment charges in Q3FY20. Adjusted operating income grew 82.9% on a reported currency basis to $1.5 billion, a rise of 82.4% on a constant currency basis.
• Net Income: Total net earnings stood at $1.2 billion in Q3FY21 versus a loss of $1.7 billion in Q3FY20. Total adjusted net earnings in constant currency grew 79.5% to $1.3 billion.

Key Data (Source: Company Reports)

Recent Updates

• On 2 August 2021, For the fifth consecutive year, Huggies and Walgreens have step-up to inspire local communities to help families in need of clean diapers.
• On 23 July 2021, the company and VillageMD stated plans to open new Village Medical at Walgreens practices in Indiana, including in Merrillville, Griffith, Portage, and South Bend this year. This expansion is part of the $1 billion investment announced in January 2021.
• On 14 July 2021, the company stated that its board of directors have declared a quarterly dividend of 47.75 cents per share, a rise of 2.1%. Also, it raises the annual rate from $1.87 per share to $1.91 per share.

Risk:

The company must deal with compliance of foreign laws and regulations, including retail and wholesale pharmacy, licensing, tax, foreign trade, intellectual property, privacy, and data protection, among others. Also, it must handle additional U.S. and other regulations of non-domestic operations. Further, price controls are imposed by foreign countries to maintain the price policy of that country.

Outlook:

The company increased FY21 guidance from mid-to-high single digit growth to ~10% growth in constant currency-adjusted EPS from continuing operations. This is backed by robust results in Q3FY21 and better clarity on the impact of COVID-19 vaccinations. 

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

Over the last nine months, the stock was up by ~+30.8% and in 1 year the stock increased by +15.0%. The stock is trading above the average price of the 52-week low-high range of $33.36-$57.05, respectively.

We have applied EV/Sales multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to peer average EV/Sales multiple (NTM basis) considering higher ROE at 5.1% versus an industry median of 3.0% and upgrade in guidance for FY21.

Considering the aforementioned factors along with its healthy liquidity position and growth strategy, we give a “Buy” recommendation on the stock at the current market price of $46.830 per share, down by 0.68% on 2^nd August 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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