Stocks’ Details
 

Foot Locker, Inc.

 
Business Update on COVID-19 Impact: Foot Locker, Inc. (NYSE: FL) is a leading global retailer of shoes and apparel. On 17 March 2020, the company updated the market about its necessary steps to curb the spread of COVID-19. In doing so, the company withdrew its FY20 guidance, which was provided on 28 February 2019, due to the rising uncertainty owing to coronavirus outbreak. The company has also temporarily shut down its stores across all its brands in North America, EMEA, and Malaysia.
 
Q4FY19 Operational Highlights for the Period ended 01 February 2020: FL declared its quarterly results, wherein the company posted sales of $2,221 million as compared to $2,272 million in the previous corresponding period. Excluding the effect of foreign exchange rate fluctuations, total sales for the quarter declined by ~2%. Selling, general and administrative expenses (SG&A) stood at $430 million, lower from $451 million in Q4FY18. The company reported adjusted net income of $171 million in Q4FY19 as compared to $177 million in Q4FY18. The company’s adjusted net earnings per share stood at $1.63, up from $1.56 per share reported in the year-ago period. As on 01 February 2020, the business reported cash and cash equivalents at $907 million, while merchandise inventories stood at $1,208 million. Long-term debt at the end of the period stood at $122 million.
 

Q4FY19 Financial Highlights (Source: Company Reports)
 
Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of FL is quoting at $22.30 with a market capitalization of ~$2.33 billion.The stock is currently quoting at the lower band of its 52-week trading range of $17.46 to $65.04.The stock has corrected by ~43.53% and ~46.92% in the last three months and six months, respectively.  The company will continue to build on the strong fundamentals while leveraging its customer connections to attain its long-term goals and adapt to the rapidly changing marketplace. Considering the aforesaid facts, we have valued the stock using the P/E based relative valuation method. We have taken the peer group - Tapestry Inc (NYSE: TPR), Capri Holdings Ltd (NASDAQ: CPRI), Gap Inc (NASDAQ: GPS), to name few. and arrived at a target price of lower double-digit upside (in% terms). Hence, we recommend a “Buy” rating on the stock at the closing price of $22.3, down 4.74% as on 27 March 2020.
 

Harley-Davidson Inc

 
HOG Suspends Manufacturing Facilities Amid Coronavirus: Harley-Davidson Inc (NYSE: HOG) is the parent company of Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The company has two reportable segments, namely Motorcycles and Related Products and Financial Services. On 18 March 2020, the company stated that it has temporarily suspended majority of production at its U.S. manufacturing facilities until the end of this month, to help boost employee health and further bolster coronavirus containment attempts.
 
4QFY19 Financial Highlights for the Period Ended 31 December 2019: During the quarter, the company reported earnings per share of 9 cents, increasing 9 cents per share from the prior-year period. This increase was on the back of higher motorcycle sales in the Asia Pacific region. Total revenues for the quarter stood at $1.07 billion, down 6.4% year over year. The company’s net income for the quarter stood at $13.5 million, up by $13 million from the year-ago quarter. Total revenues from Motorcycle and Related products, dropped 8.5% on pcp. The company exited FY19 with cash & marketable securities worth $833.8 million. Operating cash flow for the period came in at $868.3 million, with capital spending amounted to $181.4 million.
 

Q4FY19 Financial Highlights (Source: Company Reports)
 
Outlook: For FY20, the company expects Motorcycle segment revenues to be in the range of $4.53-$4.66 billion. The motorcycles segment operating margin is expected to be on the range of 7-8% for FY20. The company expects Financial Services operating income to be flat year over year. Capital expenditure is estimated to be in the band of $215 million and $235 million.
 
Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of HOG is quoting at $17.8 with a market capitalization of ~$2.72 billion.The stock is currently quoting at the lower band of its 52-week trading range of $14.31 to $41.4.The stock has corrected by ~52.59% and ~50.51% in the last three months and six months, respectively.  Considering the aforesaid facts, we have valued the stock using price to earnings based relative valuation method. We have taken the peer group - Tesla Inc (NASDAQ: TSLA), General Motors Co (NYSE: GM), and Ford Motor Co (NYSE: F), and arrived at a target price of lower double-digit upside (in% terms). Hence, we recommend a “Buy” rating on the stock at the closing price of $17.8, down 14.22% as on 27 March 2020, owing to COVID-19 impact and global uncertainty.
 

Lennar Corporation

 
Revenues up ~16% Year Over Year in 1QFY20: Lennar Corporation (NYSE: LEN) is engaged in providing real estate related financial services, commercial real estate and homebuilding services in the United States.
 
Q1FY20 Operational Highlights for the Period ended 29 February 2020: The company reported diluted earnings per share of $1.27, an increase from 74 cents reported in the year-ago quarter. The increase was due to higher deliveries along with continued operating leverage, backed by technological efforts. Revenues for the first quarter stood at $4.51 billion, up ~16% year over year. Revenues from the homebuilding segment stood at $4.17 billion, up from $3.62 billion reported in the prior-year quarter. As of 29 February 2020, homebuilding cash and cash equivalents stood at $785 million, with net debt amounting to $7.33 billion. Net debt-to-capital ratio for the segment stood at 31.4%. During the quarter, the company repurchased 4.4 million shares worth $288.4 million.
 
 

Revenues Highlights (Source: Company Reports)
 
FY20 Outlook Suspended: The company remains focused on reducing land spend and land holdings to improve cash flow and strengthen the balance sheet. Nevertheless, due to extensive shutdowns in the challenging economic conditions due to coronavirus outbreak, the company has opted to suspend the guidance for FY20.
 
Valuation Methodology: P/BV Multiple Based Relative Valuation

P/B Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of LEN is quoting at $40.26 with a market capitalization of ~$12.58 billion.The stock is currently quoting at the lower band of its 52-week trading range of $25.42 to $71.38.The stock has corrected by ~27.77% and ~27.91% in the last three months and six months, respectively. The company rides on robust demand for new homes, representing healthy housing market fundamentals.  Considering the aforesaid facts, we have valued the stock using price to book based relative valuation method. We have taken the peer group - D.R. Horton Inc (NYSE: DHI), KB Home (NYSE: KBH), PulteGroup Inc (NYSE: PHM), to name few and arrived at a target price of lower double-digit upside (in% terms). Hence, we recommend a “Buy” rating on the stock at the closing price of $40.26, down 5.09% as on 27 March 2020.
 
 
 Comparative Price Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.