Reynolds Consumer Products Inc.

REYN Details

Reynolds Consumer Products Inc. (NASDAQ: REYN) is a provider of household products. Its revenue-generating segments include Cooking items, Waste & Storage products, and Tableware. REYN is a market-leading consumer products firm with a presence in 95% of American households. Reynolds and Hefty are two of the company's most well-known trademarks. REYN was listed on NASDAQ on January 31, 2020, at an IPO price of USD 26.00 per share.

Expansion of Hard-to-Recycle Program: REYN announced its Hefty EnergyBag program extension to Fulton, Gwinnett, Cherokee, and Forsyth counties in the Greater Atlanta region on August 02, 2021.  It is a hard-to-recycle plastics recovery program that allows qualified homeowners to divert hard-to-recycle plastics from landfills in a simple manner. As a consequence of this expansion, almost 1.4 million families in the United States now have access to the program. The initiative is presently operational in Nebraska, Idaho, and five counties in Georgia, where nearly 1,300 tons of difficult-to-recycle plastics were diverted from landfills through April 2021.

H1FY21 Results: The company reported a slight increase of 6.04% in net revenues to USD 1.58 billion during H1FY21 (ended June 30, 2021) compared to USD 1.49 billion during H1FY20, primarily driven by pricing actions taken in response to increased material costs as well as lower levels of trade promotion. As a result, its net income increased to USD 154 million in H1FY21 vs. USD 138 million in H1FY20. The company exited H1FY21 with a cash balance of USD 49 million and a total debt of USD 2.12 billion.

Key Risks: Sales to its top ten customers accounted for 68% of revenue in FY20, while its two largest clients, Walmart and Sam's Club, contributed 30% and 13% of its revenue, respectively. As a result, the company's financial operations and cash flow may be jeopardized by such a disproportionate reliance on a small number of significant clients.

In addition, some of REYN's products are made at a single site location. For instance, its Malvern, Arkansas factory produces all of the foil reroll for its Louisville, Kentucky plant, which in turn is the only supplier of the company's household foil. Accordingly, the loss of all or a portion of any of its necessary manufacturing facilities could have a material adverse impact on its financial and operational condition.

Outlook:

FY21 Guidance (Source: Earnings Presentation, August 02, 2021)

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

REYN Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: REYN's share price has declined 11.96% in the past nine months and is currently leaning towards the lower end of the 52-week range of USD 26.50 to USD 32.19. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 38.40. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 33.62. Considering the decent financial performance, growth initiatives, market dominance, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 27.02, down 0.95% as of October 06, 2021, 12:30 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

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