Graco Inc.

GGG Details

Graco Inc. (NYSE: GGG) is a manufacturer, marketer, and designer of fluid and powder material moving, measuring, controlling, dispensing, and spraying systems and equipment for industrial and commercial applications. The US division contributed 50.15% of GGG's total revenue in Q3FY21.

Latest News:

• Payment of Dividend: On December 03, 2021, GGG declared a quarterly dividend of USD 0.21 per common share, payable on February 02, 2022, to shareholders of record on January 18, 2022.

• Inaugurating Innovation Center: On November 11, 2021, GGG launched South China Innovation Centre, which will serve the electronics industry in DongGuan City, China. Electronic product assembly is a fast-expanding market that supports the manufacturing and development of electronics components for several applications, including automotive, consumer, and linked infrastructure, to create and maintain electric vehicles and fleets.

Q3FY21 Results:

• Growth in Revenue: The company reported a YoY increase of 10.78% in revenues to USD 486.70 million in Q3FY21 (ended September 24, 2021) compared to USD 439.32 million in Q3FY20 (ended September 25, 2021), owing to a 22.12% YoY increase in revenue from Industrial segment.
• Decline in Net Profits: GGG reported a decrease in net income to USD 103.83 million in Q3FY21 vs. USD 114.12 million in Q3FY20.
• Cash and Debt Position: As of September 24, 2021, the company had cash and cash equivalents of USD 603.83 million and total debt of USD 200.32 million.

Key Risks:

• Exchange Rate Fluctuation Risk: In Q3FY21, 49.85% of GGG's revenue was in currencies other than USD, exposing the company to currency rate fluctuations.
• Customer Concentration Risk: The majority of GGG's contract segment revenue is derived from a limited of large customers in FY20. The loss of any of these critical customers could harm the company's bottom line.

Outlook:

• Revenue Growth: On a constant currency basis, GGG estimates organic sales growth of mid-to-high teens in FY21.

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.

GGG Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

GGG's stock price has increased 8.89% in the past three months and is currently leaning towards the higher end of its 52-week range of USD 64.34 to USD 81.09. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 47.87. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 70.35.  

Considering the uptick in the stock price, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 77.355, up 0.33%, as of January 13, 2022, at 12:14 PM ET.

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

* All forecasted figures and industry information have been taken from REFINITIV.

Ciena Corporation

CIEN Details

Ciena Corporation (NYSE: CIEN) is a networking system, services, and software company that serves a range of network handling solutions for deploying and managing networks that deliver services to businesses and consumers. It makes the hardware, software, and services that help with video, data, and voice traffic transport, routing, switching, aggregation, and management over communications networks.

Latest News:

• Pricing of Senior Notes: On January 11, 2022, CIEN priced a private offering of USD 400 million of the aggregate principal amount of 4.00% Senior Notes due 2030, guaranteed by its direct and indirect existing and prospective domestic subsidiaries. The sale of the Notes is expected to conclude on January 18, 2022. Beginning from July 31, 2022, interest on the Notes will be paid semi-annually in arrears on January 31 and July 31.
• Signing Key Commercial Contracts: On January 13, 2022, CIEN announced that Vodafone Idea Limited (Vi) is deploying CIEN's industry-leading 5th generation coherent optical solutions to improve backbone scalability and service robustness. Previously, on January 12, 2022, GBI, a global cloud, connectivity, and content enabler is adopting CIEN GeoMesh Extreme, powered by WaveLogic 5 Extreme, to boost the capacity and performance of its Smart Network.

FY21 Results:

• Flat Topline: CIEN's total revenues increased by 2.51% to USD 3.62 billion in FY21 (ended October 30, 2021) compared to USD 3.53 billion in FY20 (ended October 31, 2020). It generated 69.75% of its FY21 revenue from the Americas, with EMEA (Europe, Middle East, and Africa) and the Asia Pacific accounting for 18.52% and 11.73%, respectively.
• Surge in Net Income: Its FY21 net income increased to USD 500.20 million from USD 361.29 million in FY20.
• Balance Sheet Position: It exited the quarter with a cash balance (including short-term investments) of USD 1.60 billion and total debt of USD 677.29 million.

Key Risks:

• Third-Party Dependence: CIEN relies on third-party contract manufacturers for a substantial portion of its supply chains activities, such as component procurement, production, fulfilment, and logistics linked to the distribution and maintenance of its products. Any failure on the contractual obligation by vendors could harm its operations.

Outlook:

• Estimated Q1FY22 Revenue: In Q1FY22, CIEN expects to clock USD 870–910 million revenues, with a gross margin of 43 to 46%. It is estimated that its adjusted operating expenses are estimated USD 290 million.
• FY22 Guidance: In FY22, CIEN anticipates revenue growth of 11% – 13% and adjusted gross and operating margins of 43– 46% and 15 – 16%, respectively. The adjusted operating expenses should average USD 300 million / quarter.

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 FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CIEN Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

CIEN's stock price has surged 36.44% in the past three months and is currently leaning towards a higher band of its 52-week range of USD 47.52 to USD 78.28. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at the overbought zone of 51.62. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 66.11.

Considering the significant surge in the stock price, meagre profit margins, and the current valuation, we recommend a "Sell" rating on the stock at the current price of USD 72.945, down 0.51% as of January 13, 2022, 02:22 PM ET.

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

* All forecasted figures and industry information have been taken from REFINITIV.

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.