DAR Details

Darling Ingredients Inc. (NYSE: DAR) provides ingredients from animal processing by-products and used cooking oil. It caters to pharmaceutical, food, pet food, feed, industrial, fuel, bioenergy and fertilizer industries. DAR operates in three segments - Feed Ingredients, Food Ingredients and Fuel Ingredients. The company has operations in over five contents.

Recent Developments

• The Board of Darling Ingredients has appointed Enderson Guimaraes as an Independent Director and as a member of its Audit Committee. With this, it had expanded its board members to ten.
• DAR has widened its range of purified gelatins and collagens with the launch of X-Pure® GelDAT. This has a superior adhesive that is used in biomedical applications in the human body.
• DAR announced that it had inked a long-term agreement with Howard Energy Partners to produce 470 million gallons of renewable diesel every year. This was operated through its JV entity, Diamond Green Diesel (DGD), a 50:50 JV between Darling Ingredients and Valero Energy Corporation.

Q1 FY21 Result Highlights

• Net sales showed a 22.7% yoy increase to reach ~$1.05 billion benefited from an increase in prices of protein and animal fat which drove the Feed segment. Higher collagen volumes contributed Food segment with 17.8% uptick in sales over the previous year.
• Adjusted EBITDA (on a combined basis) surged 33.5% to reach $284.8 million. EBITDA from its JV company rose $2.77 per gallon, generating $108.2 million EBITDA.
• The company’s expansion plans at Port Arthur is on the cards. Its diesel projects at Norco, LA, remain on track.
• It had posted a cash balance of $71.4 million as of April 2021, down from $81.7 million posted as of January 2021. With $879.9 million available under the revolving line of credit, the company’s leverage ratio dropped to $1.67x as of April 2021 as compared to 1.90x as of January 2021.

Financial Performance (Source: Company Reports)

Key Risks

DAR is exposed to commodity price risk. Volatility in prices of yellow grease and biomass-based diesel to materially impact the gross margin. Regulations pertaining to clean energy may influence the demand and supply markets.

Outlook

DAR is expecting renewable diesel production in LA to be slated in Q4 FY21, and a 470 million gallon facility under Port Arthur is likely to be operational in H2 of FY23. At Norco expansion, DAR is likely to sell ~365 million gallons of renewable diesel this year. DGD’s EBITDA for FY21 is expected to be in the range of $2.25-$2.40 per gallon. With this, the management has increased the guidance of DAR for EBITDA to be in the range of $1.075-1.150 billion for FY21. This reflects an increase of 28-35% from FY20 levels.

Valuation Methodology: Enterprise Value/ EBITDA Multiple (Illustrative)

Price Performance

The stock of DAR gave a return of ~-8.39% in the last three months and a return of ~+0.33% in the last six months. The stock is trading above the average of the 52-week low price of $22.55 and the 52-week high price of $79.65.

Valuation

We have valued the stock and arrived at a target price of a low double-digit (in percentage terms). We believe that the stock can trade at a slight premium given the traction in renewable diesel production and fovourable first quarter results for FY21. For this purpose, we have taken peers such as Archer-Daniels-Midland Co. (NYSE: ADM), Flowers Foods Inc. (NYSE: FLO), Sanderson Farms Inc. (NASDAQ: SAFM), to name a few.

Stock Recommendation

Considering the YoY surge in EBITDA by 33.5% in Q1FY21, higher ROE over the industry for Q1FY21, adequate liquidity, growth plans, upward revised EBITDA guidance for FY21, and the valuation, we recommend a “Buy” rating on the stock at the closing price of $66.18, down by 0.06% as of July 8, 2021.

DAR Daily Technical Chart, Data Source: REFINITIV

Note: The orange color line in the chart shows the trend line and the purple color line represents RSI (14-period). The green color line indicates 12-period SMA. The resistance and support levels were marked in yellow.

Intel Corporation

Intel Corporation (NASDAQ: INTC) is the world’s largest chipmaker that manufactures microprocessors for the global personal computer and data centre markets.

On 23 July 2021, INTC will release Q2 FY21 results.

Investment Highlights

On the profitability front, the EBITDA margin, operating margin & net margin remained significantly ahead of the respective industry median from the last five quarters.

• The client computing business segment had shown a year-on-year jump of around 8% during Q1 FY21 as compared to Q1 FY20.
• The Q1 FY21 revenue had exceeded the guidance by USD 1.10 billion, driven by strong PC demand.
• INTC had announced a 5G network collaboration with Google Cloud.
• From a technical standpoint, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price.

Key Risks

• The failure of partner relationships could adversely impact the business in the near term.
• INTC is exposed to the risk of the inability to deploy customer requirements for services to comply with contractual requirements in a timely manner.
  

Recent Developments

On 24 June 2021, INTC strengthened its relationship with Microsoft to deliver a wholly reimagined computing experience with the upcoming Windows 11.

On 18 May 2021, INTC had announced a collaboration with Semtech Corporation to develop optical semiconductor platforms for Light Detection and Ranging (LiDAR). 

Q1 FY21 Financial Highlights (for three months ended 27 March 2021, as of 22 April 2021)

(Source: Company result)

• On a GAAP basis, the revenue went down by 1%, and on a non-GAAP basis, the revenue remained flat during Q1 FY21.
• INTC had generated around USD 5.50 billion of cash from operations during Q1 FY21.
• The CEO Pat Gelsinger had presented a differentiated IDM 2.0 strategy for manufacturing, innovation and product leadership.

Valuation Methodology: Price/Earnings Approach (Illustrative)

Outlook

The Company will invest USD 3.50 billion to expand New Mexico operations related to the manufacturing of advanced semiconductor packaging technologies, including Foveros. Moreover, INTC expects Q2 FY21 revenue to remain around USD 18.9 billion and full-year FY21 revenue to remain approximately USD 77.0 billion. Furthermore, the Company had anticipated FY21 capital expenditure ranging from USD 19.0 billion to 20.0 billion. 

Price Performance

The stock made a 52-week low and high of USD 43.61 and USD 68.49, respectively. 

Stock Recommendation

Based on the decent Q1 FY21 results, new IDM 2.0 strategy, and valuation method shown above, we have given a "BUY" recommendation on Intel Corporation at the closing market price of USD 55.39 (as of 08 July 2021), with a lower double-digit upside potential based on a 16.11x Price/NTM Earnings per share (approx.) on FY21E earnings per share (approx.).

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Micron Technology Inc

Micron Technology Inc (NASDAQ: MU) is the industry leader in innovative memory and storage solutions.

Investment Highlights

• The Company had achieved multiple markets and product revenue records during Q3 FY21.
• The profitability metrics like EBITDA margin, operating margin and the net margin remained significantly ahead of the respective industry median during Q3 FY21.
• On the leverage front, MU’s debt to equity ratio (0.16x) remained lower than the industry median (0.32x) during Q3 FY21, illustrating the Company had more capability to obtain debt funds as compared to the industry.
• From a technical standpoint, the stock is hovering near the lower Bollinger band, reflecting an upside potential in the stock price.

Key Risks

• The semiconductor industry needs to address the growing talent shortage issue.
• There are also certain risks and uncertainties associated with administrative complexity, increased competitive pressure, complying with changing regulations, external threats to security systems, among others.
• The failure to deliver strategic projects on time and budget would increase operational & capital expenses.
  

Recent Developments

On 30 June 2021, MU announced that it had decided to sell Lehi, Utah, Fab to Texas Instruments for an economic value worth approximately USD 1.50 billion.

Q3 FY21 Financial Highlights (for three months ended 03 June 2021, as of 30 June 2021)

(Source: Company result)

• MU had reported a substantial increase in the total revenue from USD 5.44 during Q3 FY20 to USD 7.42 billion during Q3 FY21.
• On the profitability front, the Company had reported diluted earnings per share of USD 1.52 during Q3 FY21.
• The net investments in capital expenditure remained around USD 2.04 billion during Q3 FY21.

Valuation Methodology: Price/Earnings Approach (Illustrative)

Outlook

The Company had projected Q4 FY21 revenue ranging from USD 8.0 billion to USD 8.4 billion. Moreover, MU had anticipated Q4 FY21 diluted earnings per share between USD 2.13 and USD 2.33. The industry-leading 1α DRAM and 176-layer NAND had represented a significant part of the production. Overall, the Company remained well-positioned to grab market opportunities across the data centre, intelligent edge, and user devices.

Price Performance

The stock made a 52-week low and high of USD 42.25 and USD 96.96, respectively. 

Stock Recommendation

Based on the robust profitability, stellar revenue growth during Q3 FY21, and valuation conducted above, we have given a "BUY" stance on Micron Technology Inc at the closing market price of USD 77.11 (as of 08 July 2021), with a lower double-digit upside potential based on an 8.02x Price/NTM Earnings per share (approx.) on FY22E earnings per share (approx.).

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

The Trade Desk Inc

The Trade Desk Inc (NASDAQ: TTD) is engaged in providing a technology platform for ad buyers. Through its cloud-based platform ad buyers can create, manage, and optimize data-driven digital advertising campaigns across ad formats and channels, including display, video, audio, in-app, native and social, on a multitude of devices.

Key highlights 

• Targeting a massive market: The company is outpacing the industry in terms of growth. CTV continues to be the driving force behind its progress, and its worldwide expansion continues to provide positive results. We believe the firm would become a more accurate barometer for the open internet and advertising expenditure as it continues to develop and represent more and more major brands and a higher share of ad agencies.
  

• Robust operating matrix: Despite the turmoiled period in 2020, the company maintained its pace and witnessed spirited performance across its revenue, income from operations and net income. We believe the momentum to continue in the foreseeable future, as the company had big capital investment plans to support future growth.
  

(Numbers in USD Million) 

• Healthy guidance on Q2 2021: The company expects Q2 year-over-year total revenue growth to significantly accelerate relative to the growth rate witnessed in Q1 as it laps slower growth related to the pandemic during the second quarter of 2020. For Q2 2021, it estimates revenue to be between USD 259 - 262 million, representing a growth of between 86% to 88% on a year-over-year basis. While the adjusted EBITDA would be at least USD 84 million in Q2.

• Rise in Cash flows: The company’s robust operational excellence has reflected in the cash flows. The company reported its operating cash flows at USD 75.0 million, up from USD 52.7 million in Q1 2020. The increase in operating cash flows was supported by higher net profit due to growth in operations and an increase in collections from the clients.

• Breakout on Daily Price Chart: On the daily chart, TTD stock price broke out of the upper band of a falling channel pattern on June 24, 2021, and prices are sustaining above it since then. The decisive break out suggested a trend reversal in the stock price. Also, the momentum oscillator RSI (14-Period) is hovering at ~66.66 levels, indicating bullish momentum. Moreover, the stock is trading above 50-period and 100-period SMA, which may act as a crucial support level for the prices.

Source: REFINITIV, Analysis by Kalkine Group 

Financial overview of Q1 2021 (In thousands of USD)

Source: Company

• In Q1 2021, the company posted higher revenue at USD 219.8 million compared to USD 160.6 million in the previous corresponding period. Higher revenue was primarily due to increases in gross spend on its platform by existing clients, which was driven by increases in the number of advertising campaigns executed per client.
• On the back of increased operating expenses in the reported period, the company witnessed lower income from operation at USD 7.7 million against USD 10.7 million in pcp.
• Primarily due to benefits from income taxes and higher revenue, the company’s net income in Q1 2021 stood at USD 22.6 million against USD 24.0 million in pcp.
  

Risks associated with investment 

To retain or raise income, the firm must consistently acquire new customers and convince existing clients to keep or expand the quantity of advertising inventory purchased through their platform, as well as embrace new features and capabilities. Any failure to acquire new clients or a reduction in advertising inventory might have a significant impact on the company's operations. Furthermore, it operates in a highly competitive and rapidly changing industry. 

Valuation Methodology (Illustrative): Price to Cash Flow 

Stock recommendation 

In Q1 2021, the firm achieved an exceptional result, once again exceeding management's expectations. The importance that marketers have on data-driven advertising is reflected in revenue growth acceleration. The company is constantly improving its platform in order to suit the changing demands of modern marketers. Furthermore, it is outpacing the industry, with a solid cash and liquidity position of USD 680 million in cash and no debt on the balance sheet as of Q1 2021. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the closing price of USD 76.11 on July 08, 2021. We have considered Cornerstone OnDemand Inc, Salesforce.Com Inc and ServiceNow Inc etc., as a peer group for comparison purpose.

One-Year Technical Price Chart (as on July 08, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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.