Stocks’ Details

The Kraft Heinz Company

Launches Exclusive Space Jammies Pajamas: The Kraft Heinz Company (NASDAQ: KHC) is a leading food and beverage company that provides high quality and nutritious food items for all eating occasions. The company recently notified that Kraft Mac & Cheese is creating exclusive Space Jammies pajamas for the upcoming animated movie- Space Jam: A New Legacy. The New Legacy boxes will feature movie-inspired noodle shapes, like basketballs and bunnies.

Dividend Declared: The company recently declared a regular quarterly dividend of $0.40 per share of common stock. The dividend has a record date of 28 May 2021, and payment date of 25 June 2021.

Q1FY21 Result Highlights: For Q1FY21, the company reported a gross profit of $2,201 million, up 18.5% on pcp. Further, the company reported a net income of $568 million, up 49% on pcp. In Q1FY21, the company’s net sales increased by 3.9% versus the year-ago period to $6.4 billion.

Q1FY21 Results (Source: Company Reports)

Outlook: For Q2FY21, the company expects a mid-single-digit percentage increase in both organic net sales and constant currency adjusted EBITDA versus the comparable 2019 period. The company expects that it will deliver FY21 performance ahead of its strategic plan.

Key Risks: The company is exposed to risks related to the potential impacts of COVID-19 pandemic and government and consumer responses. The company is also exposed to the risks related to the changes in consumer preferences and demand.

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

Data Source: Refinitiv, Thomson Reuters, 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.

Stock Recommendation:  As at 27 March 2021, the company had a cash balance of ~$2.36 billion. The stock of KHC has provided a return of 37.6% in the last six months. On the technical analysis front, the stock has a support level of ~$40.12 and resistance of ~$44.03. The stock is currently inclined towards its 52-weeks’ high price of $44.42. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight discount to its peer average EV/Sales (NTM trading multiple), considering the decline in cash balance, and risks associated with the potential impacts of COVID-19 pandemic and government and consumer responses. We have taken peers like Conagra Brands Inc (NYSE: CAG), Hershey Co (NYSE: HSY), Kellogg Co (NYSE: K), etc. Considering the current trading level, associated key risks, and valuation, we advise investors to book profit and give a “Sell” rating on the stock at the closing price of $43.87, up by ~0.69% as on 20 May 2021. 

Delta Air Lines, Inc.

Transformative Agreement to Drive Value Creation: Delta Air Lines, Inc. (NYSE: DAL) is a global airline that takes customers across its industry-leading global network to more than 300 destinations in over 50 countries. As on 20 May 2021, the company’s market capitalisation stood at ~$29.05 billion. The company recently announced a transformative global distribution agreement with Sabre to drive change in the travel industry through commercial and technological innovation. The partnership also focuses on elevating the distribution ecosystem with new products such as New Airline Storefront via Sabre Red 360. The agreement will ensure that Sabre-connected travel buyers get access to Delta's content globally.

Q1FY21 Result Highlights: For Q1FY21, the company reported adjusted operating revenue of $3.6 billion, down by 65% on the previous corresponding period, impacted by the continued travel restrictions. GAAP pre-tax loss for Q1FY21 stood at $1.5 billion with a loss per share of $1.85. Despite the low level of demand for business and international travel, the airline achieved positive daily cash generation in the month of March. As at 31 March 2021, the company had $16.6 billion in liquidity, including cash and cash equivalents, short-term investments and undrawn revolving credit facilities.

Q1FY21 Results (Source: Company Reports)

Outlook: In the June 2021 quarter, the company is expected to receive approximately $2.7 billion from the U.S. Treasury under PSP3. By the end of the June quarter, the company expects to have reduced financial obligations by nearly $10 billion in a combination of paying down debt and accelerating pension funding since last fall. The company is going to present at the Wolfe Transportation and Industrials Conference on 25 May 2021.

Key Risks: Travel restrictions caused by the COVID-19 pandemic continue to impact the company’s business and its financial performance. The company is exposed to the risk related to interruptions or disruptions in service at major airports at which it operates. The company is also exposed to the potential impact of incurring significant debt in response to the COVID-19 pandemic.

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

Data Source: Refinitiv, Thomson Reuters, 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.

Stock Recommendation: On the technical analysis front, the stock has a support level of ~$41.23 and resistance of ~$50.19. The stock of DAL has provided a return of 19.78% in the last six months. The stock is currently trading higher than the average 52-weeks’ price level band of $52.28 - $22.14. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight discount to its peer average EV/Sales (NTM trading multiple), considering the impact of COVID-19 pandemic, ongoing travel restrictions, and decline in revenue for Q1FY21. We have taken peers like Allegiant Travel Co (NASDAQ: ALGT), SkyWest Inc (NASDAQ: SKYW), Spirit Airlines Inc (NYSE: SAVE), etc. Considering the reduced financial results in Q1FY21, uncertainty surrounding the COVID-19 pandemic, current trading levels and valuation, we suggest investors to book profit and give a “Sell” ration on the stock at the closing price of $45.41, down by ~1.58% as on 20 May 2021.

Harley-Davidson, Inc. 

Responding to Statement on E.U. Tariffs: Harley-Davidson, Inc.  (NYSE: HOG) is mainly involved in the manufacturing of range of leading-edge, distinctive, and customizable motorcycles. For Q2FY21, the company has recently approved a cash dividend of $0.15 per share, payable on June 25, 2021 with record date of 10 June 2021. In a response to the announcement made by E.U. Executive Vice-President, Valdis Dombrovskis, HOG has reaffirmed its commitment to defend its position in Europe. The company also confirmed that it will continue to pursue its legal challenge to the Binding Origin Information (BOI) revocation, and its application for extended reliance. Further, the company’s Management was also encouraged by the announcement that tariffs affecting its products will not escalate from 31% to 56%.

Q1FY21 Result Highlights: For Q1FY21, the company reported revenue of $1,423 million, up 10% on pcp. Notably, Motorcycles and Related Products (Motorcycles) segment revenue grew by 12% YoY in Q1FY21, driven by strong retail demand for Touring motorcycles. Due to favourable adjustment to the provision for credit losses, the financial services segment reported operating income growth of $96 million in Q1FY21.  Diluted EPS for Q1FY21 stood at $1.68, up $1.23 over Q1FY20.

Q1FY21 Results (Source: Company Reports)

Key Risks: The company is exposed to the uncertainties regarding the size and duration of the EU tariffs. The company's operations, demand for its products, and liquidity could be adversely impacted by work stoppages, facility closures, strikes, natural causes, widespread infectious disease, or other factors. 

Outlook: For FY21, the company expects the revenue from Motorcycle’s segment to grow by 30% to 35% and the operating income from financial services segment to grow by 50% to 60%, compared to FY20. Capital expenditures for FY21 are expected to be in between $190 million to $220 million.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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.

Stock Recommendation: As at 28 March 2021, the company had a cash balance of $23.20 million. The stock of DAL has provided a return of 37.62% in the last three months. On the technical analysis front, the stock has a support level of ~$45.21 and resistance of ~$50.12. The stock is currently inclined towards its 52-week high price of $52.06. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with a correction of high single digit (in % terms). We believe that the company can trade at a slight discount to its peer average P/E (NTM trading multiple), considering the uncertainty surrounding regarding the size and duration of the EU tariffs, impacts of COVID-19 lockdowns, and declining cash balance. We have taken peers like Ford Motor Co. (NYSE: N), General Motors Co (NYSE:GM), Thor Industries Inc (NYSE: THO), etc. Considering the company’s current trading level, and uncertainty surrounding the COVID-19 pandemic, and valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the closing price of $48.28, down by ~1.39% as on 20 May 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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.