Valero Energy Corporation

VLO Details 

1QFY20 Key Highlights: Valero Energy Corporation (NYSE: VLO) is a leading independent refiner and marketer of petroleum products in the US. The company’s refineries are situated throughout the United States, United Kingdom, & Canada. Recently, the company stated that its Board of Directors have declared a regular quarterly cash dividend of 98 cents, payable on September 2, 2020.

During the March quarter, the company reported earnings of 34 cents per share, down from the year-ago figure of 43 cents per share. Total revenues for the quarter came in at $22,102 million, as compared to $24,263 million reported in the year-ago period. Increase in renewable diesel sales volumes and lower operating expenses were key positives during the quarter. This was partially offset by lower ethanol prices and refining margin, along with higher corn prices.

The company reported general and administrative expenses of $177 million, down from $209 million reported in the year-ago period. Total operating expenses stood at $1,124 million, down from $1,215 million reported in the year-ago period. The company reported an operating loss of $2,277 million in 1QFY20, against operating income of $308 million in the year-ago period.

1QFY20 Key Highlights (Source: Company Reports)

Balance Sheet Highlight: The company exited the quarter with a cash balance of $1.5 billion, indicating a decline from the previous quarter’s figure of $2.6 billion. As at March 31, 2020, the company’s total debt amounted to $11.5 billion, an increase from $9.7 billion reported at the end of the previous quarter. Its debt-to-capitalization ratio stood at 34%. The company entered into a revolving credit facility of $875 million as on April 13, 2020.

What to Expect: The company expects capital expenditure to be ~$2.1 billion in FY20, down by $400 million as compared to the previous guidance. The St. Charles alkylation unit remains on track and is expected to be completed in 2020. Furthermore, VLO’s Diamond Green Diesel development project and Diamond Pipeline expansion are slated to be finished in 2021.

Risks: On the flip side, the company has witnessed reduced demands for its products like gasoline and jet fuel, led by uncertainty due to coronavirus outbreak and travel bans. Further, soft energy demand environment is expected to weigh on the company’s financial performance until the economies go into a recovery mode.

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

EV/Sales Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of VLO closed at $56.58 with a market capitalization of ~$23.1 billion. The stock made a 52-week low and high of $31 and $101.99, respectively and is currently trading below the average of its 52-week trading range. The stock has corrected ~14.48% in the last one month but went up ~25.73% in the past three months. The company is set to report its 2QFY20 results on 30 July 2020. The company has a debt to equity ratio of 0.61x, lower than the industry median of 0.79x. Considering the above factors, we have valued the stock using the EV/Sales multiples based relative valuation method (illustrative) and arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers like Phillips 66 (NYSE: PSX), HollyFrontier Corp (NYSE: HFC), and Delek US Holdings Inc (NYSE:DK). Hence, we recommend a “Buy” rating on the stock at the closing price of $56.58, down 1.14% on 16 July 2020.

VLO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Rigel Pharmaceuticals, Inc.

RIGL Details 

RIGL Reveals Investigator-Sponsored Trial of COVID-19 Treatment: Rigel Pharmaceuticals, Inc. (NASDAQ: RIGL) is a clinical-stage drug development company, which is engaged in developing and discovering new and small-molecule drugs for the therapy of inflammatory diseases, cancer, and viral infections. On July 14, 2020, the company commenced an investigator-funded survey being performed by Imperial College London to assess the effectiveness of fostamatinib, its oral spleen tyrosine kinase (SYK) inhibitor, for the therapy of COVID-19 pneumonia. Notably, fostamatinib is already advertised in the United States as TAVALISSE for treating adults, who are suffering from chronic immune thrombocytopenia (ITP). Hence, positive data from pre-clinical models of fostamatinib makes the company consider that there is possibility for SYK inhibition to aid the severe disease in patients and prevent ARDS.

Other Recent Updates: On July 9, 2020, the company stated that its collaborative partner, Grifols S.A., has unveiled TAVLESSE® in Germany and the United Kingdom, which was early approved by the European Commission to treat adult patients with chronic ITP, who are refractory to other therapies.

1QFY20 Key Highlights: 1QFY20 Key Highlights: During the quarter, the company reported a net income of $21.2 million, as compared to net loss of $17.6 million reported in the year-ago period. The company reported total revenues of $55.8 million, up from $12.6 million reported in the year-ago period. The revenue components consisted of $12.7 million in net product sales and $43.1 million in contract revenues from collaborations. Notably, net product sales were up by 57% year over year. During the quarter, total costs and expenses stood $34.7 million, up from $31 million reported in the year-ago period, owing to rise expenses pertaining to ongoing pivotal Phase 3 study in warm AIHA, higher R&D expenditure and other personnel-related costs. The company exited the quarter with cash balance of $95.9 million, down from $98.1 million as of December 31, 2019.

1QFY20 Key Highlights (Source: Company Reports)

Growth Opportunities: During the period, RIGL shipped 1,398 bottles of TAVALISSE to patients. TAVALISSE and clinics with net product sales rising 57% on year over year to $12.7 million. We believe that a potential nod for the drug’s sale in Europe will improve the company’s sale in the near term. The company remains on track to implement strategies to curb disruptions to its business and operations while monitoring for new developments related to the growing COVID-19 pandemic.

Risks: On the flip side, the company is exposed to short-term disruptions hindering from challenging macro-economic environment due to COVID-19 led outbreak. Also, the company is exposed to risks relating to foreign operations that are required to be addressed from time to time. The company also faces stiff competition from peers which adds to the woes. 

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

EV/Sales Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of RIGL closed at $3.28 with a market capitalization of ~$552.9 million. The stock made a 52-week low and high of $1.23 and $5.24, respectively, and is currently trading slightly above of the average of its 52-week trading range. The stock has gained ~70.83% and ~101.23% in the last one month and three months, respectively. The company has a debt to equity ratio of 0.13x, as compared to the industry median of 0.00x. Considering the above factors, we have valued the stock using the EV/Sales multiples based relative valuation method (illustrative) and arrived at a target price with a limited upside (in % terms). Considering the above factors, valuation, returns in the past few months, we have a watch stance on the stock at the closing price of $3.28, as on 16 July 2020.

RIGL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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