Stocks’ Details
 

Aramark

 
Update on Covid-19 Outbreak: Aramark (NYSE: ARMK) is a food delivery company which is engaged in serving premier educational institutions, Fortune 500 companies, world champion sports teams, prominent healthcare providers, iconic destinations and cultural attractions in 19 countries across the globe. Recently, the company provided an update on its financial flexibility considering the rapidly changing market due to COVID-19. In doing so, the company is focusing on health and safety of its employees and clients, along with confirming business continuity across its operations. The company finds it too early to detect the full impact of COVID-19. However, ARMK stated that it anticipates that revenue will have a drop of ~15%-20% on operating income, owing to cost structure, geographic mix and diversified client portfolio.Across all its business segments, the company is leveraging its flexible operating model to execute cost mitigation plans with continued assistance to clients. The company has a strong balance sheet and intends to fully withdraw its revolving credit facility, thereby increasing cash availability to $1.3 billion.
 
Q1FY20 Operational Highlights for the Period ended 27 December 2019: ARMK declared its quarterly results, wherein the company reported revenue of $4.3 billion, down 0.3% on pcp. The company reported 1.6% growth in its organic revenue, aided by encouraging performance across all the segments. FSS International reported an increase of 3.2% in revenue, driven by strong performance in South America. Operating income declined 32% year over year and came in at $254.3 million, primarily due to the divestiture of the Healthcare Technologies business in the previous year. The company reported net income of $145.761 million, down from $250.682 million in Q1FY19.
 

Key Highlights (Source: Company Reports)
 
Valuation Methodology: Price to Earnings Based Relative Valuation
 

Price to Earnings based relative valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of ARMK closed at $19.22 with a market capitalization of $4.8 billion. The stock made a 52-week low and high of $9.65 and $47.22 and is currently trading at the lower band of the range. The stock has corrected 52.15% and 60.71% in the last one month and three-months, respectively. In terms of dividend growth, ARMK's current annualized dividend stands at 44 cents, which is in line with the last year. Considering the aforesaid facts, current trading levels, and recent price movements, we have valued the stock using price to earnings based relative valuation method and arrived at a target price with lower double-digit upside (in% terms). For the purpose, we have taken the peer group - UniFirst Corp (NYSE: UNF), TransUnion (NYSE: TRU) and Equifax Inc (NYSE: EFX). Given the financial performance, recent update, and COVID-19 impact, we give a ‘Hold’ recommendation on the stock at the closing price of $19.22, up 13.06% as on 6 April 2020.
 
 

Xerox Holdings Corporation

 
XRX Teams up with Vortran: Xerox Holdings Corporation (NYSE: XRX) is a workplace technology company, which develops and incorporates software and hardware for large and small size organizations. On 6 April 2020, XRX teamed up with Vortran Medical Technology to scale up the production of Vortran’s GO2Vent ventilator and associated Airway Pressure Monitor (APM-Plus). The move is aimed at aiding hospitals and emergency response units to fight against COVID-19 virus.
 
Xerox-HP Takeover Deal to End Amid COVID-19 Crisis: On 31 March 2020, the company stated that it is terminating its tender offer to acquire HP Inc., due to current global health crisis and macroeconomic weakness caused by COVID-19. The deal was valued at 24.00 per share, which included $18.40 in cash and 0.149 Xerox shares for every HP share. On the other hand, Xerox’s decision must have come as a relief for HP that has been constantly refusing its offers mentioning insufficiency from a financial point of view.
 
Acquisition Spree to Continue: On 25 March 2020, the company announced that it has acquired Altodigital and ITEC Connect, leading services and technology providers in the U.K. In another update, the company announced that it has bought Digitex Canada, a provider of independent services, software and technology, for an undisclosed amount.
 
FY19 Fourth Quarter Key Highlights: During the quarter, the company reported revenues of $2,444 million, as compared to $2,498 million reported in the year-ago quarter. Gross margin came in at 41.6%, up from 40% reported in the year-ago quarter. Adjusted EPS was up from $0.94 per share to $1.33 per share in 4QFY19. The company derives a major portion of its revenue from the Post sale revenue segment, representing ~75% of the total revenue. 
 

4HFY19 Key Highlights (Source: Company Reports)
 
What to Expect: For FY20, XRX predicts adjusted earnings to be in the ambit of $3.6 and $3.7 per share. It further expects revenues to decrease ~4% at constant currency. Operating cash flow from continuing operations is likely to be ~$1.3 billion.
 
Valuation Methodology:Price to Earnings Based Relative Valuation

Priceto Earnings Based Relative Valuation(Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of XRX closed at $18.71 with a market capitalization of $3.98 billion. The stock made a 52-week low and high of $15.01 and $39.47 and is currently trading at the lower band of the range. The stock has corrected by 46.97% and 53.64% in the last one month and three-months, respectively. The company remains focused on robust innovation capabilities to expand its revenue trajectory by leveraging new and prevailing markets. Considering the aforesaid facts, we have valued the stock using the P/E based relative valuation method. For the purpose, we have taken peers like HP Inc (NYSE: HPQ), NetApp Inc (NASDAQ: NTAP), Hewlett Packard Enterprise Co (NYSE: HPE), to name few and arrived at a target price which with a lower double-digit upside (in % terms). Hence, we give a ‘Buy’ recommendation on the stock at the closing price of $18.71, up 10.71% as on 6 April 2020.
 

Salesforce.com Inc

 
CRM Chosen by Build-A-Bear: Salesforce.com Inc (NASDAQ: CRM) is a worldwide leader in CRM (customer relationship management) technology that facilitates companies to enhance their relationships and interaction with customers. Recently, the company updated that Build-A-Bear has chosen Salesforce as its strategic partner in digital transformation, to aid it business model and enhance consumer-relationship.
 
Q4FY19 Key Highlights: During the quarter, the company reported revenues of $4.85 billion, up 35% year over. On a constant currency basis, revenue soared 34% year over year. The company also stated that the Tableau acquisition added $344 million to its fourth-quarter revenues. During the quarter, subscription and support revenues stood at $4.56 billion, up 35% year-over-year. Professional services and other revenues soared 26% year-over-year and came in at $288 million. Non-GAAP gross margin came in at79.4%, up 280 basis points year over year. Non-GAAP EPS for the quarter stood at 66 cents. The company exited the period with cash and marketable securities worth $7.95 billion. Operating cash inflow for the quarter stood at $1.63 billion.
 

Financial Summary (Source: Company Reports)
 
Outlook FY21:The company predicted FY21 revenue to be in the range of $21 billion and $21.1 billion, depicting a year over year growth of ~23%. Non-GAAP earnings per share are expected between $3.16 and $3.18.
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation
 

EV/Sales Multiple Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of CRM closed at $147.55 with a market capitalization of $132.1 billion. The stock made a 52-week low and high of $115.29 and $195.72 and is currently trading at the lower band of its 52-week trading range. The stock has corrected 20.7% and 19.17% in the last one month and three-months, respectively. The company’s cloud CRM tools will aid mission-critical services, which will assist companies get back to business even if all staffs and employees work remotely. Considering the aforesaid facts, we have valued the stock using the EV/Sales based relative valuation method. For the purpose, we have taken peers like Oracle Corp (NYSE: ORCL), ServiceNow, Inc (NYSE: NOW), Microsoft Corp (NASDAQ: MSFT), to name few and arrived at a target price with lower double-digit upside (in % terms). Hence, we give a ‘Hold’ recommendation on the stock at the closing price of $147.55, up 9.86% as on 6 April 2020.
 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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