Stocks’ Details

Freshpet, Inc.

Enhancing Corporate Government Practices: Freshpet, Inc. (NASDAQ: FRPT) provides fresh and natural food choices for pet animals. The company sells its products across the United States, Canada and Europe. On 8 August 2020, the company launched its multi-year plan to enhance its corporate governance practices so that they can match the increasing scale and complexity of the company. As part of the good corporate governance, this year the company’s Board has submitted to remove all of the supermajority voting provisions from the company’s Certificate of Incorporation.

June Quarter Highlights: For the June 2020 quarter, the company reported net sales of $80.0 million, up 33.2% on the previous corresponding period (pcp), driven by velocity, innovation, and distribution gains. Further, the company reported adjusted gross profit of $39.2 million, up ~$10 million on pcp, primarily due to higher sales price realization and a shift in sales mix, partially offset by increased processing cost. At the end of the June quarter, the company had cash and cash equivalents of $107.7 million and short-term certificates of deposits of $20.0 million, with no debt outstanding. 

June Quarter Results (Source: Company Reports)

Outlook: For FY20, the company expects its net sales to be around $320 million, representing a growth of 30% on 2019. Further, the company expects its adjusted EBITDA to be around $46.0 million, up 57% from 2019.

Key Risks: The company’s future results are subject to any significant disruptions to the supply chain, its customers or consumers, including any issues from an adverse macroeconomic environment and increased social unrest. The company is also exposed to risks related to the stiff competition in the market as there are numerous brands and products that compete for shelf space and sales, with competition based primarily upon brand recognition and loyalty.

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

P/BV Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the past one and three months, the stock has provided a return of 21.47% and 53.18%, respectively. The stock is currently inclined towards its 52-week high of $110.94. The company is planning to hold its Annual General Meeting on 24 September 2020. On the technical analysis front, the stock of the company has a support level of ~$99.84 and a resistance level at ~$106.95. We have valued the stock using the price to book value multiple based illustrative relative valuation method and arrived at a price correction of high single-digit (in % terms). For the purpose, we have taken peers like J M Smucker Co (NASDAQ: SHM), Colgate-Palmolive Co (NASDAQ: N), Nomad Foods Ltd (NASDAQ: NOMD). Considering the aforesaid facts, the company’s recent share price performance and current trading levels, we suggest investors to wait for better entry levels and give an “Expensive” rating on the stock at the market price of $107.99, up by 1.68%, on 14 August 2020.

JD.com, Inc.

Acquiring Controlling Interest in Kuayue Express: JD.com, Inc. (NASDAQ: JD) is a leading technology driven e-commerce company that provides direct access to an unrivalled range of authentic, high-quality products. On 13 August 2020, the company announced that its subsidiary, Jingdong Express Group Corporation (JD Logistics), is going to acquire a controlling interest in Kuayue-Express Group Co., LTD.  for a total consideration of RMB 3 billion through a combination of acquiring existing shares and subscribing for newly issued shares of Kuayue Express, subject to customary closing conditions. This collaboration will help in improving the company’s integrated supply chain management, technology initiatives and service expansion to third party merchants.

March Quarter Update: For the quarter ending 31 March 2020, the company reported net revenue of RMB146.2 billion, up 20.7% on pcp. Further, the company reported income from operations of RMB2.3 billion as compared to RMB1.2 billion for the same period last year. The fulfilled gross margin (FMG) for Q1 FY20 stood at 8.3%, driven by increasing economies of scale from 1P business, fast growth from advertising service business and improved logistics scale economies. The diluted net income per ADS for Q1 FY20 stood at RMB0.72, compared to RMB4.96 for the first quarter of 2019. At the end of March quarter, the company’s cash and cash equivalents, restricted cash and short-term investments stood at RMB75.1 billion.

Q1 FY20 Result Highlights (Source: Company Reports)

Pricing of The Global Offering: On 11 June 2020, the company announced the pricing of the global offering of 133,000,000 new Class A ordinary shares, comprising an international offering and a Hong Kong public offering, with final offer price set at HK$226.00 per Offer Share. The company expects to receive gross proceeds of HK$30,058 million from the offering. The company intends to invest the proceeds in key supply chain-based technology initiatives to further enhance customer experience while improving operating efficiency.

Key Risks: The company’s future results are dependent on trends and competition in China's e-commerce market; changes in its revenues and certain cost or expense items; the expected growth of the Chinese e-commerce market; Chinese governmental policies relating to JD.com's industry and general economic conditions in China. 

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

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

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: On a YTD basis, the stock has provided a return of 76.16% and in the last three months it has provided a return of 26.76%. The stock is inclined towards its 52 weeks high of US$69.18. The company is planning to release its Q2 FY20 results on 17 August 2020. On the technical analysis front, the stock of the company has a support level of ~US$60.44 and a resistance level at ~US$63.6. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a price correction of high single digit (in % terms). Considering the aforesaid facts, the company’s current trading level, and the upcoming Q2 FY20 results, we suggest a watch stance on the stock at the current market price of $62.06, down by 0.77% on 14 August 2020.

Livongo Health, Inc.

June 2020 Quarter Highlights: Livongo Health, Inc. (NASDAQ: LVGO) is a leading applied health signals company that provides clinical insights and helps promote a healthy living. During the June 2020 quarter, the company delivered total revenue of $91.9 million, up 125% on pcp, driven by the continued adoption of the company’s Applied Health Signals platform. For the quarter, the company reported GAAP gross margin of 76.6% and non-GAAP gross margin of 77.3%.

During the quarter, the company spent $15.8 million on research and development activities and $22 million on general and administrative activities. At the end of the June quarter, the company had 410,000 of diabetes members, up 113% on pcp. For the quarter, the company reported adjusted EBITDA of $13.3 million and GAAP net loss of $1.6 million.

June 2020 Quarter Results (Source: Company Reports)

Merger with Teladoc Health: Recently, Livongo Health, Inc and Teladoc Health (TDOC), a global leader in virtual care, entered into a definitive merger agreement to create new standard in global healthcare delivery, access and experience. As per the terms of the agreement, each share of LVGO will be exchanged for 0.5920x shares of TDOC plus cash consideration of $11.33 for each Livongo share. Under the merger, both the companies will work together to create substantial value across the healthcare ecosystem, enabling clients everywhere to offer high quality, personalized, technology-enabled longitudinal care. Further, the combined entity is expected to generate revenue synergies of $100 million by the end of the second year following the close.

Pricing of Upsized $475.0 Million Convertible Senior Notes: On 2^nd June 2020, the company announced the pricing of $475.0 million aggregate principal amount of 0.875% convertible senior notes due 2025 in a private offering to qualified institutional buyers. The company is expected to receive net proceeds of around $461.1 million from the offering. The company expects to use these proceeds for general corporate purposes, including working capital, business development, sales and marketing activities and capital expenditures.

Key Risks: The company’s future results are exposed to the risks regarding the merger with Teladoc Health, Inc., including expected timing, completion, and effects of the merger. Further, the company’s future performance is dependent on its ability to retain clients and sell additional solutions to new and existing clients, ability to attract and enroll new members, the growth and success of Livongo’s partners and reseller relationships, uncertainty in the healthcare regulatory environment, the impact of the COVID-19 pandemic on the company’s business and general economic conditions.

Stock Recommendation: Over the last three months, the stock of LVGO has provided a return of 93.49% and is currently inclined towards its 52 weeks high of $150. On the technical analysis front, the stock of the company has a support level of ~US$112.76 and a resistance level at ~US$124. On a TTM basis, the stock is trading at a price to book multiple of 20.0x, higher than industry median (Healthcare Equipment & Supplies) of 3.4x, and thus seems overvalued. Considering the aforesaid facts, the current trading levels and merger related developments, we have a watch stance on the stock at the current market price of $118.34, down by 1.43% on 14 August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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