Stocks’ Details

CVS Health Corporation

AM Best Affirms Credit Ratings for CVS Subsidiaries: CVS Health Corporation (NYSE: CVS) is a diversified healthcare company with a market capitalization of around ~$89.93 billion. Recently, the global credit rating agency, AM Best, gave a Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings of “a” to Aetna Life Insurance Company and the other operating entities of Aetna Inc. (Aetna) that are now wholly-owned subsidiaries of CVS. The ratings reflect Aetna Health & Life Group’s strong level of risk-adjusted capitalization, which is driven by decent operating performance. 

Upsize of Cash Tender Offers: On 21 December 2020, the company announced the upsize of previously announced cash tender offers to an aggregate principal amount of $4.5 billion from $4 billion of certain outstanding notes. The company has increased the 2025 Notes Maximum Amount to $1,049,919,000 from $1,000,000,000 and the 2028 Notes Maximum Amount to $1,950,081,000 from $1,500,000,000.

September 2020 Quarter Results: For Q3FY20, the company reported total revenue of $67.1 billion, up 3.5% on pcp, driven by growth in the Health Care Benefits and Retail/LTC segments. Further, the GAAP operating income for the quarter stood at $3.2 billion, up 11% on pcp. The company’s cash flow from operations decreased by 36% to $1,874 million in Q3FY20, compared to pcp, affected by the timing of certain payments. During the quarter, the company repaid $4.75 billion of net debt. As at 30 September 2020, the company had ~$3.6 billion of cash and short-term investments and $6 billion available through commercial paper or borrowing capacity under credit facilities.

Q3FY20 Results (Source: Company Reports)

Outlook: As a result of decent September quarter performance, the company has raised its Adjusted EPS guidance range to $7.35 to $7.45 from $7.14 to $7.27. Further, the company has increased GAAP diluted EPS guidance range to $5.60 to $5.70 from $5.16 to $5.29. CVS expects its cash flow from operations to be in the range of $12.75 billion to $13.25 billion in FY20.

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

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

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

Stock Recommendation: Over the last three months, the stock has provided a return of 16.71%. On the technical analysis front, the stock has a support level of ~$66.06 and resistance of ~$73.47. We have valued the stock using the Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price of a low double-digit upside (in % terms). For the purpose, we have taken peers like Cigna Corp (NYSE: CI), Humana Inc (NYSE: HUM), Centene Corp (NYSE: CNC), etc. Considering the company’s decent performance in Q3FY20, improved FY20 guidance, reduction in net debt, and valuation, we give a “BUY” recommendation on the stock at the closing price of $68.71, down by 1.21% as on 21 December 2020.

Foley Trasimene Acquisition Corp. II

Announced Merger with Paysafe: Foley Trasimene Acquisition Corp. II (NYSE: BFT) is a special purpose acquisition company focused on creating a merger or business combination with a financial technology company. As on 21 December 2020, the company’s market capitalization stood at ~$2.71 billion. The company recently announced a merger with a leading global payments provider, Paysafe Group Holdings Limited, to create a newly combined company that will operate as Paysafe and will be listed on the New York Stock Exchange (NYSE) under the symbol “PSFE”. The transaction reflects an implied pro-forma enterprise value at closing of approximately $9 billion. The transaction is expected to be completed in H1FY21. Cannae Holdings, Inc. has already announced an investment of $350 Million in the merger.

Outlook: Paysafe is a provider of powerful suite of digital wallet, eCash and integrated processing solutions. It is a leader in iGaming and is well-positioned to capitalize on the expanding US market. Paysafe believes that it has the potential to realise over $100m adj. EBITDA in additional organic revenue opportunities and cost savings over two years. For FY19, Paysafe had reported an organic revenue of $1,389.7 million and an organic adjusted EBITDA of $468.6 million. From 2020 to 2023, Paysafe expects its organic revenue and volume to grow at a CAGR of 11% and 15%, respectively.

Volume and Organic Revenue Forecasts (Source: Company Reports)

Experienced Management: BFT is founded by Bill Foley who has over 32 years of industry experience and a long history of value creation across multiple public company platforms. Moreover, he has led five separate multi-billion-dollar public market platforms with 100+ acquisitions across them. Notably, Paysafe Chief Executive Officer & Director, Philip McHug, also has significant industry experience as he is the international leader in the banking and payments industry for over 25 years with experience across Latin America, Europe, EMEA, and North America.

Stock Recommendation: In the last one month, the stock of BFT has provided a return of 40.60%. On the technical analysis front, the stock has a support level of ~$12.75 and resistance of ~$15.03. The stock’s 52-weeks low and high price currently stands at $9.60 and $15.39, respectively. Considering the highly experienced management team of BFT, anticipated benefits of the proposed merger with Paysafe, expected growth in Paysafe volume and organic revenues in the coming years, and associated investment risks, we give a “Speculative Buy” recommendation on the stock at the closing price of $14.8, up by 6.47% on 21 December 2020. 

Upstart Holdings, Inc.

Closes IPO Offering: Upstart Holdings, Inc. (NASDAQ: UPST) operates a cloud-based artificial intelligence lending platform that aggregates consumer demand for high-quality loans and connects it to the company’s network of Upstart AI-enabled bank partners. The shares of UPST began trading on the Nasdaq on 16 December 2020. On 18 December 2020, the company announced the closing of the initial public offering of its common stock at a price to the public of $20.00 per share. The net proceeds received from the IPO will be used for general corporate purposes, including working capital, operating expenses, and capital expenditures. Moreover, the company may use a portion of the net proceeds to acquire or invest in businesses, products, services, or technologies. 

Financial Highlights: Over the past few years, the company has witnessed rapid growth in its business and the number of loans transacted on its AI lending platform. As a result, revenue has significantly improved over the past three years. For the nine months ended 30^th September 2020, the company’s revenue stood at $146.7 million, representing a period-over-period growth rate of 44%. As at 30 September 2020, the company had cash of $53.23 million.

Financial Results (Source: Company Reports)

Outlook: Looking ahead, the company is focused on developing and improving its proprietary AI models, enhancing its marketing efforts to increase the number of borrowers on its platform. Moreover, the company plans to improve the features and overall user experience of its platform and plans to expand the types of loan offerings on its platform.

Risks: The company is exposed to risks associated with COVID-19 as it could affect the demand for the company’s platforms and services. The company’s performance may also get impacted by the general economic conditions, including significant tightening of credit markets. Moreover, the company’s business is subject to a wide range of laws and regulations which could impact the business, financial conditions, and results of operations.

Stock Recommendation: The stock recently started trading on NASDAQ on 16 December 2020. Due to the company’s limited operating history and recent listing, we would like to gauze the performance of the business in the coming times. Considering the key investment risks associated with business, the company’s limited operating history, incurred net losses, and uncertainty surrounding the impact of COVID-19 pandemic, we suggest investors to avoid the stock at the closing price of $41.10, down by 6.78% as on 21 December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. 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. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd 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 personalised advice.