Macy’s, Inc.

M Details 

Macy’s Raises ~$4.5 Bn in Financing: Macy’s, Inc. (NYSE: M) is engaged in selling merchandise, cosmetics, home furnishings and other consumer goods. In a recent update, the company closed approximately $4.5 billion of new financing, which included 8.375% senior secured notes worth $1.3 billion along with a new $3.15 billion asset-based credit agreement. The company expects to utilize the proceeds to repay all outstanding amount under its existing $1.5 billion unsecured credit agreement.

1QFY20 Preliminary Sales and Operating Update: For 1QFY20, the company reported revenues of $3,017 million as compared to $5,504 million reported in the same quarter a year ago. The coronavirus led outbreak had a significant impact on its 1QFY20 results, seeing sales decline on the back of store closures. Gross margin for the quarter came in at $516 million, down from $2,101 million reported in the year-ago period. Adjusted net loss for the quarter was reported at $630 million, as compared to a net profit of $137 million. Operating loss came in at $969 million as compared to an operating profit of $203 million reported in 1QFY19. Additionally, the company exited the period with total debt of ~$5,657 million, as compared to $4,721 million reported in the year-ago period. Also, Macy’s cash and cash equivalents stood $1,523 million, up from $737 million at the end of 1QFY19.

1QFY20 Highlights (Source: Company Reports)

Business Update on COVID-19 Outbreak: The company commenced the procedure of reopening stores, effective from 4 May 2020. Notably, the company saw a good response from the reopened outlets for the two weeks’ time. The company remains on track to enhance its financial flexibility and expects the business to recover steadily.

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

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

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

Stock Recommendation: The stock of M closed at $6.76 with a market capitalization of ~$2.1 billion. The stock made a 52-week low and high of $4.38 and $23.40 and is currently trading at the lower band of its 52-week trading range. The stock has corrected by ~28.77% and ~69.16% in the last three months and one year, respectively. We note that the novel coronavirus has been shaking most companies and disrupting global economic activities. Notably, Macy’s effort to optimise price, and meet customer demand, is a key positive. Considering the aforesaid facts and current trading levels, we have valued the stock using an Enterprise Value (EV) to Sales multiple based illustrative relative valuation method. We have considered peers like Nordstrom Inc (NYSE: JWN), L Brands Inc (NYSE: LB), and Gap Inc (NYSE: GPS) and arrived at a target price of lower double-digit upside (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing price of $6.76, down 14.86% as on 11 June 2020.

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

Tyson Foods, Inc.

TSN Details 

TSN Carries Out COVID-19 Testing on Team Members: Tyson Foods, Inc. (NYSE: TSN) is one of the top U.S. chicken companies. The company is engaged in producing, distributing, and marketing chicken, beef, pork along with prepared foods. Recently, the company provided COVID-test results at its Chicago facility. The company stated that 240 team members were tested onsite for the COVID-19 virus who work at the facility on May 27. Out of these, eight were tested positive and the majority showed no sign of symptoms. The company also conducted COVID-19 testing of team members at its Center, Texas poultry facility, of 1,212 team members, out of which 17 positive cases were identified.

2QFY20 Key Highlights for the Period Ended 28 March 2020: During the quarter, the company reported adjusted earnings of 77 cents per share, down 36% year over year. During the quarter, revenues came in at $10,888 million, up 4.3% year over year. The company reported gross profit of $1,021 million, down 14.3% year over year. Non-GAAP operating income came in at $501 million, down 23.4% year over year. The company exited the quarter with a cash balance of $437 million, and long-term debt amounted to $10,978 million. For FY20, the company expects capital expenditure to be ~$1.2 billion.

2QFY20 Key Highlight (Source: Company Reports)

Outlook: For FY20, chicken- USDA predicts domestic protein production to increase 3-4% on a year over year basis. The company expects a major portion of the benefit to be absorbed by export markets. The company is taking necessary measures to fight the battle against the coronavirus pandemic, which are expected to enhance TSN’s cost-reduction initiatives. Although TSN is not being able to assess the COVID-19 impact on its demand, it is still well placed to enhance its liquidity and run its business activities. In FY20, it expects total liquidity to stay above its least level of $1 billion. 

Stock Recommendation: The stock of TSN closed at $59.85 with a market capitalization of ~$21.8 billion. The stock made a 52-week low and high of $42.57 and $94.24 and is currently trading at the lower band of its 52-week trading range. The stock has corrected by ~1.5% and ~27.29% in the last one month and one year, respectively.  Higher demand for protein-packed food has been a major driver for Tyson Foods. The company remains on track to undertake acquisitions and stay afloat to boost focus on areas with growth potential. On the valuation front, the stock is trading at an EV/Sales multiple of 0.8x as compared to the industry median (Food & Tobacco) of 1.7x on TTM (Trailing Twelve Months) basis. Considering the aforesaid facts and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $59.85, down 7.27% as on 11 June 2020.

TSN Daily Technical 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.