The Kraft Heinz Company

KHC Details
 
KHC Increases Tender Offer to $2.2 Bn: The Kraft Heinz Company (NASDAQ: KHC) operates in the food and beverage segment and has a diversified portfolio of iconic and emerging brands. Recently, the company announced that it has increased the “Maximum Tender Amount” to be purchased by the Issuer to $2.2 billion, which excludes any accrued and unpaid interest, from the previously announced Maximum Tender Amount of $1.2 billion. 
 
Q1FY20 Operational Highlights for the Period ended 28 March 2020: KHC declared its quarterly report, wherein the company reported net sales of $6,157 million, up 3.3% from the previous corresponding period. Net sales growth consisted 1.1% unfavorable impacts of currency and 1.8% negative impact from divestitures. During the quarter, organic sales increased 6.2% on the back of robust consumer demand stemming from the coronavirus pandemic. Pricing for the quarter increased 1.6%, driven by price improvements in the US and International markets. Volume/mix rose 4.6% on the heels of growth in at-home consumption. Gross profit came in at $1,858 million, down from $2,011 million in Q1FY19. Adjusted EBITDA came a tad lower at $1,415 million as compared to $1,431 million in the prior corresponding period. The company exited the quarter with cash and cash equivalents of $5,403 million, long-term debt of $31,531 million and total shareholders’ equity of $51,009 million.
 
 
Q1FY20 Income Statement Highlights (Source: Company Reports)
 
What to Expect: The impact of COVID-19 pandemic on KHC’s FY20 results remains unclear.  For 2QFY20, KHC expects a low to mid-single-digit year over year organic net sales growth, whereas adjusted EBITDA is expected to increase at a rate of mid-single digit on a constant-currency basis. This stance indicates boosted demand from retail customers owing to greater in at-home consumption, especially in developed markets.
 
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative 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 KHC is quoting at $28.93 with a market capitalization of $35.3 billion. The stock is trading above the average of its 52-week trading range of $19.99 to $33.43, respectively. The stock has corrected 10.94% in the past one year but went up 24.07% in the last one month.The company is witnessing higher consumer demand for its products, on the back of panic-induced stockpiling amid the coronavirus outbreak. Nonetheless, additional expenses incurred to support growth along with key commodity cost inflation and increase in manufacturing expenses remain a matter of concern. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with lower double-digit upside (in % terms).  Considering the above factors, we give a “Hold” rating on the stock at the current market price of $28.93 per share, down by 1.53% on 04 May 2020.

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

Tesla, Inc.

TSLA Details
 
Automotive Revenues up a Whopping 38% Y/Y: Tesla, Inc. (NASDAQ: TSLA) is engaged in the development, manufacturing and sale of high-performance fully electric vehicles (EV) and energy generation and storage systems. Recently, the company announced that Hiromichi (Hiro) Mizuno has been appointed on the company’s Board of Directors and Audit Committee, effective from 23 April 2020.
 
1QFY20 Key Highlights: During the quarter, the company reported non-GAAP earnings per share of $1.24, as compared to prior-year’s loss of $2.90 per share. Automotive revenues for the period stood at $5,132 million, up 38% year over year. Total revenues for the quarter increased 32% year over year and came in at $5,985 million. In 1QFY20, net income stood at $16 million, as compared to a net loss of $702 million reported in 1QFY19. During the first quarter, TSLA recorded delivery and production of 88,496 and 102,672 vehicles, indicating a growth of 40% and 33%, respectively, year over year. The company exited the period with cash and cash equivalents of $8.1 billion. Net cash used in operating activities stood at $440 million during the quarter, with capital expenditure amounting to $455 million, owing to higher investments in Gigafactory Shanghai and Model Y preparations in Fremont.
 

Q1FY20 Financial Highlights (Source: Company Reports)
 
What to expect: The company remains on track to enhance its vehicle deliveries, both sequentially and annually, with some anticipated variations from seasonality. For FY20, the company expects vehicle deliveries to be more than 500,000 units.
 
Stock Recommendation: The stock of TSLA closed at $761.19 with a market capitalization of ~$141.1 billion. The stock made a 52-week low and high of $176.99 and $968.99 and is currently trading at the upper band of the range. The stock has generated positive returns of ~45.64% and ~199.7% in the last one month and one year, respectively. Amid the coronavirus-led crisis, TSLA ceased from providing any profit or cash-flow estimate. Also, the company expects to expand production of Model 3 in Shanghai and Model Y in Fremont through 2QFY20. It also expects to commence deliveries from both locations by 2021.On the valuation front, the stock is trading at an EV/Sales multiple of 5.9x as compared to the industry mean of 20.2x on TTM (Trailing Twelve Months) basis. Given the recent update, current trading level and COVID-19 impact, we give a ‘Hold’ recommendation on the stock at the closing price of $761.19, up 8.54% as on 4 May 2020.
 
 
TSLA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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