The Coca-Cola Company

KO Details
 
Earnings Increased on a Year Over Year Basis: The Coca-Cola Company (NYSE: KO) is a beverage company, which has a portfolio of more than 500 brands and is available across 200 countries and territories.
 
1QFY20 Operational Highlights for the Period ended 27 March 2019: KO declared its 1QFY20 results, wherein the company reported net revenue of $8.6 billion, down 1% on y-o-y basis. In 1QFY20, the company’s concentrate sales along with price per mix remained flat year over year. During the quarter, non-GAAP operating income (currency-neutral) increased 11% year over year, backed by favorable timing of certain corporate expenses and robust operating expense leverage in Latin America. Comparable operating margin stood at 30.7%, up on 28.2% reported in pcp. In 1QFY20, revenues from North America grew 6%, while those from Latin America increased 4%. In the meantime, revenues from Asia Pacific and EMEA declined 5% and 3%, respectively.EPS increased 65% to $0.64, and comparable EPS (non-GAAP) soared 8% to $0.51 in 1QFY20.
 

Key Income Statement Highlights (Source: Company Reports)
 
COVID-19-Impact & Business Update: Due to the COVID-19 outbreak, the company has permitted its staff to work remotely. The company remains focused to invest in e-commerce to assist retailers and meal delivery services and redeploying consumer and trade promotions toward digital. The company’sunit case volume development through the end of February was ~3%, which excludes China.In 2HFY20, the company expects performance to improve, as it believes the aforesaid impacts to be momentary.
 
Outlook: Although, KO did not provide FY20 guidance, it however sketched the expected currency impacts on its upcoming results. For 2020, KO predicts currency headwinds of mid-single digit on comparable net revenues and high-single digit on comparable operating income. These estimates are based on current rates and the impact of hedge positions. For 2QFY20, KO expects currency impacts of 4-5% on comparable net revenues and 5-6% on comparable operating income.
 
Valuation Methodology- P/E Multiple Based Relative Valuation (Illustrative)

P/E Based 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 KO closed at $44.54 with a market capitalization of $191.3 billion. The stock is trading at the lower band of its 52-week trading range of $36.27 to $60.13. The company made decent progress in 1QFY20 with decent growth in its overall portfolio. The stock of the company went down by 7.32% in the past one month. Debt to equity multiple in March’20 stood at 2.78x, higher than the industry median of 0.64x. EBITDA margin for the same period stood at 34.9%, higher than the industry median of 17.7%. Considering the above factors, we have valued the stock using a P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). For the purpose, we have taken peers such as PepsiCo Inc (NASDAQ: PEP), Constellation Brands Inc (NYSE: STZ), Monster Beverage Corp (NASDAQ: MNST), to name few. Hence, we recommend a “Buy” rating on the stock at the closing price of $44.54, down 0.96% on 19 May 2020.
 
 
 
KO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
 
 

Cisco Systems, Inc.

 

CSCO Details
 
Cisco Rides on Robust Adoption & Acquisition Synergies: Cisco Systems, Inc. (NASDAQ: CSCO) is an Internet protocol-based networking company, which is engaged in providing a wide range of technology products and services.
 
3QFY20 Key Financial Highlights: The company reported 3QFY20 non-GAAP earnings of 79 cents per share, which increased ~1% year over year. However, revenues for the quarter came in at ~11.98 billion, down ~8% year over year. The decline was mainly due to coronavirus crisis-persuaded supply chain and component constraints and related manufacturing challenges. During the quarter, product revenues declined ~12% on a year-over-year basis and came in at $8.6 billion, which more than offset the 5% increase in service revenues which came in at $3.39 billion. Growth in service revenue was driven by higher sales in software and solution services. Non-GAAP gross margin during the quarter stood at 66.6%, up 2 points year over year.
 

Key Highlights (Source: Company Reports)
 
Balance Sheet & Cash Flow Details:  The company exited the period with cash & cash equivalents and investments balance of ~$28.57 billion. Total debt at the end of the period stood at $16.08 billion. Operating cash flow for the third quarter came in at $4.2 billion, up from $3.8 billion during the previous quarter.
 
Key Development: On April 6, 2020, the company stated that it intends to buy Fluidmesh Networks. The acquisition of Fluidmesh will strengthen Cisco’s Industrial IoT portfolio and permit it to address growing demand for IoT based solutions in the market. The deal is predicted to be completed by 4QFY20.
 
What to Expect:For 4QFY20, the company expects revenues to decline 8.5-11.5% on a year-over-year basis. Non-GAAP gross margin and operating margins are expected in the range of 64-65%, and 31.5%- -32.5%, respectively, for 4QFY20. The company expects non -GAAP earnings to be in the range of 72 cents and 74 cents per share.
 
Valuation Methodology- EV/EBITDA Multiple Based Relative Valuation (Illustrative)
 

 
EV/EVITDA Based 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 CSCO closed at $44.605 with a market capitalization of ~$189.2 billion. The stock made a 52-week low and high of $32.4 and $58.26 and is currently trading above the average of its 52-week trading range. The stock has corrected by ~3.64% and ~20.84% in the last three months and one year, respectively. CSCO remains on track to benefit from robust demand for its endpoints and the network. Considering the above factors and the potential despite the prevailing crisis, we have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with limited upside (in % terms). For the purpose, we have taken peers like Arista Networks Inc (NYSE: ANET), Juniper Networks Inc (NYSE: JNPR), and F5 Networks Inc (NASDAQ: FFIV). Hence, we recommend a “Hold” rating on the stock at the current market price of $44.605, down 1.01% on 19 May 2020.
 
 
CSCO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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