Stocks’ Details

Tesla, Inc.

 
TSLA Cuts EV Prices: Tesla, Inc. (NASDAQ: TSLA) is involved in the development, manufacturing, and sale of high-performance fully electric vehicles (EV) and energy generation and storage systems. Recently, the company stated that it intends to slash prices of its electric vehicles by ~6% in North America. The news came as TSLA ramps up car production at the Fremont plant. The price cut was on the back of declining demand of auto in the region over weeks due to lockdown that has now begun to ease.
 
1QFY20 Key Highlights: During the quarter, the company reported non-GAAP earnings per share of $1.24, as compared to prior-year 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 went up 32% from the prior corresponding period and stood at $5,985 million. In 1QFY20, net income stood at $16 million, as compared to a net loss of $702 million reported in 1QFY19. In 1QFY20, TSLA recorded delivery and production of 88,496 and 102,672 vehicles, suggesting a rise of 40% and 33%, respectively, from the prior corresponding period. 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)
 
Risk Analysis: The company has raised cash through both equity and debt so the Model 3 launch will go smoothly. Higher cost and stiff competition from peers remain a potential headwind, going forward.
 
Stock Recommendation: The stock of TSLA closed at $1003.96 with a market capitalization of ~$186.2 billion. The stock made a 52-week low and high of $211 and $1,027.48 and is currently trading at the upper band of the range. The company remains on track to enhance its vehicle deliveries, both sequentially and annually, with some anticipated variations from seasonality. On the valuation front, the stock is trading at an EV/Sales multiple of 7.5x as compared to the industry mean of 30.1x on TTM (Trailing Twelve Months) basis. Given the recent update, current trading levels and COVID-19 impact, we give a ‘Hold’ recommendation on the stock at the closing price of $1003.96, up 1.23% as on 18 June 2020.
 

The Goodyear Tire & Rubber Company

 
Offering on-demand and on-location qualified vehicle Services: The Goodyear Tire & Rubber Company (NASDAQ: GT) is involved in the development, manufacturing, distribution and marketing of tires and related products and provides services worldwide. In a recent release, the company revealed that it is offering on-demand and on-location qualified vehicle services for Turo, via its fleet servicing platform, AndGo by Goodyear. In another update, the company announced that it is planning to construct two photovoltaic power stations at Luxembourg. The two stations will deliver ~5 GWh, on an annual basis and reduce carbon emissions by 46.3 tons, offering clean energy for ~1,200 households for the coming 20 years.
 
1QFY20 Operational Highlights for the Period ended 31 March 2019:  During the quarter, the company delivered adjusted loss per share of 60 cents as compared to earnings per share of 19 cents reported in the year-ago period, owing to lower revenues across all segments. The company reported an adjusted net loss of $140 million, as compared to a net income of $45 million in the year-ago period. Revenues for the quarter stood at $3,056 million, as compared to $3,598 million reported in 1QFY19. The year-over-year weakness was due to lower industry volume and unfavorable foreign currency translation. Tire volumes in the first quarter went down 18% year over year and came 31.3 million units.
 

Key Income Statement Highlights (Source: Company Reports)
 
Financial Position: The company exited the period with a cash balance of $971 million and long-term debt and finance leases amounting to $5.21 billion. 
 
Risk Analysis: Lower demand following shelter-in-place orders and strong declines in consumer confidence amid the coronavirus pandemic are deteriorating the company’s margins. Further, foreign exchange fluctuation and stiff rivalry in the market adds to the woes. The company has suspended its quarterly dividend due to the uncertainty caused by the coronavirus outbreak.
 
Stock Recommendation: The stock of GT closed at $8.60 with a market capitalization of ~$2.00 billion. The stock made a 52-week low and high of $4.09 and $17.2 and is currently trading at the lower band of its 52-week trading range. The stock went up by 21.47% and 88.18% in the last one month and three months, respectively. The company benefited from the strength of its brand, new product introductions, followed by new distributions strategies. On the valuation front, the stock is trading at an EV/Sales multiple of 0.6x as compared to the industry median of 1.1x on TTM (Trailing Twelve Months) basis. Considering the aforesaid facts, current trading levels, recent price movements and the company’s brand presence, we recommend a ‘Buy’ rating on the stock at the closing price of $8.6, down 1.04% as on 18 June 2020.

Harley-Davidson Inc

 
Cost Cutting Initiatives a Key Catalyst:Harley-Davidson Inc (NYSE: HOG) is the parent company of Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). In a recent update, the company appointed Jochen Zeitz as its President and Chief Executive Officer (CEO), in effect instantly. 
 
1QFY20 Financial Highlights for the Period Ended 29 March 2020: During the quarter, the company reported earnings per share of 45 cents, as compared to 80 cents per share from the prior-year period. Financial Services segment revenues during the quarter came in at $198.4 million. Net income during the quarter came in at $69.7 million, down from the year-ago income of $127.9 million. The company reported consolidated revenue of $1.29 billion. The company exited the period with a cash balance of $1,465 million and long-term debt of $4,478 million. Net operating cash outflow at the end of the period came in at $8.58 million.
 
 

1QFY20 Financial Highlights (Source: Company Reports)
 
Risk Analysis: The company’s elevated SG&A costs and rising competition are likely to impact margins in the near-term. The company is facing stiff rivalry from small brands, along with foreign bike makers, which poses a potential threat to HOG. The company suspended its 2020 outlook due to disruptions to the company’s supply chain as a result of the COVID-19 outbreak.
 
Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF 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 HOG is quoting at $24.87 with a market capitalization of ~$3.8 billion. The stock is currently quoting at the lower band of its 52-week trading range of $14.31 to $40.89. The stock went up by 10.44% and 23.36% in the last one month and three months, respectively.   The company has taken the necessary steps to reduce its non-essential spending. In order to do so, HOG stopped its company-wide hiring, with no increments for 2020. In total, it predicts these efforts to save ~$250 million of cash in 2020. Considering the aforesaid facts, we have valued the stock using the Price to Cash Flow based relative valuation method. We have taken the peer group - General Motors Co (NYSE: GM), and Ford Motor Co (NYSE: F) to name few and arrived at a target price of high single-digit upside (in% terms). Hence, we recommend a “Hold” rating on the stock at the closing price of $24.87, down 0.32% as on 18 June 2020.

 
Comparative Price Chart (Source: Refinitiv,Thomson Reuters) 

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