Taiwan Semiconductor Manufacturing Company Limited
TSM Details
Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) is a semiconductor company that specializes in the production, sales, packaging, testing, and computer-aided design of integrated circuits and other semiconductor devices, as well as the fabrication of masks. TSM has 5.19 billion American Depository Shares (ADS) listed and outstanding, with each ADS representing five common shares.
Q4FY21 Results:
- Improvement in Revenue: TSM's net revenues in Q4FY21 (ended December 31, 2021) were TWD 438.19 billion, up 21.20% from TWD 361.53 billion in Q4FY20.
- Rise in Net Income: In Q4FY21, the company's net income was TWD 166.23 billion, an improvement from TWD 142.77 billion in Q4FY20.
- Increase in EPS: The company reported an EPS of USD 6.41 in Q4FY21 vs. USD 5.51 in Q4FY20.
Key Risks:
- Customer Concentration Risk: As of September 30, 2021, December 31, 2020, and September 30, 2020, the company's top 10 largest clients accounted for 80%, 79%, and 82% of accounts receivable, respectively. The company's financial position may be harmed in the long run if it is overly reliant on a few clients for revenue.
- Cyclical Industry: The electronics and semiconductor industries are cyclical, with significant variations in product demand, which can impact semiconductor foundry operations. As a result, any downturn or significant impact on semiconductor economic conditions could negatively impact the company's cash flow and revenues.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation
(Analysis by Kalkine Group)
- % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
TSM Daily Technical Chart (Source: REFINITIV)
Stock Recommendation:
TSM's share price has surged 28.76% in the past three months and made a new 52 week high today. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 72.58, indicating an overbought zone. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 130.76.
Considering the uptick in the stock price, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 145.00, up 9.66%, as of January 13, 2022, at 9:54 AM ET.
* The reference data in this report has been partly sourced from REFINITIV.
* All forecasted figures and industry information have been taken from REFINITIV.
Reynolds Consumer Products Inc.
REYN Details
Reynolds Consumer Products Inc. (NASDAQ: REYN) is a market-leading consumer goods company in the US. It makes and sells cooking, trash and storage, and dinnerware products. REYN sells its products under well-known names like Reynolds, Hefty and store brands strategically significant to its clients.
Q3FY21 Results:
- Surge in Topline: The company reported a growth of 9.91% in net revenues to USD 876 million in Q3FY21 (ended September 30, 2021) from USD 797 million in Q3FY20, primarily driven by pricing actions of USD 79 million taken in response to increased material costs.
- Contraction of Net Income: The company's net income decreased to USD 66 million in Q3FY21 from USD 113 million in Q3FY20.
- Leveraged Balance Sheet: As of September 30, 2021, the company had cash and cash equivalents of USD 70 million and total debt of USD 2.12 billion.
Key Risks:
- Customer Concentration Risk: In FY20, sales to its top 10 customers accounted for 68% revenue, with Walmart and Sam's Club accounting for 30% and 13% revenue. As a result of this disproportionate reliance on a small number of large clients, the company's financial operations and cash flow may be threatened.
- Manufacturing Facility Concentration: Some REYN goods are manufactured in a single place. For example, its Malvern, Arkansas plant manufactures all of the foil reroll for its Louisville, Kentucky plant, which is the company's only source of domestic foil. As a result, the loss of all or part of any of its critical production sites might have a significant negative impact on the company's financial and operational health.
Outlook:
- Q4FY21 Estimates: As of November 04, 2021, REYN expect Q4FY21 net income to be around USD 89-104 million. It further anticipates diluted EPS to be around USD 0.42-0.49, assuming diluted shares outstanding of 210 million.
- FY21 Estimates: The company expect its FY21 net income to be around USD 309-324 million. It also predicts its diluted EPS to be in between USD 1.47-1.54, assuming diluted shares outstanding of 210 million
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation
(Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
REYN Daily Technical Chart (Source: REFINITIV)
Stock Recommendation:
REYN's share price has surged 14.72% in the past three months and is leaning towards the higher band of the 52-week range of USD 26.50 to USD 32.29. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 69.91. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 30.11.
Considering the uptick in the stock price, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 32.20, up 1.16%, as of January 13, 2022, at 10:44 AM ET.
*All forecasted figures and Industry Information have been taken from REFINITIV.
*The reference data in this report has been partly sourced from REFINITIV.
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