Alcoa Corporation

 AA Details 

Q1FY20 Key Highlights: Alcoa Corporation (NYSE: AA) is a worldwide industry leader in alumina, bauxite, as well as aluminum products. During Q1FY20, AA reported revenues of $2,381 million, down from $2,719 million reported in the year-ago quarter. Adjusted loss per share for the period came in at $0.23 per share, flat on a year over year basis. Net income for the quarter stood at $80 million, as compared to a net loss of $199 million in the year-ago period. EBITDA for the quarter stood at $321 million (excluding special items), down 7% quarter over quarter, due to lower prices, product mix and volume, or higher production costs. Notably, 1QFY20 result includes the net positive impact of $122 million of special items, specially from the gain from sale of the waste treatment facility in Gum Springs, Arkansas. At the end of 31 March 2020, the company had a cash balance of $829 million, as compared to $879 million as at 31 December 2019. Long-term debt at the end of the period amounted to $1,801 million. During the quarter cash used for operations amounted to $90 million, whereas, cash used for financing activities stood at $44 million.

1QFY20 Key Highlights (Source: Company Reports)

What to Expect: In FY20, the company expects Aluminum segment shipments to be between 2.9 and 3.0 million metric tons per annum. Further, it anticipates total annual bauxite shipments to be in the ambit of 48.0 and 49.0 million dry metric tons. The company plans to deliver ~$700 million in 2020 through savings or deferrals, in order to address the economic uncertainty caused by the coronavirus pandemic. The company is reducing ~$100 million of non-critical capital expenditure as a COVID-19 related corrective measure in FY20.

Key Risks: The company is exposed to risks pertaining to uncertainties surrounding the global trade. Also, higher tax rate as well as high energy costs remains a potential headwind. Notably, at the end of the first quarter of 2020, the company’s long-term debt was $1,801 million, up from $1,799 million reported as at 31 December 2019. We believe, if unchecked, high debt levels can increase its financial obligations and prove harmful to profitability in the quarters ahead.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF 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 AA closed at $11.23 with a market capitalization of ~$2.09 billion. The stock of the company went up by 59.74% in the past three months but went down 6.96% in the past one month. Debt to equity multiple in Mar’20 stood at 0.42x, higher than the industry median of 0.27x. The company is set to report its second quarter 2020 financial results on 15 July 2020. We have valued the stock using a P/CF multiple based illustrative relative valuation method which suggests a correction of low double-digit (in percentage terms). Considering the aforesaid facts, current trading levels, and attractive returns in the past three months, we suggest investors to book profit and recommend a ‘Sell’ rating on the stock at the current market price of $11.23 per share, down 2.09% on 7^th July 2020.

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

Novavax, Inc.

NVAX Details

NVAX Receives $1.6Bn Grant from Operation Warp Speed: Novavax, Inc. (NASDAQ: NVAX), is a late-stage biotechnology company that offers health services via the production, distribution and development of pioneering vaccines used to prevent infectious illnesses. In a recent update, the company has been chosen to join a U.S. government program, Operation Warp Speed (OWS) that seeks to commence offering millions of doses of a safe, and effective vaccine for COVID-19 in 2021. Notably, the company has been awarded $1.6 billion by the federal government to support the late-stage clinical development of coronavirus vaccine, which incorporates a pivotal Phase-3 clinical trial. Further, the amount will be utilized to establish large-scale manufacturing capabilities and deliver 100 million doses of Novavax’ COVID-19 vaccine candidate, NVX‑CoV2373, as soon as late 2020.

USDoD Contract: On 4 June 2020, the company stated that it has been granted a contract by the United States Department of Defense (DoD) to produce its COVID-19 vaccine candidate, NVX-CoV2373. As per the deal, NVAX will produce approximately 10 million doses of the coronavirus vaccine candidate. These doses will be utilized in phase 2/3 clinical trials or under an Emergency Use Authorization (EUA), post the permission by the FDA. NVX‑CoV2373 comprises a stable, prefusion protein antigen that includes Novavax’s proprietary Matrix‑M™ adjuvant.

Other Recent Updates: Recently, the company stated that it has acquired Praha Vaccines a.s., in an all cash transaction of ~$167 million. The facility is likely to offer more than 1 billion doses of annual capacity of antigen commencing from 2021 for NVX‑CoV2373.

Q1FY20 Business Highlights for the Period ended 31 March 2020: NVAX announced its quarterly results, wherein the company reported total revenue of $3.38 million as compared to $3.98 million in the previous corresponding period. The decline in year over year revenues was on the back of conclusion of the Prepare™ trial in FY19, partially offset by revenue from CEPI’s funding. The company reported lower research and development (R&D) expenses of $16.9 million as compared to $35.5 million in the previous corresponding period. The decrease in R&D was on the back of lower development activities, lower ResVax related clinical trial expenditure, lower employee-related costs, and other cost savings due to the Catalent transaction in 2019. NVAX reported a lower net loss of $25.86 million as compared to a loss of $43.2 million in pcp. The company exited the period with a cash balance of ~$179.9 million.

Key Income Statement Highlights (Source: Company Reports)

Key Risks: On the flip side, several drug/biotech companies are working on making new antibodies, vaccines and drugs to combat the COVID-19 disease, which depicts stiff competition in the market. Further, the increased costs related to developing a drug or vaccine using a costly technology, are potential headwinds. Most drugs are years away from a potential approval that makes the returns ambiguous.

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

EV/Sales 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 NVAX closed at $104.56 with a market capitalization of $6.1 billion. The stock made a 52-week low and high of $3.54 and $111.77, respectively, and is currently trading at the upper band of its 52-week trading range. The stock jumped 125.83% and 601.74% in the last one month and three months, respectively, on the recent update on the development of Novel COVID-19 vaccine. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method which suggests a correction of single-digit (in percentage terms). Considering the aforesaid facts, current trading levels, and attractive returns in the past few months, we suggest investors to book profit and recommend a ‘Sell’ rating on the stock at the current market price of $104.56 per share, up 31.62% on 7^th July 2020.

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

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