Stocks’ Details

Tyson Foods, Inc.

Dividend Declared: Tyson Foods, Inc. (NYSE: TSN) is a leading food company with a growing portfolio of protein-centric brands. The company recently declared a quarterly dividend of $0.445 per share on Class A common stock and $0.4005 per share on Class B common stock. The dividend has a record date of 1 September 2021 and payment date of 15 September 2021.

Sale of Pet Treats Business: The company recently announced that it is going to sell its pet treats business to General Mills, Inc. (NYSE: GIS) for a total consideration of $1.2 billion. It is expected that the transaction will be completed by the end of FY21, subject to regulatory approval and other customary closing conditions. For the 12 months ended 2 April 2021, TSN’s pet treat business generated total sales of $240 million.

H1FY21 Results Highlights: For H1FY21, the company reported adjusted operating income of $1,764 million, up 32% on the previous corresponding period (pcp), driven by decent results in Beef and Prepared Foods. For Q2FY21, the company reported GAAP operating income of $720 million, up 40% on pcp. GAAP EPS for H1FY21 stood at $2.58, up 7% on pcp. As on 03 April 2021, the company had liquidity of $2.6 billion.

H1FY21 Results (Source: Company Reports)

Outlook: The company continues to witness substantial inflation across its supply chain, which will likely create margin pressure. Looking ahead, the company expects its investments in capacity expansion, product innovation and technology to create sustainable shareholder value. In FY21, the company expects results from pork and chicken to be lower than the results of FY20.

Key Risk: Fluctuations in demand for food and protein can cause disruptions in the company’s business. Further, the challenges created by the COVID-19 pandemic could increase the operating costs and impact its volumes.

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

Data Source: Refinitiv, Thomson Reuters, 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.

Stock Recommendation: Over the last six months, the stock of TSN has provided a return of 32.84% and in the last three months, it has provided a return of 19.5%. The stock is currently trading near its 52-weeks’ high price of $81.79. On the technical analysis front, the stock has a support level of ~$77.83 and resistance of ~$81.32. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at some discount to its peer average P/E (NTM trading multiple), considering the continued impact of COVID-19 pandemic, decline in cash balance and associated risks with the fluctuations in demand for food and protein. We have taken peers like Archer-Daniels-Midland Co (NYSE: ADM), Conagra Brands Inc (NYSE: CAG) and Pilgrims Pride Corp (NASDAQ: PPC). Considering the stock’s decent returns in the past six- and three-months period, current trading level, inflation across the company’s supply chain, associated key risks and valuation, we advise investors to book profit and give a “Sell” rating on the stock at the closing price of $80.69, up by ~0.14% as on 21 May 2021.

Aramark

Q2FY21 Result Highlights: Aramark (NYSE: ARMK) is mainly involved in providing food, facilities, and uniform services to leading educational institutions, Fortune 500 companies, world champion sports teams, and prominent healthcare providers. The company recently announced the appointment of Bart Kaericher as the President and CEO of Aramark’s Healthcare division. For Q2FY21, the company reported consolidated revenue of $2.8 billion, down by 24% on pcp, impacted by the COVID-19 pandemic. Due to increased levels of business activity, the sequential quarterly revenue witnessed improvement across all segments. For the quarter, the company reported operating income of $5 million and adjusted operating income of $30 million. At the end of the quarter, the company had cash and cash equivalent of $1.4 billion.

Key Highlights (Source: Company Reports)

Key Risks: The severity and duration of the COVID-19 pandemic could impact the company’s future results. The company is also exposed to the risks associated with suppliers from whom the products are sourced, disruptions to the company’s relationship with distribution partners, the contract intensive nature of the company’s business, etc.

Outlook: Looking ahead, the company is focused on leveraging its flexible operating model while managing the business with a cost-disciplined, long-term mindset focused on accelerated growth and margin progression. In the second half of FY21, the company expects the adjusted operating income (AOI) margin to be in the range of 4.0% to 4.5% with incremental quarterly progression.

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

Data Source: Refinitiv, Thomson Reuters, 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.

Stock Recommendation: Over the last nine months, the stock has provided a return of 44.83% and in the last three months it has corrected by 2.57%. The stock is currently trading higher than the average 52-week’s price level band of $43.12-$20.31. On the technical analysis front, the stock has a support level of ~$34.29 and resistance of ~$40.03. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at some discount to its peer average EV/EBITDA (NTM trading multiple), considering the ongoing impact of COVID-19 pandemic, decline in revenue for Q2FY21, and associated key risks. We have taken peers like Chipotle Mexican Grill Inc (NYSE: CMG), Six Flags Entertainment Corp (NYSE: SIX), Wyndham Hotels & Resorts Inc (NYSE: WH), etc. Considering the current trading level, uncertainty surrounding the impact of COVID-19 pandemic and valuation, we advise investors to book profit and give a “Sell” rating on the stock at the closing price of $37.15, down by ~0.16% as on 21 May 2021.

Carter's, Inc.

Decent Growth in Q1FY21 Net Sales: Carter's, Inc. (NYSE: CRI) is a leading branded marketer in North America of apparel exclusively for babies and young children. During Q1FY21, the company witnessed growth in each of its retail, wholesale, and international business segments. For Q1FY21, the company reported net sales of $787.36 million, up 20% on pcp. Adjusted diluted EPS stood at $1.98 in Q1FY21, higher than the adjusted loss per diluted share of $0.81 in pcp. At the end of Q1FY21, the company had total liquidity of $1.8 billion.

Q1FY21 Results (Source: Company Reports)

Key Risks: The company is exposed to the risks of supply chain disruptions, higher transportation costs, COVID-19 case trends, and product cost inflation, which could impact its operations as well as financial performance. Further, the company is also exposed to the risks related to changes in the timing of wholesale shipments, retail store closures, increased compensation provisions, and higher effective tax rates.

Outlook: For FY21, the company expects its net sales to grow by 10% on FY20. Adjusted diluted EPS is expected to grow by around 40% in FY21. The company expects around $7 million of expenses related to the COVID-19 pandemic, including costs associated with additional protective equipment and cleaning supplies.

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

Data Source: Refinitiv, Thomson Reuters, 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.

Stock Recommendation: Over the last six months, the stock has provided a return of 11.08%. The stock is trading higher than the average 52-week’s price level band of $116.92 -$76.01. On the technical analysis front, the stock has a support level of ~$97.87 and resistance of ~$104.27. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at some discount to its peer average P/E (NTM trading multiple), considering the ongoing impact of COVID-19 pandemic, and risks associated with supply chain disruptions, higher transportation costs, COVID-19 case trends, and product cost inflation. We have taken peers like Burlington Stores Inc (NYSE: BURL), Children's Place Inc (NASDAQ: PLCE), Urban Outfitters Inc (NASDAQ: URBN), etc. Considering the current trading level, ongoing uncertainty surrounding the impact of COVID-19 pandemic, and valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the closing price of $101.23, up by ~0.02% as on 21 May 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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