Stocks’ Details 

AT&T Inc.

Healthy Subscriber Base Amidst Pandemic: AT&T Inc. (NYSE: T) provides telecommunications, media and entertainment, and technology services. The COVID-19 pandemic impacted the company’s WarnerMedia and the wireless services segment with a drop in international roaming. Its television and theatrical products divisions such as Warner Bros saw lower revenues in Q3FY20 over last year. Overall revenue declined by 6.2% in YTD Sep’20 over pcp. The decline in EBITDA margin to 31.4% in Q3 FY20 over pcp was due to COVID-related losses and increased investments in HBO MAX. The company had reported operating cash flows of $33.0 billion in YTD Sep’20, down from $36.7 billion reported in pcp. AT&T ended Sep’20 quarter with a cash balance of $9.7 billion. Overall debt increased with debt-to-equity ratio at 0.91x as of Sep’20 (vs. 0.91x over pcp). A significant portion of borrowings is coming due for maturity starting from 2022.

Key Financials (Source: Company Reports)

Outlook: AT&T is expecting FY20 free cash flows to reach $26 billion. Its full-year capex target of $20 billion is on-track. AT&T plans to cut down debt by 50% reduction over the next five years. Its asset sale plans for $3 billion are expected to close in Q4 FY20. 

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: AT&T plans to reduce debt through monetization of non-core assets and strategic capex investments. AT&T added subscriber base in Q3 FY20 despite pandemic in wireless and HBO Max segment. The stock of the company has corrected 2.31% in the last 6 months and 26.23% in the last 1 year. On the technical analysis side, AT&T has a support level of ~$27.16 and resistance level of ~$31.45. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of single-digit (in percentage terms). For the purpose, we have taken peers like DISH Network Corp (NASDAQ: DISH), Telephone and Data Systems Inc (NYSE: TDS), Comcast Corp (NASDAQ: CMCS). Given the deterioration in revenue growth and EBITDA margin, elevated debt levels, key investment risks, and valuation, we suggest investors to wait for a better entry-level and give an “Expensive” rating to the stock at the closing price of $28.750, up by 1.23% on December 23, 2020.

Palantir Technologies Inc.

Strong Order Backlog Drove Revenues: Palantir Technologies Inc. (NYSE: PLTR) develops software applications for integrating, visualizing, and analyzing information used by the public, private, government, and not-for-profit sectors. The company recently secured a two-year contract worth $31.5 million from the UK National Health Service (NHS England and NHS Improvement) for providing COVID-related study. NHS will also use the platform provided by Palantir for planning and distribution of vaccine programs to the UK market. Average revenue per customer grew by 38% to $5.8 million during YTD Sep’20 (vs. $4.2 million in pcp). It had signed the largest deal during the quarter for $300 million in the aerospace industry which had lifted the overall revenue growth. The current order backlogs have an average duration of 3.6 years. Due to significant stock-based compensation expenses, PLTR incurred a negative EBITDA margin. For the quarter, the company incurred a net loss of loss from operations of $847.8 million. As at 30 September 2020, the company cash balance stood at $1.8 billion.

Key Financials Q3 FY20 (Source: Company Reports) 

Outlook: Despite the pandemic, PLTR secured new contracts in the consumer goods, healthcare, and financial services sector. It also secured government contracts – it had sealed a $91 million two-contract from the US Army Research Laboratory recently. Management is expecting revenue to top $1.071 billion in FY20 (+44% YoY growth). It is also expecting adjusted operating profit to reach $133 million (with an adjusted operating margin of 12%) in FY20. Its Q4 FY20 revenue is expected to grow by 31% YoY.

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, TTM-Trailing Twelve Months 

Stock Recommendation: The stock was recently debuted on NYSE. It has yielded one-month returns of +36.36%. PLTR is trading closer to its 52-week high price of $33.50. The company had steady revenue streams given the strong order backlogs from the government. Its current backlogs have an average duration of 3.6 years. PLTR had a solid cash balance of $1.8 billion and modest debt levels. On the technical analysis front, the stock has a resistance level of ~$29.09 and a support level of ~$22.44. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For this purpose, we have taken peers such as Adobe Inc. (NASDAQ: ADBE), ServiceNow Inc. (NYSE: NOW), Snowflake Inc. (NYSE: SNOW), to name a few. Considering the company’s rapidly growing revenues accompanied by government contracts, solid cash balance, and decent outlook, we recommend a “Hold” rating on the stock at the closing price of $28.69, up by 2.32% on December 23, 2020.

Beyond Meat Inc.

Mixed Revenue Trends: Beyond Meat Inc. (NASDAQGS: BYND) provides plant-based food products to the US and international markets. As COVID impacted foodservice chains, overall sales increased modestly during Q3 FY20 over pcp. But on a YTD basis, revenue surged by 52.9% over pcp mainly led by strong sales from the US Retail Stores segment. Its negative EBITDA margin of 11.8% in Q3 FY20 was a result of a drop in price realization, higher discounts, and an increase in fixed costs. The pandemic impacted BYND with inventory write-offs and an increase in packaging costs which resulted in a net loss of $27.67 million in YTD Sep’20 (vs. a loss of $12.0 million in pcp). BYND closed Sep’20 quarter with a cash balance of $214.6 million. The company had modest debt levels with D/E at 0.13x as of Sep’20, although increased 0.08x as of from Sep’19.

Financial Highlights Q3 FY20 (Source: Company Reports)

Outlook: BYND is expanding to the EU and China. Revenue from international retail stores grew by 135% in YTD Sep’20 over pcp. According to the management, change in demand pattern followed by a surge in at-home consumption has moderated. But there is a high degree of uncertainty on consumer preferences for retail and foodservice channels.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation (Illustrative)

Price/Book Value 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 the company has corrected 0.74% in the last 1 month and 7.07% in the last 3 months. BYND is trading higher than the average of 52-week high price of $197.50 and 52-week low price of $48.18. The company’s foodservice segment was impacted by lockdown restrictions during the pandemic. It had reported a negative EBITDA margin and losses in Q3 FY20. We have valued the stock using the Price/Book Value multiple based illustrative relative valuation method and arrived at a target price, with a correction of high single-digit (in percentage terms). For the purpose, we have taken peers like Hershey Co (NYSE: HSY), Lamb Weston Holdings Inc (NYSE: LW), and Freshpet Inc (NASDAQ: FRPT). Given the negative EBITDA, negative ROE, current trading level, valuation, and key investment risks we suggest investors wait for a better entry-level and give an “Expensive” rating to the stock at the closing price of $139.92, up by 0.89% on December 23, 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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