ironSource Ltd.

IS Details

IronSource Ltd. (NYSE: IS) is a software publisher based in Israel. The business is a renowned business platform that helps mobile content providers succeed in the App Economy. As a result, app developers can use ironSource's platform to turn their apps into profitable, scalable companies. On June 28, 2021, the firm went public after merging with Thoma Bravo Advantage, a blank cheque company, through a special purpose acquisition company (SPAC) merger.

Growth in Key Customer base (Source: Q2FY21 Earnings Presentation, August 11, 2021)

Launch Aura on Samsung devices in India: Following previous agreements with Samsung in Europe, Russia, and Southeast Asia, ironSource announced the integration of Aura, its solutions suite for telecom operators and OEMs, on Samsung smartphones in India on July 21, 2021. Samsung India can leverage the Aura solution suite to personalize its consumers' device experiences by providing relevant content, apps, and services.

6MFY21 Results: The company reported a sharp uptick of 88.47% in revenues to USD 254.75 million during 6MFY21 (ended June 30, 2021) compared to USD 135.16 million during 6MFY20, driven by increasing usage by app developers and telecom operators. However, IS witnessed decline in net income to USD 20.25 million during 6MFY21 vs. USD 46.39 million during 6MFY20. As of June 30, 2021, its cash and cash equivalents were USD 706.80 million, with no debt.

Key Risks: The industry in which IS operates is defined by fast technological development, new features, tools, solutions, and strategies. Its capacity to develop and grow its solutions to adapt quickly and effectively to the markets will be critical to its future success. Further, as of June 30, 2021, the firm relies on 309 clients who provide more than USD 100,000 in yearly sales, accounting for 94% of total revenue. Any lapse in maintaining or growing these current relationships might have a significant negative impact on the company's bottom line. Also, 81.6% of the firm's FY20 revenue came from clients in the mobile gaming sector, and its income is heavily reliant on the health of the mobile gaming industry and the performance of its customers' games.

Outlook:

Q3FY21 and full-year FY21 Guidance (Source: Q2FY21 Press Release, August 11, 2021)

Valuation Methodology: Price/Sales 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.

IS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: IS’ share price fallen by 12.75% in the past one months and is currently trading in the lower-band of the 52-week range of USD 7.80 to USD 13.19. The stock is currently trading below its 50 DMA levels, and its RSI Index is at 48.16. We have valued the stock using the Price/Sales-based relative valuation methodology and arrived at a target price of USD 11.00. Considering the company’s growth outlook, strong balance sheet, and current valuation, we recommend a “Buy” rating on the stock at the current price of USD 8.96, up 2.28% as of August 11, 2021, at 12:52 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Scotts Miracle-Gro Company

SMG Details

Scotts Miracle-Gro Company (NYSE: SMG) is one of the major marketers of lawn and garden care products in the United States. SMG’s key brands, i.e. Scotts, Miracle-Gro, and Ortho, are market leaders in their categories. SMG is divided into three business segments: 1) U.S. Consumer, which includes consumer lawn and garden in the United States; 2) Hawthorne, which includes indoor and hydroponic gardening; and 3) Other, which includes consumer lawn and garden in geographies other than the United States. North America, Europe, and Asia are all marketplaces for SMG's products. In North America, SMG's consumer and lawn business is extremely seasonal, with more than 75% of annual sales happening in the second and third quarters.

Pricing of Senior Notes: SMG announced an offering of USD 400 million in aggregate principal amount of 4.375% senior notes due 2032 on August 10, 2021. The sale of the Senior Notes is expected to conclude on August 13, 2021, subject to normal closing conditions. SMG will use the net proceeds from this offering to reduce borrowings under the company’s senior secured revolving credit line and for other business purposes (including strategic acquisitions).

Creation of New Investment Entity: On August 10, 2021, SMG announced the formation of The Hawthorne Collective, a newly established subsidiary that will focus on strategic minority stakes in cannabis businesses. The Hawthorne Collective's inclusion in the company's portfolio allows them to investigate and develop new prospects in an industry that is expected to grow significantly in the coming years.

9MFY21 Results: The company reported a sharp uptick of 29% in its net sales to USD 4.19 billion during 9MFY21 (ended July 03, 2021) compared to USD 3.24 billion during 9MFY20 (ended June 27, 2020), due to increase in sales from its Hawthorne division. SMG reported an increase in net income to USD 561.3 million during 9MFY21 vs USD 384.4 million during 9MFY20. As of July 03, 2021, the company’s cash and cash equivalents amounted to USD 58.3 million, with a total debt of USD 2.18 billion.

Key Risks: Home Depot and Lowe's, SMG's two largest customers, accounted for 44% of net sales and 58% of outstanding accounts receivable in FY20. The company's financial health could be harmed in the future if it places too much reliance on certain consumers.

Outlook: As of August 04, 2021, the company expects sales to increase by 17% to 19% in FY21 over the previous year, owing to strong growth in the Hawthorne and U.S. consumer segments. In addition, SMG anticipates a 40% to 50% growth in Hawthorne sales and a 7% to 9% increase in U.S. consumer sales. Further it expects adjusted non-GAAP earnings to range between USD 9.00 and USD 9.30 per share.

Valuation Methodology: EV/EBITDA 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.

SMG Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SMG share price fell by 32.63% in the past six months and is currently leaning towards the lower-band of the 52-week range of USD 143.08 to USD 254.34. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 27.51. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 195.52. Considering the company’s strong track record, growth prospects, robust margins, and current valuation, we recommend a “Buy” rating on the stock at the current price of USD 161.35, up 0.97% as of August 11, 2021, at 02:52 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Grocery Outlet Holding Corp.

GO Details

Grocery Outlet Holding Corp. (NASDAQ: GO) is a supermarket company that owns and operates a network of independently operated grocery stores in the U.S. It has a flexible procurement model that enables it to sell high-quality, name-brand products at prices generally 40% to 70% below conventional retailers. As of August 10, 2021, it has more than 400 stores in California, Washington, Oregon, Pennsylvania, Idaho, and Nevada.

Progressing on the Path of National Expansion: On June 24, 2021, GO inaugurated its 400th store in Hailey, Idaho. This date also marked the company’s completion of 75 years in business and its second anniversary as a public company.

Q2FY21 Results: The company reported a YoY decline of 3.47% in net sales to USD 775.54 million in Q2FY21 (ended July 03, 2021) compared to USD 803.43 million in Q2FY20 (ended June 27, 2020). Comparable store sales contracted 10.0% YoY in Q2FY21. Net income for Q2FY21 decreased 33.05% to USD 19.64 million compared to USD 29.33 million in Q2FY20. As of July 03, 2021, the company had cash and cash equivalents of USD 126.62 million and total debt of USD 450.30 million.

Key Risks: GO operates in the retail food industry, which suffered a considerable hit due to the outbreak of the COVID-19 pandemic. The imposition of lockdowns and restrictions to prevent its spread led to a sharp decline in global commercial activity across the industry. Should this declining trend continue, it will impact the spending pattern of consumers, which in turn could harm the company's financials. In addition, GO operates 221 stores in California, which accounted for 58% of its revenue in FY20 (ended January 02, 2021). As a result, any unfavorable changes in the economic environment of this market could significantly affect GO's financial performance.

Outlook: As of Q2FY21, GO estimates its comparable store sales to decline in mid-single-digit in Q3FY21 and 6% in QTD Q3FY21 (as on August 10, 2021). In FY21, the company estimates incurring a capital expenditure of ~USD 130.0 million. It also plans to add 36 - 38 stores and shut one store during the year. Furthermore, it continues to focus on the steady expansion of its footprint by increasing its retail base by 10% each year while continuously reinvesting in its business.

Valuation Methodology: EV/Sales 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.

GO Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: GO's stock price decreased 16.71% and 35.72% in the past three and six months, respectively, and has breached its previous 52-week range of USD 30.71 to USD 48.87. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 18.67. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 32.42. While the financial performance in Q2FY21 declined YoY (because of elevated COVID-19 lockdown related sales in FY20), we believe the long-term outlook remains encouraging. Hence, considering the correction in the stock price, expansion plans, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 27.51, down 11.06% as of August 11, 2021, 12:04 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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