Intel Corporation

INTC Details

Intel Corporation (NASDAQ: INTC) is engaged in designing and manufacturing microprocessors for personal computers, mobiles and data center markets. It is the largest semiconductor chip manufacturing company in the world. The company is the innovator of the x86 series of the microprocessor used in many personal computers.

INTC operates in six business segments viz 1) Data Centre Group (DCG) includes platforms for workload optimization and other allied products for cloud service providers. 2) Internet of Things Group (IOTG) includes high-performance computer solutions and embedded applications to retail, healthcare industries. 3) Mobileye includes developing computer vision and driving policy technology for advanced driver assistance systems (ADAS). 4) Non-Volatile Memory Solution Group (NSG) provides enhancement of storage solutions. This segment is composed of the NAND memory business and is pending divestiture. 5) Programmable Solutions Group (PSG) provides programmable semiconductor products for communication, cloud, and enterprises. 6) Client Computer Group (CCG) includes both platform and adjacent products such as connectivity and graphics. The company generates the majority of its revenues from the CCG segment. As of May 21, 2021, INTC’s market capitalization stood at USD 225.92 billion.

Launch of 11th Gen Core processors: On May 11, 2021, the company announced the global launch of 11th Gen Intel Core i9-11980HK, Intel Core i9-11950H (H series), and Intel® Xeon® W-11000 (W series) processors. H series processors deliver the highest performance in laptops, and they will reach speeds of up to 5.0 Gigahertz (GHz). Intel 11th Gen W series processors will be helpful for engineers, data scientists, and financial analysts who deal with a large amount of data and require highly intensive performance on the go.

Q1FY21 Results: The company reported a slight decrease of 0.78% in net revenue to USD 19,673 million in Q1FY21 (ending March 27, 2021) compared to USD 19,828 million in Q1FY20 (ending March 28, 2020). The company’s CCG segment contributed 53.90%, while the DCG segment contributed 28.28% of its total revenues during the quarter. The company reported a 40.62% decline in net income to USD 3,361 million in Q1FY21 compared to that of USD 5,661 million in Q1FY20.

Revenue contribution (Source: Company reports, Q1FY21)

Key Risks: INTCs three largest customers contributed 39% and 41% of its net revenue for FY20 and FY19, respectively. Excessive dependence on a few customers for sales can hamper the company’s financial strength in the future.

Outlook: For FY21, INTC expects its revenue to decline by approximately 1% to USD 72.5 billion. EPS is forecast to be USD 4.60. The company is projecting its capital expenditure to be in the range of USD 19 - 20 billion. It is estimating its free cash flow for FY21 to be around USD 10.50 billion.

FY21 Guidance (Source: Earnings presentation, Q1FY21)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

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

Stock Recommendation: INTC stock price has declined by 11.96% in the past month and is currently trading at the mid-point of the 52-week range of USD 43.61 to USD 68.49. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 64.13. Considering the correction in the stock price in the past one month, product enhancement, market dominance, and strong balance sheet, we recommend a “BUY” rating on the stock at the closing price of USD 56.08, up by 0.23% as of May 21, 2021.

 

Kellogg Company

K Details

Kellogg Company (NYSE: K) is the largest manufacturer of cereal (All-Bran, Apple Jacks, Cocoa Krispies, Kellogg’s Corn Flakes, Corn Pops, etc.), salty snacks, frozen foods (Eggo and Morningstar Farms), and the second-largest manufacturer of salty flat biscuits, also known as crackers (Kellogg’s, Cheez-It, Pringles, and Austin). It also produces toaster pastries (Pop-Tarts), cereal bars (Nutri-Grain, Crunchy Nut, Kashi, Nutri-Grain, etc.), veggie foods, and noodles. Its products are generally marketed under its own trademarks. The company operates in four segments based on geographic locations viz. North America, which includes U.S and Canada business; Europe, with the UK being the chief market; Latin America, which includes Mexico, Central, and South America; and AMEA which includes Africa, Middle East, Australia, and other Asian and Pacific markets. The company generally generates more than 50% of its revenues from the North American region. As of May 21, 2021, Kellogg’s market capitalization stood at USD 22.58 billion.

Robust Q1FY21 Results: The company reported an increase of 5.04% in net sales to USD 3,584 million in Q1FY21 (ending April 03, 2021) compared to USD 3,412 million in Q1FY20 (ending March 28, 2020). The revenues generated from North America contributed 59.43%, Europe 16.12%, Latin America accounted for 6.58%, and the AMEA region contributed 17.85% of the total revenue generated during the quarter. The company's operating profit increased to USD 472 million in Q1FY21 from USD 459 million in Q1FY20. Net income increased 6% to USD 371 million in Q1FY21 compared to that of USD 350 million in Q1FY20. On April 30, 2021, the company announced a dividend of USD 0.58 per share on its common stock, payable on June 15, 2021, to shareholders record at the close of business on June 1, 2021. It reflects a 2% increase to the quarterly dividend.

Key Risks: The company's largest customer, Wal-Mart Stores, Inc., contributes 19% of the net sales in FY20 within the US. The company's top 5 customers, including Wal-Mart, accounts for 34% of the net sales and approximately 51% of the US region sales. The loss of or reduction of business from any large customer over a period could impact the company's sales and profits.

Outlook: For FY21, the company is expecting its organic net sales to be flat. The company is forecasting its currency-adjusted Earnings per share (EPS) to increase by approximately 1-2% YoY. The company is also expecting its cash flow to be in the range of USD 1.1 billion to USD 1.2 billion.

FY21 Guidance (Source: Earnings Presentation, May 06, 2021)

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Kellogg’s Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: Kellogg’s share price has slightly increased by 2.29% in the past six months and is currently trading around the mid-point of the 52-week range of USD 56.61 to USD 72.88. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 76.26. Considering the company’s market dominance, stable dividend yield, and strong balance sheet, we recommend a “BUY” rating on the stock at the closing price of USD 66.50, up by 0.27% as of May 21, 2021.