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blue-chip

NYSE-Listed Compelling Large Cap Dividend Plays - T, BTI, EPD

Aug 25, 2021 | Team Kalkine
NYSE-Listed Compelling Large Cap Dividend Plays - T, BTI, EPD

AT&T Inc.

T Details

AT&T Inc. (NYSE: T) is a holding company that operates in the telecommunications, media, and technology industries around the globe through its subsidiaries and affiliates. Its business segments are 1) Communications, which includes Mobility, Business Wireline, and Consumer Wireline business units in the US and globally; 2) WarnerMedia, which produces and distributes films, television, gaming, and other content in both physical and digital formats worldwide; and 3) Latin America, providing entertainment and wireless services in Latin America and the Caribbean (under Vrio) and Mexico.

Subscription Metrics (Source: Q2FY21 Investor Presentation, July 22, 2021)

Expanding Connectivity with 5G Across Several Industries: AT&T and General Motors, an American automotive multinational business, announced on August 19, 2021, that millions of GM vehicles to be rolled off the production line in the United States over the next decade would have 5G cellular connectivity. In addition, GM and AT&T are collaborating to meet the demands of all-electric, self-driving futuristic vehicles.

Earlier, on August 17, 2021, AT&T and the University of Tennessee, Knoxville (UT) announced a partnership to expedite research and create breakthrough capabilities on the UT campus, powered by AT&T's 5G and millimeter wave spectrum (5G+) and Multi-Access Edge Computing (MEC) technology.

Sale of Direct-to-Consumer Anime Business: On August 09, 2021, AT&T closed the sale of its Crunchyroll anime business to Funimation Global Group, LLC, a joint venture between Sony Pictures Entertainment Inc. (SPE) and a subsidiary of Sony Music Entertainment (Japan) Inc. The gross proceeds from the sale amounted to USD 1.175 billion, subject to customary working capital and other adjustments.

6MFY21 Results: The company reported a 5.08% increase in total operating revenues to USD 87.98 billion during 6MFY21 (ended June 30, 2021) compared to USD 83.73 billion during 6MFY20, mainly due to an increase in revenues from the Communications and WarnerMedia segments. In addition, AT&T reported an increase in net income to USD 9.82 billion during 6MFY21 vs. USD 6.53 billion during 6MFY20. As of June 30, 2021, its cash and cash equivalents were USD 11.87 billion, with a total debt of USD 179.78 billion.

Key Risks: Any potential changes in the electromagnetic spectrum currently used for broadcast television and satellite distribution by the Federal Communications Commission (FCC) could hurt WarnerMedia's ability to deliver linear network feeds of its domestic cable networks to its affiliates, which could ultimately harm the company's financial strength and cash flows. 

Outlook:

FY21 Guidance (Source: Q2FY21 Investor Presentation, July 22, 2021)

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.

T Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: AT&T's share price has fallen by 8.62% in the past twelve months and is currently leaning towards the lower-band of the 52-week range of USD 26.35 to USD 33.88. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 34.19. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 32.52. Considering the company's market dominance, robust dividend yield, strategic investments, expansion plans, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 27.44, down 0.29% as of August 24, 2021, 11:40 AM ET.

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

*The 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.

British American Tobacco p.l.c.

BTI Details

British American Tobacco p.l.c. (NYSE: BTI) is a British multinational corporation specializing in producing and distributing cigarettes, tobacco, and other nicotine products. Dunhill, Kent, Lucky Strike, Pall Mall, and Rothmans Neo, Vuse, Newport, Camel, and Natural American Spirit are among the company's leading brands. In addition, Vapour, tobacco heating products (THP), modern oral products, snus, and moist snuff are Potentially Risk Reduced Products (PRRP). As of August 24, 2021, BTI's market capitalization stood at USD 85.17 billion, with 2.29 billion American Depository Shares (ADS) listed and outstanding (each ADS representing one ordinary share).

Acceleration in Non-Combustible Business: On July 28, 2021, BTI stated that its non-combustible product consumer base grew by 2.6 million during H1FY21, reaching 16.1 million. This followed release of positive research results on July 1, 2021, indicating a substantial reduction in indications of possible damage for smokers switching to glo, one of the firm's leading Tobacco Heating Product (THP) brands, over the course of six months when compared to continuing to smoke cigarettes.

6MFY21 Results: The company reported a slight decline of 0.78% in total revenues to GBP 12.18 billion during H1FY21 (ended June 30, 2021) compared to GBP 12.27 billion during H1FY20. In addition, BTI reported a decrease in net income to GBP 3.33 billion during H1FY21 vs. GBP 3.54 billion during H1FY20. As of June 30, 2021, its cash and cash equivalents (including short term investments) were GBP 3.35 billion, with a total debt of GBP 45.01 billion.

Key Risks: The tobacco business is one of the most heavily regulated globally, with producers having to adhere to various regulatory systems all around the world. These limitations may limit BTI's ability to commercialize its goods, putting its business and financial situation at risk. Furthermore, BTI is vulnerable to unanticipated and significant increases in tobacco and nicotine-related taxes in its core markets, which might negatively impact its revenues and results of operations.

Outlook: In its H1FY21 pre-close trading update, BTI stated that for FY21, it expects a >5% revenue growth (ahead of its previous guidance of 3-5%). EPS is expected to grow in the mid-single digits, and the leverage ratio (Adjusted Net Debt / Adjusted EBITDA) will reduce to ~3.0x.

FY21 Guidance (Interim Results Presentation, H1FY21)

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.

BTI Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: BTI's share price has been largely stable over the past 12 months, increasing only by 5.75%. It is currently leaning towards the mid-band of the 52-week range of USD 31.60 to USD 41.14. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 39.74. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 43.39. Considering the company's expansion to new categories, robust dividend yield, decent fundamentals, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 36.78, down by 0.78% as of August 24, 2021.

*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.

Enterprise Products Partners L.P.

EPD Details

Enterprise Products Partners L.P. (NYSE: EPD) is a master limited partnership (MLP) that transports natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals and is one of the leading North American providers of midstream energy services to producers and consumers. It generates revenue by selling NGLs and other related products and providing midstream services like gathering, processing, transportation, fractionation, storage, and terminaling. EPD is one of the few MLPs to provide services across the entire hydrocarbon value chain. As of August 24, 2021, the company's market capitalization stood at USD 47.90 billion.

Acquiring the Ethylene Storage Business: EPD and NOVA Chemicals Corp., one of the largest merchant ethylene producers and marketers on the US Gulf Coast, announced on July 1, 2021, that an EPD subsidiary acquired a wholly owned subsidiary of NOVA Chemicals, which operates an ethylene storage business and trading hub in Mont Belvieu, Texas. EPD's acquisition of Texas' largest ethylene market hub is expected to complement its growing ethylene network in the region. However, the transaction details have not been disclosed.

6MFY21 Results: The company reported a sharp uptick of 40.60% in total revenues to USD 18.61 billion during 6MFY21 (ended June 30, 2021) compared to USD 13.23 billion during 6MFY20, mainly due to higher average sales prices of NGLs, natural gas, petrochemicals, and refined products. In addition, EPD reported an increase in net income to USD 2.51 billion during 6MFY21 vs. USD 2.44 billion during 6MFY20. As of June 30, 2021, its cash and cash equivalents were USD 404.50 million, with a total debt of USD 28.55 billion.

Export Volume Metrics (Source: Investor Deck, August 2021)

Key Risks: EPD's major markets include the Gulf Coast, Southwest, Rocky Mountain, Northeast, and Midwest regions. Hence, a significant portion of the company's trade receivables come from independent oil & gas companies and other pipelines and wholesalers operating in these areas. As a result, any changes in regulatory, economic, or other circumstances in these regions could potentially harm the company's cash flow and revenues.

Outlook: Based on sanctioned projects (till July 28, 2021), EPD estimates its capital expenditures for FY21 and FY22 to be about USD 1.7 billion and USD 800 million, respectively. The sustaining capital expenditure for FY21 is expected to be around USD 440 million.

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.

EPD Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: EPD's share price fell 6.20% in the past month and is currently leaning towards the mid-band of the 52-week range of USD 14.90 to USD 25.69. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 42.16. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 26.80. Considering the company's market dominance, robust dividend yield, strategic acquisition, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 22.08, up 0.73% as of August 24, 2021.

 

*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.