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blue-chip

Two US-Listed Large-Caps Worth Considering - BIDU, ADM

Aug 11, 2021 | Team Kalkine
Two US-Listed Large-Caps Worth Considering - BIDU, ADM

Baidu, Inc.

BIDU Details

Baidu, Inc. (NASDAQ: BIDU) is the most popular search engine in China, accounting for 75% of the global search engine market in March 2021, as per StatCounter. ­The sale of pay for performance (P4P) online and other marketing services are the primary source of revenue for BIDU. It also has a technology business with artificial intelligence (AI) technology investments like self-driving cars, marketing and enterprise clouds, smart transportation, and AI chips. As of August 10, 2021, the company has 353.61 million American Depository Shares (ADS) listed and outstanding (each ADS representing eight Class A ordinary shares).

Launching Autonomous Minibus: The company rolled out Apolong II, a new multi-purpose driverless minibus in Guangzhou Huangpu District, on August 6, 2021. Apolong II is driven by advanced autonomous driving technologies without a steering wheel and will be used in public parks, airports, business districts, and residential areas.

Carbon Neutral by 2030: On June 22, 2021, Baidu declared its goal to become carbon neutral by 2030. It employs systematic methods based on existing green initiatives regarding Scope I and II of the Greenhouse Gas Protocol for this purpose.

Q1FY21 Results: The company's total revenues increased 24.80% to RMB 28.13 billion in Q1FY21 (ended March 31, 2021) from RMB 22.55 billion in Q1FY20. Its net income increased to RMB 25.03 billion in Q1FY21 vs. a net loss of RMB 1.68 billion in Q1FY20. BIDU's cash and cash equivalents (including short-term investments) totaled RMB 162.34 billion as of March 31, 2021, with a total debt of RMB 75.77 billion.

Key Risks: BIDU relies heavily on third-party manufacturers for its Xiaodu smart products. If BIDU and these suppliers fail to agree on adequate capabilities or capacity on reasonable terms, it may harm the brand's image, its cash flows, and operations. Further, BIDU operates primarily in China, where the tech business has seen a lot of growth. The Chinese authorities' recent crackdown on its US-listed Tech businesses and the consequential possibility of stricter rules could dent its operations. This is after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities are unable to satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Outlook: For Q2FY21, the company anticipates revenue of RMB 29.7 to 32.5 billion, representing a 14 to 25% YoY growth, assuming Baidu Core revenue will grow by 20 to 33% YoY.

Valuation Methodology: Price/Sales Multiple Based Relative Valuation

(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.

BIDU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: BIDU's share price fell 43.74% in the past six months and is currently trading in the lower-band of the 52-week range of USD 115.59 to USD 354.82. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 41.11. We have valued the stock using the Price/Sales-based relative valuation methodology and arrived at a target price of USD 202.37. Considering the company's track record, positive outlook, robust topline, strong balance sheet, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 166.00, down 0.32% as of August 10, 2021, at 12:02 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.

Archer-Daniels-Midland Company

ADM Details

Archer-Daniels-Midland Company (NYSE: ADM) is a global leader in human and animal nutrition and a leading agricultural origination and processing company. It transports agricultural goods using its extensive worldwide asset base with connections to markets in over 200 countries. In addition, it also processes corn, oilseeds, and wheat into food, animal feed, chemicals, and energy products. Its three reportable business segments are Ag Services & Oilseeds, Carbohydrate Solutions, and Nutrition. As of August 10, 2021, its market capitalization stood at USD 33.87 billion.

Acquisition of Sojaprotein: On July 26, 2021, ADM signed an agreement to acquire Sojaprotein, a leading European non-GMO soy components provider. The acquisition is expected to boost the production capacity and expand capabilities to fulfill the world's expanding demand for plant-based proteins. However, the transaction is subject to regulatory approvals, and its specifics are yet to be revealed.

Completing the IBDP Project: The Illinois Basin - Decatur Project (IBDP), a carbon capture and storage (CCS) project meant to assess and test the technology commercially, was completed on May 19, 2021, by ADM and the University of Illinois. Through the Midwest Geological Sequestration Consortium (MGSC), the US Department of Energy – National Energy Technology Laboratory funded the first-ever project to confirm Mt. Simon Sandstone's ability to accept and store one million metric tons of carbon dioxide over a three-year period.

6MFY21 Results: The company reported a 33.82% rise in revenues to USD 41.82 billion during 6MFY21 (ended June 30, 2021) compared to USD 31.25 billion during 6MFY20, primarily due to higher sales prices of soybeans, corn, meal, oils, alcohol, and biodiesel and sales volumes of corn and soybeans. ADM witnessed a steep growth in net earnings to USD 1.40 billion during 6MFY21 vs. USD 863 million during 6MFY20. As of June 30, 2021, its cash and cash equivalents were USD 869 million, and its total debt was USD 9.72 billion. ADM declared a cash dividend of USD 0.37 per share, payable on September 08, 2021, to shareholders of record on August 18, 2021. This is ADM's 359th consecutive quarterly dividend payment, marking an 89-year streak of dividend payments.

Q2FY21 Financial Metrics (Source: Q2FY21 Earnings Presentation, July 27, 2021)

Key Risks: Soybean sales accounted for 18%, 16%, and 16% of ADM's revenues in FY20, FY19, and FY18, respectively, while soybean meal contributed 14%, 13%, and 14%. As a result, changes in the availability and price of these commodities due to weather, government programs and policies, global demand, or living standards could negatively affect the company's cash flows and operations.

Outlook: The company anticipates a 20% YoY increase in the operating profits from the Nutrition division in FY21.

Valuation Methodology: Price/Earnings 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.

ADM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ADM's share price fell 8.19% in the past three months and is currently trading in the upper band of the 52-week range of USD 43.21 to USD 69.30. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 60.17. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 73.66. Considering the company's track record, market dominance, consistent dividend yield, robust topline, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 61.41, up 1.40% as of August 10, 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.