Raytheon Technologies Corporation

RTX Details

Dividend Update: Raytheon Technologies Corporation (NYSE: RTX) operates in the aerospace and defense space and provides advanced systems and services for commercial, military and government customers. The market capitalization of the company as on 23 June 2021, stood at ~$131.20 billion. As per a recent update, the company has declared a quarterly cash dividend of 51 cents per share of its common stock, payable on 9 September 2021 and recorded on 20 August 2021.

Provision of Logistics & Repair Services: The company has recently announced that Raytheon Intelligence & Space will provide logistics and repair services for all U.S. Marine Corps ground equipment for an agreed period of five-year and under $495 million contract.

Q1FY21 Results Update: RTX has reported revenues of $15.3 billion during the period. The operating cash flow from continuing operations was at ~$723 million, and it posted free cash flows of ~$336 million. It delivered ~$200 million of RTX synergies and repurchased ~$375 million of shares in Q1FY21.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business exposes it to the prudent regulatory overview, which might have an impact on its profitability.

Outlook: The company now expects sales of $63.9-$65.4 billion in FY21, as compared to $63.4-$65.4 billion guided previously. It anticipates adjusted EPS to be in the range of $3.50-$3.70 and share repurchase of at least $2 billion. It has also confirmed its free cash flow outlook to be around $4.5 billion during the period. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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.

Stock Recommendation:  On 19 May 2021, the company has announced its strategic collaboration with GLOBALFOUNDRIES, to develop and commercialize a new gallium nitride on silicon (GaN-on-Si) semiconductor. This will be a significant breakthrough in the 5G and 6G mobile and wireless infrastructure applications. The stock of RTX is trading close to its 52-weeks’ high levels of $89.98. The stock of RTX gave a positive return of ~48.46% in the past nine months and a positive return of ~34.18% in the past one year. On a technical analysis front, the stock of RTX has a support level of ~$82.14 and a resistance level of ~$89.98. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at slight premium to its peer average EV/Sales (NTM trading multiple), considering the optimistic guidance and on the back of key strategic agreement to provide its service. For this purpose, we have taken peers such as Honeywell International Inc (NASDAQ: HON), General Dynamics Corp (NYSE: GD), Spirit AeroSystems Holdings Inc (NYSE: SPR), to name a few. Considering the current trading levels and indicative valuation, recent rally in the stock price and decrease in gross margin, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of $86.600, down by ~0.89% as on June 23, 2021.

RTX Daily Technical Chart, Data Source: REFINITIV

Valero Energy Corporation

VLO Details

Q1FY21 Performance Update: Valero Energy Corporation (NYSE: VLO) is engaged in the manufacturing, marketing and transportation of fuels and petrochemical products. The market capitalization of the company as on 23 June 2021 stood at ~$33.04 billion. The company posted revenues of $20,806 million in Q1FY21. During the period, the company reported a loss of ~$704 million, compared to a net loss of $1.9 billion in the previous corresponding period. It made a capital investment of ~$582 million during the period. The net cash used in operating activities stood at ~$52 million in Q1FY21. It ended the quarter with $14.7 billion of total debt and finance lease obligations and $2.3 billion of cash and equivalents.

Declining Revenue Trend from FY19 to FY20 (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to macro-economic issues like the impact of COVID-19 pandemic, which can have an adverse impact on the product and energy demands.

Outlook: The company will continue to look for economic projects that lowers the carbon intensity of its products. In this regard it will partner with BlackRock and Navigator for a large-scale carbon capture and storage system in the U.S. Midwest that will capture and store CO₂ from eight of Valero’s ethanol plants. The management expects there will be a continued demand and refining margins for its business going forward.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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.

Stock Recommendation: The company has announced that it will release its Q2FY21 results on 29 July 2021. The stock of VLO is trading close to its 52-weeks’ high levels of $84.95. The stock of VLO gave a positive return of ~81.64% in the past nine months and a positive return of ~44.91% in the past six months. On a technical analysis front, the stock of VLO has a support level of ~$75.90 and a resistance level of ~$84.20. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at a slight discount to its peer median EV/Sales (NTM trading multiple), considering net loss from operations, negative ROE and high debt on the balance sheet. For this purpose, we have taken peers such as Phillips 66 (NYSE: PSX), Marathon Petroleum Corp (NYSE: MPC), PBF Energy Inc (NYSE: PBF), to name a few. Considering the current trading levels and indicative valuation, recent rally in the stock price and loss from operations, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of $80.850, down by ~0.16% as on June 23, 2021.

VLO Daily Technical Chart, Data Source: REFINITIV

Note: Purple Color Line Refers to Momentum Oscillator Relative Strength Index - RSI (14) Period

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Disclaimer

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