Cisco Systems, Inc.

CSCO Details

Unveiled Webex Innovations: Cisco Systems, Inc. (NASDAQ: CSCO) is mainly involved in providing network solutions to facilitate the transfer of information. The company provides its solutions to service providers, small to medium businesses and enterprise customers, which includes corporations, government agencies, utilities, and educational institutions. The company recently revealed an all-new Webex Suite with innovations, which will allow hybrid work and events, ensuring equal opportunity and voice. Notably, the new Webex Suite will combine meetings, calling, messaging, polling, and events in one offering and will be priced at 40% lower than a-la-carte.

Q3FY21 Result Highlights: For Q3FY21, the company reported total revenue of $12.8 billion, up 7% on the previous corresponding period (pcp). Over the quarter, the company witnessed 10% YoY growth in total product order. On a GAAP basis, operating expenses stood at $4.7 billion, up 8% on pcp. GAAP EPS for Q3FY21 stood at $0.68, up 5% on pcp. The company has declared a quarterly cash dividend of $0.37 per common share with a record date of 6 July 2021 and a payment date of 28 July 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks related to stiff competition in its product and service markets. It also faces risk associated with rapid technological and market change.

Outlook: For Q4FY21, the company expects its revenue to grow by 6% to 8% on the previous corresponding period (pcp). Further, the company expects GAAP EPS to be between $0.64 to $0.69.

Valuation Methodology: P/E 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 stock has provided a return of 19.12% in the last six months and 37.99% in the last nine months. The stock is currently trading near to its 52-weeks high level of $55.35. On the technical analysis front, the stock has a support level of ~$51.6 and a resistance of $54.07. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight discount to its peers, considering the increased operating expenses, the decline in gross margin, associated key risks, and also taking into account that the company has been trading at a discount in the past 3-years over its peer average. We have taken peers like Arista Networks Inc (NYSE: ANET), Juniper Networks Inc (NYSE: JNPR), F5 Networks Inc (NASDAQ: FFIV), etc. Considering the company’s decent returns in the past six- and nine-months period, its current trading level and valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the closing price of $53.06, up by ~0.53% as on 25 June 2021.

CCSO Daily Technical Chart, Data Source: REFINITIV

Kinder Morgan, Inc.

KMI Details

KMI to Acquire Stagecoach Gas Services LLC:  Kinder Morgan, Inc. (NYSE: KMI) is a leading energy infrastructure company in North America that provides energy transportation and storage services in a safe, efficient, and environmentally responsible manner. The company recently announced that it is going to acquire Stagecoach Gas Services LLC, for a total purchase price of $1.225 billion. Stagecoach includes 4 natural gas storage facilities and 3 pipelines serving Northeast market demand and Marcellus supply. The company believes that this acquisition will enhance service to customers and help KMI connect natural gas supply sources and Northeast demand areas. The transaction is expected to be completed in Q3FY21.

Q1FY21 Result Highlights: For Q1FY21, KMI reported total revenue of $5.2 billion, up from $3.1 billion in pcp, driven by the decent performance of the company’s storage assets. For the quarter, the company reported earnings per share of $0.62, up from a loss per share of $0.14 in Q1FY20. During the quarter, the company’s Natural Gas Pipelines segment provided higher contributions from the Texas intrastate systems and Tennessee Gas Pipeline (TGP). For the quarter, the company paid cash dividend of $0.27 per share, up 4% on Q4FY20.

Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks associated with potential legislative or regulatory action in response to or litigation arising out of the unprecedented circumstances of the winter storm. The company is also exposed to the risks related to the timing and extent of changes in the supply of and demand for the products it transports.

Outlook: For FY21, the company expects its discounted cashflow (DCF) to be in the range of $2.7 billion to $2.9 billion. It plans to pay a total dividend of $1.08 per share in FY21, representing a 3% growth on FY20. Net income attributable to KMI is expected in the range of $2.7 billion to $2.9 billion in FY21.

Valuation Methodology: P/E 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 stock has provided a return of 34.09% in the last six months and 45.05% in the last nine months. It is currently trading towards its 52-weeks high price of $19.29. On the technical analysis front, the stock has a support level of ~$17.17 and resistance of ~$18.8. We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at a slight premium to its peers, considering the rise in Q1FY21 revenue, increase in quarterly dividend and recently announced acquisition of Stagecoach Gas Services LLC. We have taken peers like Enterprise Products Partners LP (NYSE: EPD), Plains All American Pipeline LP (NASDAQ: PAA), ONEOK Inc (NYSE: OKE), etc. Considering the expected downside in the valuation, decent returns in the past six- and nine-months period, and its current trading level, we suggest investors to book profit and give a “Sell” rating on the stock at the closing price of $18.29, up by ~0.27% as on 25 June 2021.

KMI Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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