Verizon Communications Inc.

VZ Details

Verizon Communications Inc. (NYSE: VZ) is one of the world’s leading communication goods and services providers to consumers, enterprises, and government organizations. The company has around 1 million miles of fiber optic cable network across 180 countries. The company operates in two segments, namely 1) Verizon Consumer Group, which provides consumer-focused wireless and wireline communication products and services to retail customers. 2) Verizon Business Group, which provides wireless and wireline products and services (data, video, corporate network solution, etc.), Internet-of-Things products and services (support fleet tracking management, compliance management, asset tracking, etc.), and allied mobile resource management services to businesses and government customers globally. The company generates the majority of its revenues from the Consumer Group segment. As of May 27, 2021, the company’s market capitalization stood at USD 233.33 billion.

Expansion of 5G Ultra-Wideband services: On May 20, 2021, the company announced 5G Ultra-Wideband services in 14 additional arenas and stadiums, taking the total to more than 60. The company also got the multi-year agreements as the exclusive 5G partner with 15 NBA teams who play at these arenas. 5G Ultra-Wideband becomes a key component in accelerating the fans' in-arena experience. As of March 31, 2021, 5G Ultra-Wideband is available in 67 US cities, and 5G Nationwide is available in over 2,700 markets countrywide.

VZ Financial Highlights (Source: Earnings Presentation, April 21, 2021)

Q1FY21 Results: The company reported a slight increase of 3.97% in total operating revenues to USD 32,867 million in Q1FY21 (ending March 31, 2021) compared to USD 31,610 million in Q1FY20 (ending March 31, 2020). The Consumer Group segment contributed 69.36%, while the Business Group segment contributed 23.67% of the consolidated revenues in Q1FY21. VZ reported a 25.44% increase in net income to USD 5,378 million in Q1FY21 than USD 4,287 million in Q1FY20. The company did a capital expenditure of USD 4.50 billion in Q1FY21to acquire wireless licenses and other businesses.

Key Risks: The company faces increasingly intense competition from various players in the industry. The increase in competition has lowered the market prices for many of the company’s products and services in past years. The continual decrease in market prices could affect the company’s operational and financial situation in the future. Also, the leveraged balance sheet is a cause for concern, though the company has been improving it continuously.

Outlook: For FY21, the company is expecting its service and other revenue growth of at least 2% and total wireless service revenue growth of at least 3%. It is estimating the capital expenditures to be in the range of USD 17.50 billion to USD 18.50 billion for snowballing of 5G network in new and existing markets, the densification of 4G Long-Term Evolution (LTE) network to handle future traffic needs, and the implementing of fiber infrastructure. The company expects its Adjusted EPS (non-GAAP) to be in the range of USD 5.00 to USD 5.15.

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Data Source: REFINITIV, 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.

VZ Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: VZ's share price has declined by 6.82% in the past six months and is currently leaning towards the lower band of the 52-week range of USD 52.85 to USD 61.95. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 62.68. The company is currently trading below its 200 DMA levels. We believe the company’s fiber network constitutes a unique asset that provides a competitive advantage. Considering the company’s market dominance, growth potential, continuous improvements in margins, and robust financials, we recommend a “Buy” rating on the stock at the closing price of USD 56.29, down by 0.12% as of May 27, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

JD.com, Inc.

JD Details

JD.com, Inc. (NASDAQ: JD) operates as an e-commerce company and retail infrastructure service provider in China. The company, through its various subsidiaries, offers a wide variety of products ranging from home appliances, mobile handsets, laptops, printers, furniture and household goods, apparel, cosmetics, food and fresh produce to pharmaceutical and healthcare products, books, entertainment media products, online travel agency services, and industrial products and installation and maintenance services. In addition, the company also offers supply chain and logistics services for various industries and provides an online marketplace for third-party merchants to sell products to customers. JD offers its products through its website, mobile apps, and directly to customers. As of May 27, 2021, JD’s market capitalization stood at USD 115.96 billion, with 1.56 billion American Depositary Shares (ADS) listed and outstanding (each ADS representing two Class A ordinary shares).

Innovative Cooperation with Louis Vuitton: On April 15, 2021, the company, through its JD Retail segment, launched an innovative cooperation connecting Louis Vuitton directly with JD's high-quality customers. This cooperation model provides the customers with access to the brand and enhances their luxury shopping experience on JD.com.

Launching JD-Tencent Cloud Warehouse: On April 17, 2021, the company's JD Logistics segment and Tencent Smart Retail jointly launched the JD-Tencent Cloud Warehouse, which provides business leads, branding, marketing, and logistics solutions and services to merchants and warehousing companies, while supporting areas such as private traffic operations, traffic promotions, supply chains, and logistics.

JD.com Growth Momentum (Source: Company Presentation, May 2021)

Q1FY21 Results: The company reported a sharp uptick of 38.97% in total revenue to RMB 203.18 billion in Q1FY21 (ending March 31, 2021) compared to RMB 146.21 billion in Q1FY20, driven primarily by a 35.27% increase in revenue from the JD Retail segment to RMB 185.80 billion in Q1FY21. Net income for Q1FY21 was RMB 3.64 billion for Q1FY21, 3.45x more than RMB 1.06 billion reported in Q1FY20.

Key Risks: The company faces intense competition due to the rapid increase in virtual opportunities, with some players having longer operating history, larger client base, and greater brand recognition. Any decrease in demand for the company's marketplace may hurt the operational and financial affairs of the company. Further, prolonged frictions between the US and China, and the recent 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) expose the stock to significant political and regulatory risks. Though a solution to the standoff could be negotiated in the medium term (before the earliest possible delistings begin in 2024), the companies that might not be able to fulfill the revised standards are at risk.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: REFINITIV, 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.

JD Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: JD has declined by 21.99% in the past 3 months and is currently close to the mid-point of the 52-week range of USD 49.92 to USD 108.29. The stock is currently trading below its 200 DMA levels. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 82.23. Considering the correction in the stock price in the past three months, increasing demand for online shopping platforms, strong financial performance, and significant growth potential, we recommend a “Buy” rating on the stock at the closing price of USD 72.83, down by 0.51% as of May 27, 2021.

* The reference data in this report has been partly sourced from REFINITIV.