Fresh Del Monte Produce, Inc.

FDP Details

Fresh Del Monte Produce, Inc. (NYSE: FDP) is engaged in the production, marketing and distribution of fruits, vegetables, and other prepared foods in North America, Europe, the Middle East, and Asia. Its operating segments are 1) Fresh and Value-Added Products, which includes pineapples, fresh fruits and vegetables, avocados, and other prepared foods like juices, meals, and snacks, 2) Banana, and 3) Other products & services include poultry and meat products, plastic products, and other third-party freight services.

Fostering Sustainability: On June 29, 2021, the FDP announced a three-year collaboration with the German Federal Ministry for Economic Cooperation and Development (BMZ), focused on sustainability, education, community cooperation, and green recovery to help growing nations like Costa Rica and Guatemala progress. The partnership intends to restore productive areas, promote economic growth in COVID-19-affected communities, increase water conservation, and increase awareness about sustainable development in these countries.

Q2FY21 Results: The company reported YoY growth of 4.51% in net sales to USD 1.14 billion in Q2FY21 (ended July 02, 2021) compared to USD 1.09 billion in Q2FY20 (ended June 26, 2020). The Fresh and Value-Added Products, which accounted for 59.04% of the net sales in Q2FY21, reported YoY growth of 5.94%, whereas the Banana segment declined 0.68% YoY. Net income for Q2FY21 increased to USD 47.2 million from USD 17.9 million in Q2FY20. As of June 30, 2021, the company had cash & cash equivalents of USD 19.6 million and total debt of USD 473.5 million.

Adjusted Diluted EPS (Source: Earnings Presentation, August 04, 2021)

Key Risks: In FY20, FDP's top ten largest customers accounted for ~33% of its net sales. In addition, revenue from Wal-Mart, Inc. represented ~9% of the total FY20 revenue. Hence, the loss of any of these key customers could hurt the company's financials.

Valuation Methodology: Price/Earnings 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.

FDP Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: FDP's stock price decreased 11.09% in the past three months and is currently trading in the higher band of its 52-week range of USD 20.71 to USD 36.57. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 42.81. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 36.53. Considering the correction in the stock price, decent balance sheet, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 30.69, up 1.25% as of September 13, 2021, 3:07 PM ET.

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

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

NETGEAR, Inc.

NTGR Details

NETGEAR, Inc. (NASDAQ: NTGR) offers high-performance networking technologies and internet-connected products to consumers, corporates, and service providers. Its operating segments are 1) Connected Home, which provides Wi-Fi internet networking services, including Wi-Fi mesh systems, routers, smart devices, subscription services, etc., and 2) Small and Medium Businesses (SMB), offering business networking, LAN, security solutions, and cloud-based services at a low price.

Launch of Nighthawk M5 5G Mobile Router: On August 31, 2021, NTGR launched an unlocked version of the Nighthawk M5 Mobile Router, which can provide gigabit internet speeds in a mobile environment. With its 5G connectivity, the M5 router offers improved bandwidth and faster speed for an uninterrupted, seamless, secure high-speed Internet experience.

Launch of New Access Points: On August 17, 2021, NTGR launched WAX202 and WAX206 Wi-Fi 6 desktop access points, broadening its business essentials portfolio of powerful, easy-to-deploy, and affordable business networking equipment. These new wireless access points are NTGR's finest value Wi-Fi, with a combination of excellent performance and better coverage for small companies and work-from-home consumers, offered at perfect price points.

Q2FY21 Results: The company reported YoY growth of 10.27% in net revenue to USD 308.81 million in Q2FY21 (ended June 27, 2021) compared to USD 280.05 million in Q2FY20 (ended June 28, 2021). The Connected Home segment, which accounted for 74.43% of the net revenue in Q2FY21, reported a YoY decline of 0.07%, whereas the SMB segment improved 57.79% YoY. Net income for the company expanded to USD 17.83 million in Q2FY21 vs. USD 5.98 million in Q2FY20. As of June 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 335.32 million and no outstanding debt.

Quarterly Net Revenue (Source: Earnings Presentation, July 21, 2021)

Key Risks: NTGR is dependent on a limited number of suppliers for its key manufacturing component. Also, most of the semiconductors used in its products are from a single vendor. Hence, any lag in the supply of the requisite quantity or unfavorable pricing could distort its production and, in turn, negatively impact its overall performance. In addition, NTGR generates most of its revenue from a limited number of customers, with sales through traditional and online retailers (Best Buy Co., Inc., Amazon.com, Inc., Ingram Micro, Inc., Tech Data Corporation) and service providers (AT&T) accounting for the majority of its revenue. Hence the loss of any of its key customers could hurt its financials.

Outlook: In Q3FY21, NTGR expects to generate total revenue in the range of USD 285 – 300 million, along with an operating margin of 2.1% – 3.1% and 5.0% – 6.0% on GAAP and non-GAAP basis, respectively. It also forecasts its GAAP tax rate of ~27.5% in Q3FY21.

Valuation Methodology: Price/Earnings 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.

NTGR Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: NTGR's stock price decreased 21.10% in the past three months and is currently close to the lower end of its 52-week range of USD 27.17 to USD 46.38. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 31.76. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 39.83. Considering the correction in the stock price, decent balance sheet, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 32.75, up 0.06% as of September 13, 2021, 11:51 AM ET.

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

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.