Corteva, Inc.

CTVA Details

Corteva, Inc. (NYSE: CTVA) was formed as a spin-off from the agricultural division of DowDuPont. Its operating segments are 1) Seed, which develops specialized seeds with advanced germplasm that enhances crop yield of the farm, and 2) Crop Protection, which offers products such as herbicides, insecticides, and nitrogen stabilizers, that protect crops against weeds, insects, and other pests, and diseases, as well as enhance crop health. The company derives the majority of its revenues from North America. As of July 09, 2021, its market capitalization stood at USD 31.62 billion. 

CEO Retirement: On June 23, 2021, CTVA announced that its current Chief Executive Officer (CEO) James C. Collins, Jr. will leave on December 31, 2021, after working for the firm and its predecessor, DuPont, for more than 37 years. A hunt for his replacement is currently underway.

Developing Sustainable Solutions Through Innovation: On April 01, 2021, CTVA announced its collaboration with Ginkgo Bioworks, Inc to develop advanced crop protection technologies leveraging synthetic biology. The alliance between the two companies is aimed to provide sustainable bio-based options to farmers for safeguarding their crops from pests and related damages.    

Q1FY21 Results: CTVA reported total revenues of USD 4.18 billion for Q1FY21 (ended March 31, 2021) compared to USD 3.96 billion in Q1FY20, registering a growth of 5.61% YoY attributable to increase in volume and favorable pricing driven by the higher acceptance of new products. The impact of improvement in topline reflected in operating EBITDA wherein the company achieved YoY growth of 14.53% in Q1FY21 to USD 938.0 million as compared to USD 819.0 million in Q1FY20. CTVA reported a surge of 120.59% YoY in its net income to USD 600.0 million in Q1FY21 vs USD 272.0 million in Q1FY20.

Key Risks: CTVA’s manufacturing process requires significant amounts of inputs, pricing of which is highly volatile and unpredictable. Any lag in the supply of requisite quantity or unfavorable pricing could distort the overall performance of the company. In addition, Corteva’s business is subject to strict federal and state regulations. Stricter regulatory oversight could impair its profitability. Furthermore, CTVA operates in the agricultural industry, which is vulnerable to weather and seasonal factors. This could impact the demand as well as the quality of its products. Lastly, CTVA carries its business globally in currencies other than USD, thus exposing it to currency fluctuations.            

Outlook: In FY21, CTVA expects to generate revenue to be in the range of USD 14.6 – 14.8 billion with a YoY growth of 3%-4%. It anticipates clocking operating EBITDA to the tune of USD 2.4 - 2.5 billion, along with improvement in EBITDA margins by 200 bps over the previous fiscal. It also estimates an EPS of USD 1.85 - 1.95 (Non-GAAP) for FY21.

 Valuation Methodology: EV/EBITDA 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.

CTVA Daily Technical Chart (Source: REFINITIV)  

Stock Recommendation: CTVA’s share price increased 30.0% in the past 9 months but has declined 7.8% in the past 3 months. It is currently trading in the higher band of the 52-week range of USD 24.83 to USD 49.98. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 41.26. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 46.12. Considering the company’s robust track record, strong financial position and performance, strategic collaborations, and current valuation, we recommend a “Watch” rating on the stock at the closing price of USD 43.45, up by 1.28% as of July 09, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

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

 Amerisafe, Inc.

AMSF Details

Amerisafe, Inc. (NASDAQ: AMSF) is an insurance holding company that underwrites workers' compensation insurance for small to mid-sized employers engaged in hazardous industries in the United States. It provides benefits to injured employees for temporary or permanent disability, death, and medical and hospital expenses. The company derives the majority of its revenues from insurance premiums.  As of July 09, 2021, AMSF’s company's market capitalization stood at USD 1.13 billion.

Strong Ratings Affirmed: On June 24, 2021, AM Best, a credit rating agency for the insurance industry, has conferred the Financial Strength Rating of A (Excellent) and Long-term Issuer Credit Ratings (Long-Term ICR) of “a+” (Excellent) to AMSF’s subsidiaries, whereas it has given Long-Term ICR of “bbb+” (Good) to AMSF. Ratings given by AM Best are based on consistent operating results, prudent and liquid investment portfolio, and strong risk-adjusted capitalization of the company.

Q1FY21 Results: AMSF’s gross written premium totaled USD 81.51 million in Q1FY21 (ended March 31, 2021) compared to USD 87.07 million in Q1FY20, registering a decline of 6.38% YoY. This resulted from payroll audits and related premium adjustments, and a reduction in annual premiums on voluntary policies. Despite the contraction in gross premium company reported a YoY growth of 5.28% in total revenue aided by unrealized gains on equity securities. Total expenses decreased 9.41% YoY to USD 59.73 million in Q1FY21 vs USD 65.93 million in Q1FY20 primarily due to savings from the lower current accident year loss ratio and underwriting expense ratio. Net income improved 78.81% YoY to USD 19.31 million in Q1FY21 in contrast to USD 10.80 million in Q1FY20.

Key Risks:  AMSF operates in a workers' compensation insurance industry, and faces direct competition from larger insurance companies, state insurance pools, and self-insurance funds which could undermine the company's business interests. Moreover, it deals only in workers’ compensation insurance any unfavorable changes in the economic, competitive, or regulatory environment could impair the financial performance of the company. In addition, independent agencies accounted for 96.5% of the voluntary in-force premium written by AMSF in FY20. Any damage to AMSF’s relationships with or decrease in marketing efforts by these agencies could be detrimental to the company’s interests. Further, construction, trucking, logging and lumber, manufacturing, agriculture, maritime, and oil and gas industries accounted for 85.5% of the gross premium of the company in FY20; hence, any downturn in these industries could hurt the company’s financials.

 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 FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

AMSF Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: AMSF has decreased 9.70% and 1.30% in the past 3 and 6 months, respectively, and is currently trading around the midpoint of the 52-week range of USD 51.85 to USD 67.10. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 38.40. We have valued the stock using the Price/Earning-based relative valuation methodology and arrived at a target price of USD 62.47. Considering the correction in the stock price, robust balance sheet and credit ratings, decent outlook, and current valuation, we recommend a “Watch” rating on the stock at the closing price of USD 58.84, up by 1.05% as of July 09, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

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