Are These 6 Popular Stocks Trading At Stretched Valuation: James Hardie, CSL, Afterpay, Macquarie, ResMed, Coca-Cola Amatil

  • Nov 20, 2019 AEDT
  • Team Kalkine
Are These 6 Popular Stocks Trading At Stretched Valuation: James Hardie, CSL, Afterpay, Macquarie, ResMed, Coca-Cola Amatil

Valuation stretch is a measure to check how expensive or cheap a stock is. The wider the spread is, there is a higher potential for a stock to return to its mean level. Investors look for investment opportunities using various models like discounted cash flow models (DCF) and comparing valuation multiples or stocks across various industries.

We have measured the valuations of the below discussed 6 popular stocks. Let’s find out whether these stocks are trading at stretched valuations.

James Hardie Industries Plc (ASX: JHX)

James Hardie Industries Plc (ASX: JHX) is engaged in research, development, manufacture, sales and marketing of fibre cement building materials.

Dividend/Distribution Update: The company recently released an update to its earlier announcement on 7 November 2019 regarding a dividend distribution. The first half ordinary unfranked dividend of US$0.100 per share on JHX - Chess Depositary Interests 1:1 is due for payment on 20 December 2019. In the recent announcement, the company mentioned AUD equivalent dividend amount of 14.6830 cent per security and the FX rate (in form AUD1.00/primary currency rate) as the reasons for the update

September Quarter NOPAT Up 22%: For the second quarter ended September 2020, group adjusted net operating profit increased by 22% to US$98.6 million as compared to the prior corresponding periods. The company also reported a rise of 26% in group adjusted EBIT to US$134.2 million for the quarter in relative to previous period.

JHX expects moderate growth in the US housing market in FY20 and anticipates new construction to begin between approximately 1.2 million and 1.3 million. The top management of the company also anticipates the net operating profit excluding asbestos for the year to be in the range of US$343 million to US$362 million.

Stock Performance: As per ASX on 19 November 2019, the stock of JHX gave a return of almost 60% in the past 6 months and a return of 12.8% in the past 30 days. This led the stock price to trade close to its 52-week higher levels of A$29.110. In terms of valuation, the stock is trading at a P/E multiple of 32.630x, higher than the industry median of 10.9x. EV/EBITDA of the company is 17.2x as compared to the industry median of 6.8x.

Thus, taking into the consideration the higher P/E multiple and EV/ EBITDA ratio, we can say that the stock is trading at stretched valuations at the current market price of A$28.145.

CSL Limited (ASX: CSL)

Global biotechnology company, CSL Limited (ASX: CSL) is engaged in the research, manufacturing and marketing of products to treat rare and serious diseases.

Financial Highlights: Against a strong comparative period, the company managed to deliver a double-digit profit growth with strong performances from immunoglobulin, specialty products and influenza vaccines franchises during FY2019 ended 30 June 2019. During the year, revenue of the company reported an increase of 11%, with a 17% year on year growth in reported net profit after tax to US$1,919 million.

CSL Limited

Stock Performance: As per ASX on 19 November 2019, the stock of CSL gave a return of 31.8% in the past 6 months and a return of 18.5% in the past 3 months. This resulted the stock to trade close to its 52-week high of A$275.420. In terms of valuation, it is trading at a P/E multiple of 45.030x as compared to industry median of 12.5x. EX/Sales of the company stands at 10.6x, higher than the industry median of 9.6x.

Thus, taking into the consideration the higher P/E multiple and EV/ Sales ratio, we can say that the stock is trading at stretched valuations at the current market price of A$272.690.

Afterpay Touch Group Limited (ASX: APT)

Afterpay Touch Group Limited (ASX: APT) provides technology driven payments solutions for consumers and businesses through its Afterpay and Pay Now services.

Business Highlights: The global underlying sales of the company for the four months to October 2019 were A$2.7 billion, a 110% increase compared to the previous corresponding period, with 6.1 million active customers, globally. The company contributed over 10 million lead referrals globally in October, representing the highest month of referrals and hence adding value to merchants with Afterpay’s shop directory.

Expectations and Stock Performance: The company has achieved significant growth, but the opportunity remains immense. APT expects customer frequency and return rates to trend strongly in all markets. On 19 November 2019, the stock of APT was trading close to its 52-week higher levels of A$37.410, with the market cap of A$8.15 billion. On the valuation front, it is trading at EV/ Sales multiple of 26x, higher than the industry median of 1.6x.

Macquarie Group Limited (ASX: MQG)

Macquarie Group Limited (ASX: MQG) is a financial services provider, offering banking, financial, advisory, investment and funds management services. According to a company release on 19 November 2019, MQG issued 210 fully paid ordinary shares for a consideration of $136.65 per share.

Dividend/Distribution – MQG: The company declared a dividend of A$2.5 per share on fully paid ordinary shares for the six-month period to 30 September 2019. The dividend is to be paid on 18 December 2019.

H1 FY2020 Net Profit Up 11%: For the half year ended 30 September 2019 (H1 FY2020), Macquarie reported an increase of 11% in net profit to A$1,457 million from A$1,310 million in the same period a year ago. Increases in fee and commission income, other operating income and charges and net interest and trading income resulted in the increase in net operating income by 8% from A$5,830 million to A$6,320 million. This, however, was counterbalanced by higher credit and other impairment charges and lower share of net profits of associates and joint ventures.

Macquarie Group Limited

Stock Performance: As per ASX on 19 November 2019, the performance of the stock went up by 12.03% in the past 6 months and generated a return of 2.11% in the last 30 days. The market capitalisation of Macquarie Group Limited stands at $48.43 billion. In terms of valuation, the stock is trading at a P/E multiple of 14.770x as compared to the industry median of 14.5x. EV/Sales of the company is 3.9x, lower than the industry median of 5.9x.

Thus, taking the above-mentioned facts into consideration, we can conclude that MQG is not trading at stretched valuations as on 19 November 2019.

ResMed Inc. (ASX: RMD)

ResMed Inc. (ASX: RMD), a health care sector player, engaged in catering to patients with chronic diseases including sleep apnoea and COPD.

Dividend/Distribution Update: On 8 November 2019, the company announced an update to a previously unveiled dividend distribution for the quarter ended 30 September 2019. The company mentioned update of foreign exchange rate for upcoming dividend as the reason for the latest dividend/distribution update. A dividend of US$0.0390 on RMD - CDI 10:1 Foreign Exempt NYSE is due for payment on 12 December 2019.

Financial Highlights for September Quarter: For the first quarter of FY2020, the company reported an increase in revenue by 17% on a constant currency basis to A$681.1 million, which further resulted the net operating profit to increase by 19%. Gross margin of the company went up by 120 basis points over the prior year, mainly because of higher margin contribution from MatrixCare and the benefits from manufacturing and procurement efficiencies.

Stock Performance: As on 19 November 2019, the market capitalisation of ResMed Inc. stands at A$30.82 billion. In the time span of 5 years, RMD gave a return of 263.18% and in the past 30 days, the stock performance increased by 11.63%. This led the stock of RMD to trade close to its 52-week higher levels of $21.820. Taking valuations in consideration, the stock is trading at a P/E multiple of 53.340x with a forward price/cash flow ratio of 29.9x, which is extremely greater than the forward industry median of 0.8x.

Coca-Cola Amatil Limited (ASX: CCL)

Coca-Cola Amatil Limited (ASX: CCL) is in the business of manufacturing, distribution and marketing of non-alcoholic beverages.

What to Expect: The company’s Australian Beverages segment is in a good positioned for development in 2020 with the completion of the extra A$10 million of investments in Accelerated Australian Growth Plan. It expects an EBIT loss of approximately A$12 million with respect to Corporate & Services but plans higher profit growth in the second half of 2020. The company gave a guidance of its capex and expects it be in the range of A$250 million in 2019 and A$300 million in 2020.

Stock Performance: As per ASX on 19 November 2019, the stock of CCL gave a return of 9.57% in the past 3 months and a return of 10% in the past 30 days. This resulted the stock price to trade very close to its higher end of A$11.570. As on 19 November 2019, the stock is earning a dividend yield of 4.11% and is trading a P/E multiple of 27.840x, higher than the industry median of 12.2x. EV/Sales of the company stood at 2x relative to the industry median of 1.8x. Thus, it can be said that stock of CCL is trading at stretched valuations at the current market price of A$11.430.


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