Part 3

Kraft Heinz (KHC)

Company Background

Kraft Heinz Co. is one of the largest consumer packaged food and beverage companies in North America. Headquartered in Pittsburgh, US, the company manufactures and sells food and beverage products such as sauces and condiments, cheese and dairy products, meals, meats, coffee, refreshment beverages, as well as other grocery products. Its popular brands include Heinz, Kraft, Oscar Mayer, Philadelphia, Planters, Capri Sun, Maxwell House and others. Kraft Heinz has got presence in around 190 different countries and territories and is a global player in the sector it operates.

Current position – Financial Performance & Future Growth Prospects

Kraft Heinz’s business struggled tremendously in the 2017-2019 period due to the highly leveraged balance sheet that the company had at the time as well as the lack of healthy, organic and natural products in the company’s product portfolio. However, the senior management of the company has been able to fix these issues through the skillful implementation of various pricing initiatives and cost controls, combined of course with a significant upgrade of the company’s product portfolio. These efforts have proven to be highly successful and helpful for Kraft Heinz for a while now.

From a financial standpoint, the company reported much better-than-expected Q1, 2021 results, with both the top and the bottom line surpassing the consensus estimates. In addition to that both revenues and earnings rose year over year, which definitely shows that the turnaround story at Kraft Heinz is indeed successful. Kraft Heinz also saw a strong pick up in organic net sales and when you combine that with the great product mix and the lower general corporate expenses, then you can quickly start to see why the company looks much better today, than 5 years ago.

Quarterly adjusted earnings of 72 cents a share surged 24.1%, owing to increase in adjusted EBITDA, lower effective tax rate and reduced depreciation and amortization costs. Further, net sales of $6,39 billion increased 3.9% year over year including a 1.4 percentage point favorable impact from currency. Notably, organic net sales rose 2.5% despite an adverse impact from exiting the McCafe licensing agreement. Additionally, volume/mix improved 1.0 percentage points thanks to favorable changes in retail inventory levels, mainly in developed markets where retail consumption continued to remain solid as well as sustained growth in emerging markets.

Technical Analysis

KHC has been in a clear long-term downtrend since back in 2017. The stock plummeted from $80 per share all the way down towards the $22 mark in a hideous more than 2-year long decline. The company was facing a lot of internal management issues, its product mix was outdated and lagging behind its competitors and the highly leveraged balance sheet at the time with poor profitability and growth metrics were definitely painting a pretty dark picture for this household consumer staple giant. However, Kraft Heinz made the right changes, improved its portfolio of products, lowered its debt levels and now looks much better than before. The stock price movement also supports that transformation as ever since the stock bottomed at around $20 per share in the COVID-19 stock market crash in March, 2020, it has been steadily moving higher. As a food and beverage giant, home of some of the most beloved and regularly used products in the kitchen, Kraft Heinz’s stock has been extremely attractive for both institutional and retail investors, especially after dropping from $80 to 20$ per share.

The stock has managed to appreciate from the $20 lows all the way up to the $44 level, which was also a 2-year high for the stock. This represented an outstanding 120% stock price increase in just over 14 months. However, the stock has been in a downward corrective movement since early June this year.

It is currently resting right above its 200 EMA dynamic support zone. The long term bullish momentum behind the stock is quite strong and it will most likely continue to push the price higher in the future. However, the key technical level to watch at the moment is the $45 as a potential upward break there could easily open up the door for a move up to $55 and $65 respectively. We can see clearly from the Daily chart of the stock that it has been in the process of accumulating a lot of additional bullish interest in recent weeks, as it has been building a very meaningful base around the $39 level. The stock is currently trading at its 5, 20, 50 and right above its 200-day EMAs with the RSI and Stochastics oscillators coming up from oversold conditions. This shows that if the 200-day EMA gets clearly broken to the downside, the stock might drop down towards the next major support area around the $30-35 range. However, the long term path of least resistance remains to the upside and any dips towards any of the strong dynamic and/or static support levels, should be used as a buying opportunity. We will stay bullish on the stock and will be interested in buying any dips for as long as the stock stays above the $30 psychological support zone. A potential break there could easily send the stock down towards the next major support at $25, thus we would be exiting our positions if the $30 support breaks.

Digital Realty Trust (DLR)

Company Background

Digital Realty Trust, Inc. is a real estate investment trust that invests in carrier-neutral data centers and provides colocation and peering services. As of Mar 31, 2021, the company’s total portfolio comprised 290 data centers. This included 44 data centers held as investments in unconsolidated joint ventures. Specifically, 142 data centers are located in North America, 104 in Europe, 23 in Latin America, 12 in Asia, six in Australia and three in Africa. The portfolio contains 45.3 million square feet of space, including 7.7 million square feet under active development and 2.2 million square feet of space held for future development.

The company believes that the most important currency exchanged between enterprises and their customers is digital trust. As the ongoing surge of information accelerates, so does the need for secure data exchange across the world.

First established in 2004, Digital Realty Trust ® is built on the foundation of digital trust with core values driven by customer centricity, excellence, and teamwork. Through continuous innovation the company provides the trusted foundation for scaling digital businesses.

Digital Realty supports the data center, colocation and interconnection strategies of customers across the world, ranging from cloud and information technology services, communications and social networking, to financial services, manufacturing, energy, healthcare and consumer products.

The company is a member of The Green Grid and has helped pioneer concepts of energy efficient and energy conserving data center design

Current position – Financial Performance & Future Growth Prospects

From a financial standpoint the company delivered a strong performance in its Q1, 2021 earnings report, thanks to solid data-center demand. Digital Realty also saw an increase in signed total bookings during the first quarter, which are expected to generate $117 million of annualized GAAP rental revenues. Notably, the weighted-average lag between leases signed during the first quarter and the contractual commencement date was eight months. Digital Realty signed renewal leases, marking $193 million of annualized GAAP rental revenues in Q1. Rental rates on renewal leases signed during the quarter rolled up 3.2% on a GAAP basis. Also, the company generated first-quarter adjusted EBITDA of $615 million, up 6% sequentially and 28% year on year. Moreover, with first-quarter bookings uniformly balanced across regions, the company’s business has become increasingly global.

When looking at the company’s business segments and their revenue generating capabilities we can clearly see who the big winner is – data centers. With the immense growth in cloud computing, Internet of Things and big data processing, there has been an increasing number of companies that prefer to use third-party IT infrastructure, which in turn has led to a boom in the data-center REITs market. Furthermore, we are still at the very early stages of things like artificial intelligence, autonomous vehicle and virtual/augmented reality, which are all projected to have double digit CAGR over the next decade. These powerful trends are going to further increase the demand for data centers, which will eventually make data centers an infrastructure that the world can not function without.

Technical Analysis

DLR has been in a clear long-term uptrend ever since 2014. The stock has been on a tear as a result of the favorable business conditions and the great performance of the company. The multi-year uptrend, which took the price from the 2014 levels of around $34 per share all the way up to the $162 per share recorded in 2021 was seriously tested back in 2020 as a result of the unprecedented market environment at the time. The stock bottomed at around $100 per share in the COVID-19 stock market crash in March, 2020. As a well-managed REIT with a solid portfolio and with a great long-term growth trajectory, DLR’s stock has been extremely attractive for both institutional and retail investors. REITs usually provide their investors with a relatively slow and steady capital appreciation of their investments, as the real estate investment trusts are considered to be lower volatility investments. However, as a result of last year’s market shock DLR’s stock has managed to appreciate from the $100 lows all the way up to the $162 level breaking its former all-time highs. This represented an outstanding 62% stock price increase in exactly 15 months. However, the stock has been in a downward corrective trajectory since mid-June this year. It is currently resting right above its 200-day EMA dynamic support zone. The long term bullish momentum behind the stock is quite strong and it will most likely continue to push the price higher in the future. However, the key technical levels to watch at the moment are the $155 and $165 horizontal and all-time high resistances as a potential upward break there could easily open up the door for a move up to $180 and $190 respectively. We can see clearly from the Daily chart of the stock that it has been in the process of accumulating a lot of additional bullish interest in recent weeks, as it has been building a very meaningful base around the $150 level. The stock is currently trading at its 5, 20, 50 and above its 200-day EMAs with the RSI and Stochastics oscillators retracing upwards from oversold conditions on the daily chart. This shows that if the 200 EMA around $145 gets clearly broken to the downside, the stock might drop towards the next strong support at $125. However, the long term path of least resistance remains to the upside and any dips towards any of the strong dynamic and/or static support levels, should be used as a buying opportunity. We will stay bullish on the stock and will be interested in buying any dips for as long as the stock stays above the $140 psychological support zone. A potential break there could easily send the stock down towards the next major support at $125, thus we would be exiting our positions if the $140n support breaks.

Sincerely,

This image has an empty alt attribute; its file name is logo.svg

Add a comment