2iQ Insider Brief: Kellogg Co (K: US) Kelt Exploration (KEL: CN) RingCentral INC (RNG:US)

Kaloyan Kolev 30 November 2018

Kellogg Co (K: US) 

12-month performance: -5%
Insider activity: Bullish
Buying pattern: Purchases from multiple directors including CEO and CFO
Recent news: Reduced full-year earnings forecast

 

Founded in 1906, Kellogg Company is a manufacturer of ready-to-eat cereal and convenience foods. The company’s products are sold all across the world and its portfolio includes well-known names such as Special K, Coco Pops, Corn Flakes and Pringles. The stock is listed on the New York Stock Exchange and currently has a market capitalisation of $21.9 billion.

 

Shares in Kellogg have pulled back sharply since 31 October, after the group slashed its full-year profit outlook due to higher advertising and distribution costs. Kellogg now expects full-year adjusted earnings per share growth to be in the range of 7%-8%, down from an earlier estimate of 11%-13%, and as a result, a number of analysts have reduced their price targets for the stock this month. Yet with the shares now trading on a forward-looking P/E ratio of less than 15, could value be on offer for long-term investors?

 Kellog

Source: 2iQ Research

Analysing insider transaction activity here, we think Kellogg shares look interesting after the recent pullback. This is the due to the fact that in the last two weeks, we have observed purchases from CEO Steve Cahillane, who has spent $1.2 million on stock, and CFO Fareed Khan, who has spent $508,954 on stock. Clearly, top-level management see value after the recent share price dip. It’s also worth noting that billionaire investor George Soros has recently taken a small stake in the company (100,000 shares), according to a SEC filing, which we interpret as another bullish signal.

 

Kelt Exploration (KEL: CN) 

12-month performance: -36%
Insider activity: Bullish
Buying pattern: Purchases from multiple directors including CEO and CFO
Recent news: Solid Q3 results

 Kelt Exploration is an oil and gas company headquartered in Calgary, Alberta. The company is focused on the exploration, development and production of crude oil and natural gas resources, primarily in north-eastern British Columbia and west central Alberta. The group’s strategy is to acquire assets with exploitation potential and, at the same time, implement a full-cycle exploration program. The stock is listed on the Toronto Stock Exchange and currently has a market capitalisation of CAD $795 million. 

After a strong run between March and late July, shares in Kelt Exploration have fallen significantly since August, losing nearly 60% of their value. Looking at recent news flow, it appears that the fall in the price of oil and general stock market weakness are the main drivers of the share price collapse. Yet in early November, the group reported a sharp increase in cash flow and earnings per share for the nine months ended 30 September, so could there be a disconnect between the group’s operating performance and the recent share price performance? 

Kelt EXploration

Source: 2iQ Research

Looking at recent insider transaction activity, we believe that there could be a disconnect, and we think the outlook for the shares may not be as bad as some investors fear. We say this because since mid-November, we have observed buying activity from a number of key directors at Kelt, including CEO David Wilson, who has recently purchased 255,000 shares, and CFO Sadiq Lalani, who has recently acquired 16,988 shares. Given that a number of top-level directors are currently accumulating shares, we believe the stock could have the potential for a rebound.

RingCentral Inc (RNG: US) 

12-month performance: +68%
Insider activity: Bearish
Selling pattern: Selling from multiple directors including CEO, CFO & COO
Recent news: Solid Q3 results

 RingCentral is a provider of software-as-a-service (SaaS) solutions for business communications. Its flagship service, RingCentral Office, is a multi-user, enterprise-grade communications solution that enables businesses and their employees to communicate via voice, text and fax, on multiple devices including smartphones, tablets, PCs and desk phones. The stock is listed on the New York Stock Exchange and currently has a market capitalisation of $6.3 billion.

 RingCentral shares have performed exceptionally well over the last two years, rising over 350%. The share price has been boosted by strong revenue growth, better-than-expected earnings figures, buyout speculation, positive sentiment towards the technology sector, and a number of broker upgrades. Yet like many other technology stocks, RingCentral has pulled back since mid-September, and it now trades approximately 20% lower than its September high. Has this pull back provided an attractive entry point?

 RingCentral

Source: 2iQ Research

Looking at recent insider transaction activity, we believe that shares in RingCentral could still be overvalued at present, and therefore, warrant caution. We say this because, over the last month, we have observed a number of top-level directors selling shares in the company, which we interpret as a bearish signal. Those selling have included CEO Vladimir Shmunis, CFO Mitesh Dhruv, COO David Sipes and Chief Strategy Officer Praful Shah, which is not a good sign, in our view. As such, we believe shares in RingCentral should be avoided for now.

Disclaimer: Neither 2iQ Research GmbH nor its content providers are responsible for any damages or losses arising from any use of this information.

Getting the most of Insider Trading Data - Free Book

Download
ebook-sample