Valens Research

In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:

  • GAAP and IFRS have failed to provide rules for reliable financial statement reporting
  • Stock analyst recommendations are not grounded in disciplined financial analysis
  • Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
  • Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available

We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.

  • Corporate credit ratings remain years behind the fundamental underpinnings of company performance
  • Stock analysts continue to make recommendations with deeply inherent biases
  • Research firms have failed to break down the walls between credit, equity, and macroeconomic research
  • The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming

The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.

Valens Research

SFM - Embedded Expectations Analysis - 2020 08 07

Sprouts Farmers Market (SFM:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 17.5x Uniform P/E. At these levels, the market has bearish expectations, but management is confident about their customer base, cash generation, and their overall strategy Specifically, management is confident in their ability to increase gross margins, that they are over-indexed to health enthusiasts and innovation seekers, and that there was excess demand for meat after the executive order was implemented. Furthermore, management is confident their cash generation ha...

Valens Research

NCR - Embedded Expectations Analysis - 2020 08 07

NCR Corporation (NCR:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 13.9x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management may be concerned about their liquidity position, logistics disruptions, and ATM business pressures Specifically, management may have concerns about their current liquidity position, further disruptions in their logistics, and the terms of their debt refinancing. Furthermore, they may lack confidence in their ability to remain compliant with their debt covenants, continue to ha...

Valens Research

ENR - Embedded Expectations Analysis - 2020 08 07

Energizer Holdings, Inc. (ENR:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 15.6x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management may be concerned about their sales growth, supply chain disruptions, and liquidity Specifically, management may have concerns about the sustainability of growth in their battery business and their ability to resolve supply disruptions. In addition, they may lack confidence in their ability to grow organic sales, and they may be concerned about their ability to sustain...

Valens Research

KMX - Embedded Expectations Analysis - 2020 08 07

CarMax, Inc. (KMX:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 41.5x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about loan losses, their inventory management, and profitability Specifically, management is confident they are pausing additional spend on store expansion activities in FY2021. Additionally, they may lack confidence in their ability to grow gross profit per unit, improve sales from alternative delivery channels, and sustain SG&A expense reductions. Furthermore, the...

Valens Research

UAFRS vs As Reported Weekly Highlights - 2020 08 06

This week, Valens identified distortions and the corresponding adjustments to correct for those distortions for SQ, VRSN, and ZG.

Valens Research

SFM - Embedded Expectations Analysis - 2020 08 07

Sprouts Farmers Market (SFM:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 17.5x Uniform P/E. At these levels, the market has bearish expectations, but management is confident about their customer base, cash generation, and their overall strategy Specifically, management is confident in their ability to increase gross margins, that they are over-indexed to health enthusiasts and innovation seekers, and that there was excess demand for meat after the executive order was implemented. Furthermore, management is confident their cash generation ha...

Valens Research

NCR - Embedded Expectations Analysis - 2020 08 07

NCR Corporation (NCR:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 13.9x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management may be concerned about their liquidity position, logistics disruptions, and ATM business pressures Specifically, management may have concerns about their current liquidity position, further disruptions in their logistics, and the terms of their debt refinancing. Furthermore, they may lack confidence in their ability to remain compliant with their debt covenants, continue to ha...

Valens Research

ENR - Embedded Expectations Analysis - 2020 08 07

Energizer Holdings, Inc. (ENR:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 15.6x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management may be concerned about their sales growth, supply chain disruptions, and liquidity Specifically, management may have concerns about the sustainability of growth in their battery business and their ability to resolve supply disruptions. In addition, they may lack confidence in their ability to grow organic sales, and they may be concerned about their ability to sustain...

Valens Research

KMX - Embedded Expectations Analysis - 2020 08 07

CarMax, Inc. (KMX:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 41.5x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about loan losses, their inventory management, and profitability Specifically, management is confident they are pausing additional spend on store expansion activities in FY2021. Additionally, they may lack confidence in their ability to grow gross profit per unit, improve sales from alternative delivery channels, and sustain SG&A expense reductions. Furthermore, the...

Valens Research

UAFRS vs As Reported Weekly Highlights - 2020 08 06

This week, Valens identified distortions and the corresponding adjustments to correct for those distortions for SQ, VRSN, and ZG.

Valens Research

Valens Credit Weekly Insights - 2018 05 23

Valens Credit Research Team highlighted ideas for GME, JCP, and VRX. They have also provided recent analyses for LB and BLDR, while CYH topped the quantitative outlier report for the week.

Valens Research

VRX - Valens Credit Report - 2018 05 17

Credit markets are overstating VRX's credit risk with a CDS of 485bps and YTW of 7.111% relative to an Intrinsic CDS of 340bps and an Intrinsic YTW of 6.241%. Furthermore, Moody's is materially overstating VRX's fundamental credit risk, with their high-yield B3 credit rating seven notches lower than Valens' IG4 (Baa2) credit rating Incentives Dictate Behavior™ analysis highlights mostly positive signals for creditors. Management's compensation metrics should drive them to focus on all three value drivers: revenue growth, margins, and asset turnover, which should result in Uniform ROA improveme...

Valens Research

Valens Credit Weekly Insights - 2018 05 16

Valens Credit Research Team highlighted ideas for AMAG, BBY, and ESV. They have also provided recent analyses for RPM and UHS, while CYH topped the quantitative outlier report for the week.

Valens Research

JCP - Valens Credit Report - 2018 05 16

Credit markets are grossly overstating credit risk, with a CDS of 967bps relative to an Intrinsic CDS of 401bps, and a cash bond YTW of 13.127% relative to an Intrinsic YTW of 6.957%. Furthermore, Moody's is materially overstating JCP's fundamental credit risk, viewing the firm as a highly speculative, high-yield credit, with its B3 rating six notches lower than Valens' XO (Baa3) rating Incentives Dictate Behavior™ analysis highlights that JCP's management compensation framework should incentivize them to improve margins and grow revenue over time, which may lead to greater cash flows availabl...

Valens Research

Valens Credit Weekly Insights - 2018 05 09

Valens Credit Research Team highlighted ideas for CYH, DOOR, and X. They have also provided recent analyses for AL and GOGO, while CYH topped the quantitative outlier report for the week.

Joel Litman ...
  • Rob Spivey

Valens Research US Market Phase Cycle - July 2020

Earnings growth and investment are likely to recover quickly from the recession, due to a need to invest, and management teams' growing confidence and lack of concern about structural issues. Fundamentals should bounce back rapidly, but after the recent rally, equity markets are pricing in a well-executed recovery, capping upside The coronavirus pandemic has pushed the world into a short-term recession, but thanks to credit fundamentals, its likely not to be a protracted deep recession or long recovery. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption s...

Joel Litman ...
  • Rob Spivey

Valens Research US Market Phase Cycle - June 2020

Earnings growth and investment are likely to recover quickly from the recession, due to a need to invest, and management teams' growing confidence and lack of concern about structural issues. Fundamentals should bounce back rapidly, but after the recent rally, equity markets are pricing in a well executed recovery, capping upside The coronavirus pandemic has pushed the world into a short-term recession – but that does not mean a protracted deep recession or long recovery thanks to credit fundamentals. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption sti...

Joel Litman ...
  • Rob Spivey

Valens Research US Market Phase Cycle - May 2020

The coronavirus pandemic has pushed the world into a short-term recession and credit spreads point to near-term disruptions – but that does not need to mean a protracted deep recession or long recovery thanks to credit fundamentals. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption still point to optimism for a strong recovery, but credit spreads point to near-term volatility Corporate fundamentals and valuations warrant optimism for equity upside if the recession is not protracted. Strong corporate profitability and fundamental factors driving a need to...

Joel Litman ...
  • Rob Spivey

Valens Research US Market Phase Cycle - April 2020

The coronavirus pandemic has pushed the world into an almost certain short-term recession – but that does not need to mean a protracted deep recession or long recovery thanks to credit fundamentals. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption still point to optimism for a strong recovery Corporate fundamentals and valuations warrant optimism for equity upside if the recession is not protracted. Strong corporate profitability and management optimism about investing point to fundamental reasons for market upside after this short-term overhang is remo...

Joel Litman ...
  • Rob Spivey

Valens Research US Market Phase Cycle - February 2020

Fundamental and management sentiment data point to accelerating earnings growth, at the same time that credit lending standards are starting to flash signs of tightening. This is a classic set-up for the beginning of the late stage of a bull market, where growth takes over, driving a market higher. A set up like early 1999. Signs of strong 2020 earnings growth and growing management confidence on this issue point to continued reason for fundamental acceleration Credit lending standards point to early reasons for monitoring credit, as does the recent re-inversion of the yield curve even after t...

Joel Litman ...
  • Rob Spivey

Valens Research US Market Phase Cycle - March 2020

Weathering a storm requires a strong foundation, which this economy has. The coronavirus pandemic has pushed the world into an almost certain short-term recession – but that does not need to mean a protracted deep recession or long recovery thanks to credit fundamentals. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption give reason for optimism for a strong recovery Corporate fundamentals and valuations warrant optimism for equity upside if the recession is not protracted. Strong corporate profitability, management optimism about growth before the pand...

Joel Litman ...
  • Rob Spivey

Valens Market Phase Cycle Monitor & Corporate Credit Macro View - April 2018

In general, management teams tend to be value buyers, buying when their stocks dip and withdrawing when their equity rallies. If they don't, it can be a sign of their concern about fundamentals. Watching this statistic can be helpful in confirming other signals about the fundamental outlook. Over the past month, with earnings related black-out periods removed, company management teams have taken the opportunity to buy their stock at higher than average levels. Management teams are showing confidence in their business fundamentals, even as the market remains volatile because of the macro backdr...

Joel Litman ...
  • Rob Spivey

Valens Research US Market Phase Cycle Monitor & Corporate Credit Macro View - December 2017

As the world rings in to the new year in a few days, many will sing Auld Lang Syne. The lyrics ask if we should put the past behind us, or take the opportunity to remember the friendships that got us where we are today. It is a perfect time to reflect on one old friend…the current bull market. It is approaching 7 years old (or even longer, depending on how you define the beginning of the bull)… The phase “bull markets don't die of old age” has been written a lot of use in the past year, because of the age of this one. John Templeton's statement that, instead of old age, bull markets “die on eu...

Joel Litman ...
  • Rob Spivey

Valens Research US Market Phase Cycle Monitor & Corporate Credit Macro View - February 2018

In the last month's Market Phase Cycle, we highlighted inflation as a key risk that investors would be focused on as we moved through 2018. Shortly thereafter, the market had a correction due largely to this issue and its implications for interest rates and equity investors. Inflation also is a negative for equity multiples longer-term because of its implication for real returns for investors. In essence, inflation leads to lower valuations in the long-term. However, in the nearer-term, inflation is driven by a strongly growing economy that will facilitate earnings growth. Even if rising infla...

Joel Litman ...
  • Rob Spivey

Valens Research US Market Phase Cycle Monitor & Corporate Credit Macro View - January 2018

In late 2016 into early 2017, we repeatedly highlighted that fundamentals appeared to be accelerating favorably, and this would be a tailwind for markets in the coming year. As we enter 2018, we see many factors pointing similarly for the markets. Management teams continue to be ramping up investment, and corporate earnings are benefiting from the corporate tax cut. Valuations remain reasonable. Also, credit risk remains muted with strong balance sheets and income statements, and limited debt maturity headwalls. These all warrant continued equity upside in 2018. In early 2017, based on the Mar...

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