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
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CNC - Valens Credit Report - 2022 08 11

Cash bond markets are overstating CNC's credit risk with a YTW of 4.607% relative to an Intrinsic YTW of 3.367%, while CDS markets are materially overstating CNC's credit risk with a CDS of 229bps relative to an Intrinsic CDS of 69bps. Furthermore, Moody's is overstating CNC's fundamental credit risk with its Ba1 credit rating three notches below Valens' IG4+ (Baa1) credit rating. Incentives Dictate Behavior™ analysis highlights mixed signals for credit holders. Management's compensation framew...

Valens Research
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Valens Credit Weekly Insights - 2022 08 10

Valens Credit Research team highlights MTDR, which has a compelling bond offering that we believe the market is currently mispricing, with strong fundamentals, favorable management alignment, and an actionable trade.

Valens Research
  • Valens Research

Valens Equity Weekly Insights - 2022 08 09

Constellation Brands, Inc. (STZ) has transformed its profitability profile through its massive expansion in the beer market and move to premiumization over the last seven years. Uniform Accounting highlights that the market is pricing in a reversal of recent profitability expansion and below-average growth, but management is confident about executing on their strategy and is aligned to continue to do so, signaling the potential for equity upside as the company continues executing. Constellatio...

Valens Research
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SITC - Valens Credit Report - 2022 08 09

Credit markets are understating credit risk with a cash bond YTW of 4.823% and a CDS of 191bps relative to an Intrinsic YTW of 5.793% and an Intrinsic CDS of 312bps. Furthermore, Moody's is materially understating the firm's fundamental credit risk, with its Baa3 credit rating five notches higher than Valens' HY2 (B2) credit rating. Incentives Dictate Behavior™ analysis highlights that SITC's management compensation framework is mostly positive for credit holders. That said, management members ...

Valens Research
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MTDR - Valens Credit Report - 2022 08 05

Credit markets are overstating MTDR's credit risk with a YTW of 5.223% relative to an Intrinsic YTW of 4.043% and an Intrinsic CDS of 133bps. Furthermore, Moody's is materially overstating MTDR's fundamental credit risk with its B1 credit rating six notches below Valens' IG4+ (Baa1) credit rating. Incentives Dictate Behavior™ analysis highlights favorable signals for credit holders. MTDR's metrics should focus management on all three value drivers: margin expansion, asset efficiency, and revenu...

Valens Research
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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 valu...

Valens Research
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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 incentivi...

Joel Litman ... (+2)
  • Joel Litman
  • Rob Spivey

Valens Market Phase Cycle Monitor & Corporate Credit Macro View - Apri...

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 confid...

Joel Litman ... (+2)
  • Joel Litman
  • Rob Spivey

Valens Research US Market Phase Cycle Monitor & Corporate Credit Macro...

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 ...

Joel Litman ... (+2)
  • Joel Litman
  • Rob Spivey

Valens Research US Market Phase Cycle Monitor & Corporate Credit Macro...

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, inflatio...

Joel Litman ... (+2)
  • Joel Litman
  • Rob Spivey

Valens Research US Market Phase Cycle Monitor & Corporate Credit Macro...

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 ma...

Joel Litman ... (+2)
  • Joel Litman
  • Rob Spivey

Valens Research US Market Phase Cycle Monitor & Corporate Credit Macro...

Equity market expectations are currently not aggressive – pricing in continued modest growth with steady ROA' improvement. If corporations continue to deliver the strong adjusted earnings growth they've delivered this year, there is substantial fundamental upside going forward. Investor sentiment has fallen from overly bullish levels to very conservative levels in the past 3 months. Investors are positioned for a pullback, making it less likely to happen. As highlighted in prior letters, the mar...

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