Valens Equity Insights and Inflections - 2022 05 24
Constellation Brands (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.Constellation has consistently improved its returns since 2014, when it acquired Grupo Modelo's U.S. operations. Since then, the company has significantly expanded its presence in the profitable beer market, and more recently, it has specifically focused on attacking the premium slice of all the segments of the alcohol market. All of this has driven significant growth and profitability expansion, and it has the momentum to continue doing so both in beer, wine, and spirit. If the company is able to continue executing, it should be able to beat market expectations.
STZ's management is closely aligned to focus on margins, asset efficiency, and growth the three main drivers for profitability expansion and key to Constellation's equity upside scenario.
Management confidence in the Q4 earnings call about continued momentum in its beer segment, rising margins in Wine & Spirits, and cost management suggest management is positioned to execute above market expectations.
Penn National Gaming (PENN) is being removed from the Conviction Long List. The company has been punished because of broader sports gambling industry concerns, so we are closing down -55%. Korn Ferry (KFY) is also being removed amidst a tough international operating environment. We close KFY up +57%. We are also closing Bausch Health (BHC), which is facing several setbacks towards deleveraging its balance sheet according to schedule. As such, we are closing down -42%.
DKNG Q4 2021 Embedded Expectations Analysis – Market expectations are for Uniform ROA to expand, and management is confident about product developments, profitability, and their media vertical
HES Q1 2022 Embedded Expectations Analysis – Market expectations are for Uniform ROA to fade, but management is confident about their value enhancement, new offerings, and guidance
BA Q1 2022 Embedded Expectations Analysis – Market expectations are for Uniform ROA to recover, but management may have concerns about the demand in China, plane launches, and operating issues
STZ, BA, DKNG, HES, BHVN, DKS, GWRE, OGE, OGN, TXG, USFD, WSC
The Boeing is an aerospace firm. The company's segments include: Commercial Airplanes, which develops, produces and markets commercial jet aircraft and provides fleet support services, mainly to the commercial airline industry; Defense, Space and Security, which engages in the research, development, production and modification of manned and unmanned military aircraft and weapons systems for strike, surveillance and mobility, vertical lift, and commercial derivative aircraft; Global Services, which provides supply chain and logistics management, pilot and maintenance training systems and services, and data analytics and digital services; and Boeing Capital, which manages overall financing exposure.
Constellation Brands is an international beverage alcohol company. The company is a producer and marketer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand, Italy and Canada. The company has two segments: Beer, in which the company is engaged in the U.S. beer market that includes the imported, craft, domestic super premium, and alternative beverage alcohol categories and it has the right to import, market and sell these Mexican beer brands in the U.S.; and Wine and Spirits, in which its wine portfolio is supported by grapes purchased from independent growers, primarily in the U.S., New Zealand and Chile, and vineyard holdings in the U.S., New Zealand and Italy.
Dick's Sporting Goods is an omni-channel sporting goods retailer offering sports equipment, apparel, footwear and accessories. The company also owns and operates Golf Galaxy, Field & Stream and other specialty concept stores, and Dick's Team Sports HQ, an all-in-one youth sports digital platform offering scheduling, communications and live scorekeeping through its GameChanger mobile apps, free league management services, custom uniforms and fan wear, and access to donations and sponsorships. The company provides products to its customers through its retail stores and online. The company is also involved in local communities, sponsoring teams in various sports.
Guidewire Software provides a technology platform, composed of software, services, and a partner ecosystem, for the property and casualty insurance industry. Guidewire InsurancePlatform? consists of cloud and on-premise applications to support core operations, data management and analytics, and digital engagement and is connected to various data sources and third party applications. The company's operational platforms include: Guidewire InsuranceSuite, which comprises of PolicyCenter, BillingCenter, and ClaimCenter applications; and Guidewire InsuranceNow, which provides policy, billing and claims management functionality to insurers that prefer to subscribe to a cloud-based, all-in-one solution.
Hess is a global exploration and production company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquid (NGL), and natural gas with production operations located primarily in the United States, Guyana, the Malaysia/Thailand Joint Development Area, Malaysia and Denmark. The company's Midstream operating segment provides fee-based services, including gathering, compressing and processing natural gas and fractionating NGL; gathering, terminaling, loading and transporting crude oil and NGL; storing and terminaling propane, and water handling services primarily in the Bakken shale play in the Williston Basin area of North Dakota.
OGE Energy is a holding company. Through its subsidiaries, the company is an energy and energy services provider providing physical delivery and related services for both electricity and natural gas primarily in the south central United States Co. conducts these activities through two business segments: electric utility, which generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas; and natural gas midstream operations, which consist of the company's investment in Enable Midstream Partners, LP, which is primarily engaged in the business of gathering, processing, transporting and storing natural gas.
US Foods Holding. through its subsidiaries, markets and distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the United States. These customer locations include independently owned single and multi-unit restaurants, regional concepts, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities, and retail locations. The company provides fresh, frozen, and dry food stock-keeping units as well as non-food items, sourced from suppliers. The company's network of distribution facilities and trucks allow the company to operate and provide customer service.
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- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
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- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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