Report
Valens Research

Valens Equity Insights and Inflections - 2018 11 14

GRMN currently trades below corporate averages relative to Uniform Earnings, with a 16.1x Uniform P/E. At these valuations, the market is pricing in expectations for Uniform ROA to fall from current 17% levels in 2017 to just 10% in 2022, accompanied by 8% Uniform Asset growth going forward. However, analysts have far less bearish expectations, projecting Uniform ROA to compress only slightly, to 15% levels in 2019, accompanied by 7% Uniform Asset growth. In addition, analyst projections have grown consistently over the last year, indicating growing bullishness that the market has yet to factor in. This, coupled with management's confidence in their Fenix watch series margin and growth potential, and in their ability to expand their wearables business, suggests that GRMN can outperform bearish market expectations, warranting upside.

FB Q3 2018 Embedded Expectations Analysis – Management's confidence in advertising, user engagement, and active users imply market expectations are too bearish, and upside is warranted

SCS Q2 2019 Embedded Expectations Analysis – Market expectations are for Uniform ROA recovery, but management has concerns about their acquisitions and partnerships, growth in EMEA, and industry outlook

PANW Q4 2018 Embedded Expectations Analysis – Market expectations are for declining Uniform ROA, and management has concerns about cyber-criminals, margins, and their business model

ABM, ABT, AMZN, ASML:NLD, CASY, CTXS, DG:FRA, GIII, IRBT, LMT, NOVN:CHE, PM, SIE:DEU, SLB, SYY, VEC:GBR
Underlyings
Abbott Laboratories

Abbott Laboratories is engaged in the discovery, development, manufacture, and sale of a range of health care products. The company's reportable segments are: established pharmaceutical products, which includes a range of generic pharmaceuticals; diagnostic products, which includes a range of diagnostic systems and tests; nutritional products, which includes a range of pediatric and adult nutritional products; and medical devices, which includes a range of rhythm management, electrophysiology, heart failure, vascular and structural heart devices for the treatment of cardiovascular diseases, and diabetes care products for people with diabetes, as well as neuromodulation devices.

ABM Industries Incorporated

ABM Industries is a provider of integrated facility solutions. The company's segments include: Business and Industry, which encompasses janitorial, facilities engineering, and parking services for commercial real estate properties, sports and entertainment venues, and hospitals and non-acute healthcare facilities; Aviation, which supports airlines and airports with services ranging from parking and janitorial to passenger assistance, catering logistics, air cabin maintenance, and transportation; and Education, which delivers janitorial, custodial, landscaping and grounds, facilities engineering, and parking services for public school districts, private schools, colleges, and universities.

Amazon.com Inc.

Amazon.com serves consumers through its online and physical stores. The company also manufactures and sells electronic devices, including Kindle, Fire tablet, Fire TV, Echo, and Ring, and the company develops and produces media content. The company operates customer service centers and provides programs that enable sellers to grow their businesses, sell their products in its stores, and fulfill orders through the company The company serves developers and enterprises of various sizes, including start-ups, government agencies, and academic institutions, through its Amazon Web Services segment, which provides a set of global compute, storage, database, and other service offerings. The company also provides services, such as advertising.

ASML Holding NV

ASML Holding provides lithography systems for the semiconductor industry, manufacturing machines that are used in the production of integrated circuits or chips. Co. develops, produces, markets, sells and services advanced semiconductor equipment systems exclusively consisting of lithography systems. Co. sells its products to micro-processor manufacturers and Foundries, NAND-Flash memory and DRAM memory chipmakers. Co.'s products line includes the following: PAS 5000 lithography systems, which Co. no longer manufactures but continues to refurbish; PAS 5500 products; TWINSCAN DUV systems and TWINSCAN EUV systems based on a new platform utilizing the concepts of the TWINSCAN platform.

Casey's General Stores Inc.

Casey's General Stores and its subsidiaries operate convenience stores under the names Casey's and Casey's General Store primarily in Iowa, Missouri, and Illinois. The company also operates stores under the name Tobacco City, selling primarily tobacco products, liquor stores, and a grocery store. Each Casey's Store carries food and nonfood items. Most of the company's food products are nationally advertised brands, and it also has an assortment of Casey's proprietary branded products. Stores sell regional brands of dairy and bakery products, and mostly provide beer. The company's nonfood items include tobacco products, health and beauty aids, school supplies, housewares, pet supplies, and automotive products.

Citrix Systems Inc.

Citrix Systems is an enterprise software company. The company markets and licenses its solutions through multiple channels worldwide, including selling through resellers, direct and over the Web. The company's partner community comprises thousands of value-added resellers known as Citrix Solution Advisors, value-added distributors, systems integrators, independent software vendors, original equipment manufacturers and Citrix Service Providers. The company provides solutions and services that it categorizes into three inter-related and complementary areas: Workspace, Networking and Professional Services.

Facebook Inc. Class A

Facebook is building and engaging products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and in-home devices. The company's products include: Facebook, which enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers; Instagram, which is a place where people can express themselves through photos, videos, and private messaging, and explore their interests in businesses, creators and communities; Messenger and WhatsApp, which are messaging applications; and Oculus, which connects people through its Oculus virtual reality products.

G-III Apparel Group Ltd.

G-III Apparel Group designs, sources and markets a range of apparel, including outerwear, dresses, sportswear, swimwear, women's suits and women's performance wear, women's handbags, footwear, small leather goods, cold weather accessories and luggage. The company has two segments: wholesale operations, which includes sales of products under brands licensed by the company from third parties and sales of products under its own brands and private label brands, and sales related to the Vilebrequin business; and retail operations, which consists of the company's Wilsons Leather, G.H. Bass and DKNY stores operated as outlet stores, and a limited number of Calvin Klein Performance and Karl Lagerfeld Paris stores.

Garmin Ltd.

IRobot Corporation

iRobot is a consumer robot company. The company's portfolio of solutions features technologies for the connected home and concepts in cleaning, mapping and navigation, human-robot interaction, and physical solutions. The company provides multiple Roomba floor vacuuming robots. The Braava robots automatically dust and damp mop hard-surface floors using cleaning cloths or the company's designed reusable microfiber cloths and include a reservoir that dispenses liquid throughout the cleaning cycle to keep the cloth damp. The robotic lawn mower, Terra t7 is being designed with a mapping and navigation system. Using the engaging Root Coding App, kids can learn coding fundamentals while they play, explore, and create.

Lockheed Martin Corporation

Lockheed Martin is a security and aerospace company. The company has four segments: Aeronautics, which is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of military aircraft; Missiles and Fire Control, which provides air and missile defense systems, logistics, fire control systems, and mission operations support; Rotary and Mission Systems, which provides design, manufacture, service and support for military and commercial helicopters, radar systems, and simulation and training services; Space, which researches, designs, develops, engineers and produces satellites, space transportation systems, and strategic, strike, and defensive systems.

Novartis AG

Novartis is a multinational healthcare group based in Switzerland. Co. provides healthcare solutions that address the evolving needs of patients and societies worldwide. Co.'s broad portfolio includes innovative medicines, eye care products and cost-saving generic pharmaceuticals. Co.'s operations are organized along three operating divisions: Innovative Medicines Division; Sandoz Division; and Alcon Division. Co.'s operations are supported by the Novartis Institutes for BioMedical Research and Novartis Business Services.

Palo Alto Networks Inc.

Palo Alto Networks provides a platform that allows enterprises, service providers, and government entities to secure their organizations. The company's platform uses a traffic classification engine that identifies network traffic by application, user, and content and provides security across the network, endpoint, and cloud. The company's product, subscription, and support offerings include: firewall appliances and software; and Panorama, which is a centralized security management solution for global control of various firewall appliances and software deployed on an end-customer's network as well as in their instances in public or private cloud environments as a virtual appliance or a physical appliance.

Philip Morris International Inc.

Philip Morris International is a holding company. Through its subsidiaries, the company is a tobacco company engaged in the manufacture and sale of cigarettes, smoke-free products and associated electronic devices and accessories, and other nicotine-containing products in markets outside the United States. The company's portfolio comprises international and local brands including Marlboro, which is complemented in the premium-price category by Parliament. The company's other international cigarette brands are Bond Street, Chesterfield, L&M, Lark and Philip Morris. The company also owns various local cigarette brands, such as Dji Sam Soe, Sampoerna A and Sampoerna U in Indonesia, and Fortune and Jackpot in the Philippines.

Schlumberger NV

Schlumberger provides technology for reservoir characterization, drilling, production and processing to the oil and gas industry. The company has four segments: Reservoir Characterization, which consists of the principal technologies involved in finding and defining hydrocarbon resources; Drilling, which consists of the principal technologies involved in the drilling and positioning of oil and gas wells; Production, which consists of the principal technologies involved in the lifetime production of oil and gas reservoirs; and Cameron, which consists of the principal technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities.

Siemens AG

Siemens is a technology company. Co.'s Energy sector provides a range of products, solutions and services for generating and transmitting power. The Healthcare sector provides customers a range of medical solutions across the treatment chain. The Industry sector supplies products and solutions for industrial companies, primarily in the process and manufacturing industries. The Infrastructure & Cities sector provides a range of technologies that accelerates the capabilities of metropolitan centers and urban infrastructures. The Investments segment is comprised of Co.'s equity stakes in other companies. The Financial Services segment provides business-to-business financial solutions.

Steelcase Inc. Class A

Steelcase provides furniture settings, user-centered technologies and interior architectural products. The company's furniture portfolio includes panel, fence and beam-based furniture systems, storage, fixed and height-adjustable desks, benches and tables and complementary products. The company's seating products include task chairs and seating for specific vertical markets. The company's technology solutions support group collaboration by integrating furniture and technology. The company's interior architectural products include full and partial height walls and architectural pods. The company also provides services, including workplace strategy consulting, data-driven space measurement, and lease origination services.

Sysco Corporation

Sysco, acting through its subsidiaries and divisions, is a distributor of food and related products primarily to the foodservice or food-away-from-home industry. The company has three reportable segments: United States Foodservice Operations, which primarily include United States Broadline operations, which distribute a line of food products, including custom-cut meat, seafood, specialty produce, specialty imports and a variety of non-food products; International Foodservice Operations, which include operations in the Americas and Europe, which distribute a line of food products and a variety of non-food products; and SYGMA, which consists of its United States customized distribution subsidiary.

Vector Resources

Vector Resources is engaged in identifying and acquiring interests in and value-add to mineral exploration and mining opportunities in Australia and overseas. Co. operated in two mineral exploration segments, gold and iron ore, located in Western Australia.

VINCI SA

Vinci is engaged in building, civil engineering and facilities management. Through its subsidiaries, Co. is engaged in five divisions comprising of: the Building division which provides retail solutions including construction and fit-out in both the retail and commercial sectors; the Civil Engineering division; the Air division which provides program management, engineering and construction services to customers with airport infrastructure requirements; the Technology division; and the VINCI Facilities division which provides facilities management, repair and maintenance and small works in both the private and public sectors.

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Valens Research
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
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  • 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

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