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Valens Research

Valens Equity Insights and Inflections - 2021 08 17

The market is pricing in a reckoning for the memory chip supply market, to which ICHR is a key supplier. Expectations are for the company's earning power to fade to historically low levels, even as the memory market is in a secular growth cycle.

The market expects Ichor, which has seen UAFRS-based ROA (Uniform ROA or ROA′) remain above 20% in each of the last seven years, to fade to an all-time low. This seems to be ignoring both Ichor's dominant position in its sub-industry and the memory market's long-term growth potential.

As Ichor's customers seek to produce memory chips with more intricate designs, and therefore denser, more efficient memory structures, they'll only have to rely more on Ichor's dominant technology. This means it is poised to benefit from trends like the Internet-of-Things and Big Data, both of which are diving long-term demand growth for the memory market.

Furthermore, management alignment, driven by management's material stakes in the business and their growth, margin, and shareholder return-focused metrics, aligns management to sustainably grow the business while finding ways to maintain or improve profitability.

Considering pessimistic market expectations, the company's dominant product and market
condition, and its upcoming multi-year industry tailwinds, there is significant equity upside for ICHR.

DHR Q2 2021 Embedded Expectations Analysis – Market expectations are for Uniform ROA to reach new peaks, but management may be concerned about demand, their investments, and costs

CTAS Q4 2021 Embedded Expectations Analysis – Market expectations are for Uniform ROA to reach all-time highs, but management may have concerns about margins, pricing, and growth

ES Q1 2021 Embedded Expectations Analysis – Market expectations are for Uniform ROA to expand, but management may have concerns about EPS, acquisitions, and the South Fork Project

ICHR, CTAS, DHR, ES, ABT, ADT, BF.B, CSL, EFX, FAST, FE, GATX, HCA, IBM, IFF, INTC, NFLX, SKX, TXN, UNH, VTRS
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.

ADT Inc

ADT is a provider of monitored security and interactive home and business automation solutions in the United States and Canada. The company's monitored security and automation offerings involve the installation and monitoring of security and premises automation systems designed to detect intrusion; control access; sense movement, smoke, fire, carbon monoxide, flooding, temperature, and other environmental conditions and hazards; and address personal emergencies. The company's products and services include interactive technologies to allow its customers to remotely monitor and manage their residential and commercial environments by adding automation capabilities to its monitored security systems.

Brown-Forman Corporation Class B

Brown-Forman primarily manufactures, bottles, imports, exports, markets, and sells a range of alcoholic beverage brands. Co.'s principal brands include, among other, Jack Daniel's Tennessee Whiskey; Jack Daniel's Tennessee Honey; Jack Daniel's RTDs; Gentleman Jack Rare Tennessee Whiskey; Jack Daniel's Tennessee Fire; Jack Daniel's Single Barrel Collection; Jack Daniel's Winter Jack; Jack Daniel's Sinatra Select; Jack Daniel's No. 27 Gold Tennessee Whiskey; Jack Daniel's Tennessee Rye; Korbel California Champagnes; Korbel California Brandy; Woodford Reserve Kentucky Bourbon; Woodford Reserve Double Oaked; Woodford Reserve Kentucky Rye Whiskey; Finlandia Vodkas; and Slane Irish Whiskey.

Carlisle Companies Incorporated

Carlisle Companies designs, manufactures and markets commercial roofing, energy, agriculture, mining, construction, aerospace and defense electronics, medical technology, transportation, among others. The company's segments are: Carlisle Construction Material, which provides ethylene propylene diene monomer rubber, thermoplastic polyolefin and polyvinyl chloride membrane and metal roofing systems; Carlisle Interconnect Technologies, which provides wire, cable, connectors, contacts and cable assemblies, and satellite communication equipment; Carlisle Fluid Technologies, which provides liquid, powder, sealants and adhesives finishing equipment and system components; and Carlisle Brake and Friction.

Cintas Corporation

Cintas is a provider of corporate identity uniforms through rental and sales programs, as well as a provider of related business services, including entrance mats, restroom cleaning services and supplies, carpet and tile cleaning services, first aid and safety services and fire protection products and services. The company's segments are Uniform Rental and Facility Services, which consists of the rental and servicing of uniforms and other garments, including flame resistant clothing, mats, mops and shop towels and other ancillary items; and The First Aid and Safety Services, which consists of first aid and safety products and services.

DANAHER CORPORATION

Danaher designs, manufactures and markets medical, industrial and commercial products and services. The company's segments include: Life Sciences, which provides research tools to study genes, proteins, metabolites and cells, in order to understand the causes of disease, identify therapies and test drugs and vaccines; Diagnostics, which provides analytical instruments, reagents, consumables, software and services that hospitals, physicians' offices, reference laboratories and other critical care settings use to diagnose disease and make treatment decisions; and Environmental and Applied Solutions, which provides products and services to protect resources and global food and water supplies.

EQUIFAX INC.

Equifax Inc. is a provider of information solutions and human resources business process outsourcing services for businesses, governments and consumers. The company's services are based on databases of consumer and business information. The company uses statistical techniques, machine learning and proprietary software tools to analyze all available data, creating insights, decision-making solutions and processing services for its clients. The company also provides information, technology and services to support debt collections and recovery management. Additionally, the company provides payroll-related and human resource management business process outsourcing services in the United States of America.

Eversource Energy

Eversource Energy is a public utility holding company. Through its subsidiaries, the company has four segments: electric distribution, which is engaged in the distribution of electricity to retail customers in Connecticut, Massachusetts and New Hampshire; electric transmission, which owns and maintains transmission facilities that are part of an interstate power transmission grid over which electricity is transmitted throughout New England; natural gas distribution, which distributes natural gas to communities in Massachusetts and cities and towns in Connecticut; and water distribution, which provides water services in towns and cities in Connecticut, Massachusetts and New Hampshire.

Fastenal Company

Fastenal is engaged in the wholesale distribution of industrial and construction supplies. The company is a distributor of fasteners and related industrial and construction supplies. This includes threaded fasteners, bolts, nuts, screws, studs, and related washers, as well as miscellaneous supplies and hardware, such as pins, machinery keys, concrete anchors, metal framing systems, wire rope, strut, rivets, and related accessories. The company's fastener product line is primarily sold under the Fastenal product name.

FirstEnergy Corp.

FirstEnergy is a public utility holding company. The company and its subsidiaries are principally involved in the transmission, distribution and generation of electricity. The company's reportable operating segments are comprised of: Regulated Distribution, which distributes electricity through the company's utility operating companies and also controls regulated electric generation capacity located primarily in West Virginia, Virginia and New Jersey; and Regulated Transmission, which provides transmission infrastructure owned and operated by the transmission companies and certain of the company's utilities to transmit electricity from generation sources to distribution facilities.

GATX Corporation

GATX is a global railcar lessor. The Rail North America segment provides railcars pursuant to full-service leases under which it maintains the railcars, pays ad valorem taxes and property insurance, and provides other ancillary services. The Rail International segment leases railcars pursuant to full-service leases under which it maintains the railcars and provides services according to customer requirements. The Portfolio Management segment leases aircraft spare engines, as well as five liquefied gas-carrying vessels. The American Steamship Company segment provides waterborne transportation of dry bulk commodities such as iron ore, coal, limestone aggregates, and metallurgical limestone.

HCA Healthcare Inc

HCA Healthcare is a holding company. Through its subsidiaries, partnerships and joint ventures, the company owns and operates hospitals and related health care entities. Most of the company's general, acute care hospitals provide medical and surgical services, including inpatient care, intensive care, cardiac care, diagnostic services and emergency services. The general, acute care hospitals also provide outpatient services such as outpatient surgery, laboratory, radiology, respiratory therapy, cardiology and physical therapy. The company's psychiatric hospitals provide therapeutic programs including child, adolescent and adult psychiatric care, adolescent and adult alcohol and drug abuse treatment and counseling.

Ichor Holdings Ltd.

Intel Corporation

Intel is a data-centric company. The company's operating segments are: Data Center Group, which develops platforms for compute, storage, and network functions; Internet of Things Group, which facilitates its customers creating, storing, and processing data; Mobileye, which provides assistance and automation solutions; Non-Volatile Memory Solutions Group, which provides memory and storage products based on Intel? Optane? technology and Intel? 3D NAND technology; Programmable Solutions Group, which provides programmable semiconductors; and Client Computing Group, which connects people to data, allowing each person to focus, create, and engage in ways that unlock their individual potential.

International Business Machines Corporation

International Business Machines provides integrated solutions and products that utilize data, information technology, capability in industries and business processes. The company has five segments: Cloud and Cognitive Software, which provides a range of software offerings; Global Business Services, which provides consulting, systems integration, application management and business process outsourcing services; Global Technology Services, which provides project services, managed and outsourcing services, cloud-delivered services, and technical and IT support services; Systems, which provides technology and service; and Global Financing, which provides client financing, among others.

International Flavors & Fragrances Inc.

International Flavors & Fragrances is a creator and manufacturer of taste, scent and complementary adjacent products, including cosmetic active and natural health ingredients. The company's operating segments are Taste and Scent. The Taste segment develops a range of different flavors and taste offerings for its customers, most of which are tailor-made. The company's Taste business is comprised of various portfolios across flavor compounds, savory solutions, inclusions and nutrition and specialty ingredients. The Scent segment creates fragrance compounds and fragrance ingredients for the household and personal care products. The company also produces cosmetic active and functional ingredients for use in cosmetics.

Netflix Inc.

Netflix is engaged in subscription streaming entertainment service including TV series, documentaries and feature films across a variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on any internet-connected screen. Members can play, pause and resume watching, without commercials. Additionally, several members in the United States subscribe to the company's DVD-by-mail service. The company improves its streaming content with a focus on a programming mix of content. The company's members can download a selection of titles for offline viewing. The company operates its business as a global operating segment.

Skechers U.S.A. Inc. Class A

Skechers USA designs and markets Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under the Skechers Performance brand name. The company also designs and markets men's and women's Skechers branded lifestyle apparel, and license the Skechers brand to others for accessories, leather goods, eyewear and scrub manufacturers, among others. The company's product offering is sold through department and specialty stores, athletic and independent retailers, boutiques and internet retailers. In addition to wholesale distribution, the company's footwear is available at its direct-to-consumer websites and its own retail stores.

Texas Instruments Incorporated

Texas Instruments designs and makes semiconductors that it sells to electronics designers and manufacturers. The company has two reportable segments: Analog and Embedded Processing. The company's analog semiconductors change signals, such as sound, temperature, pressure or images to a stream of digital data. The company's analog segment primary product lines includes: power, signal chain, and high volume. The company's embedded processors are designed to handle specific tasks and can be optimized for various combinations of performance, power and cost, depending on the application. The company's embedded processing segment primary product lines includes: connected microcontrollers and processors.

UnitedHealth Group Incorporated

UnitedHealth Group is a health care company. The company has four reportable segments across its two business platforms, UnitedHealthcare and Optum: UnitedHealthcare, which provides health care benefits to an array of customers and markets through its UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State and UnitedHealthcare Global; OptumHealth, which serves the physical, emotional and health-related financial needs of individuals; OptumInsight, which provides services, technology and health care knowledge to main participants in the health care industry; and OptumRx, which provides pharmacy care services and programs.

Viatris Inc.

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  • GAAP and IFRS have failed to provide rules for reliable financial statement reporting
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