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Valens Research

Valens Equity Insights and Inflections - 2018 08 15

LEN currently trades below recent averages relative to UAFRS-based (Uniform) Earnings, with a 12.1x Uniform P/E. At these valuations, the market is pricing in expectations for Uniform ROA to fall from 7% in 2017 to 4% by 2022, accompanied by 10% Uniform Asset growth going forward. However, analysts have more bullish expectations, projecting Uniform ROA to expand to 10% levels by 2019, accompanied by 61% Uniform Asset growth, as a result of the firm's recent CalAtlantic acquisition. Moreover, Valens' qualitative analysis of the firm's Q2 2018 earnings call highlights that management is confident about their operations and positioning within the industry. Additionally, analyst estimates have grown consistently over the last year. Given growing analyst and management confidence surrounding the firm's fundamentals, current market expectations are too bearish, and equity upside is likely warranted.


HSY Q1 2018 Embedded Expectations Analysis – Market expectations are for Uniform ROA to plateau at current levels, but management is concerned about new strategies and future margins


KO Q1 2018 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management has concerns about revenue growth and lower sales volume

SBAC Q1 Embedded Expectations Analysis – Market expectations are for record high Uniform ROA, but management has concerns about lack of investment opportunities and international growth

ABM, AMZN, BBY, BXP, ECB, GME, HON, INFO, IR, MGM, ROK, UVV, ZG
Underlyings
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.

Boston Properties Inc.

Boston Properties is a real estate investment trust that develops, owns and manages primarily office properties. The company's properties are concentrated in five markets: Boston, Los Angeles, New York, San Francisco and Washington, DC. The company is a real estate company, with in-house knowledge and resources in acquisitions, development, financing, capital markets, construction management, property management, marketing, leasing, accounting, risk management, tax and legal services. The company manages Boston Properties Limited Partnership, which is the entity through which the company conducts substantially all of its business and owns (either directly or through subsidiaries) substantially all of its assets.

Coca-Cola Company

Coca-Cola is a nonalcoholic beverage company. The company owns or licenses and markets nonalcoholic beverage brands, which it groups into the following category clusters: sparkling soft drinks; water, enhanced water and sports drinks; juice, dairy and plant-based beverages; tea and coffee; and energy drinks. The company's nonalcoholic sparkling soft drink brands are Coca-Cola, Diet Coke, Fanta and Sprite. The company markets, manufactures and sells beverage concentrates and syrups, including fountain syrups; and finished sparkling soft drinks and other nonalcoholic beverages. The company's segments are Europe, Middle East and Africa; Latin America; North America; Asia Pacific; Global Ventures; and Bottling Investments.

GameStop Corp. Class A

GameStop is a multichannel video game and licensed consumer products retailer. The company's products and services includes: New Video Game Hardware, which provides video game platforms from manufacturers; New Video Game Software, which provides new video game software for existing and certain prior generation consoles from manufacturers, including Sony, Nintendo and Microsoft; Video Game Accessories, which consist primarily of controllers, gaming headsets, virtual reality products, and memory cards; and Digital, which sells a variety of digital currency and has developed technology to sell downloadable content and full-game downloads in its stores and on its U.S. website.

Hershey Company

Hershey is engaged in the production of chocolate and non-chocolate confectionery. The company's segments are: North America, which is responsible for the company's chocolate and non-chocolate confectionery market position, and its grocery and snacks market positions, in the United States and Canada; and International and Other, in which the company has operations and manufactures product in China, Mexico, Brazil, India and Malaysia, and also distributes and sells confectionery products in export markets of Asia, Latin America, Middle East, Europe, Africa and other regions. The company's product offerings include chocolate and non-chocolate confectionery products, gum and mint refreshment products, snack and pantry items.

Honeywell International Inc.

Honeywell International is a technology and manufacturing company. The company has four segments: Aerospace, which supplies products, software and services for aircrafts; Honeywell Building Technologies, which provides products, software, solutions and technologies including building control and optimization, energy management, access control, video surveillance, fire products, and remote patient monitoring systems; Performance Materials and Technologies, which develops and manufactures chemicals and materials, process technologies and automation solutions; and Safety and Productivity Solutions, which provides products and software that improve productivity, workplace safety and asset performance.

IHS Markit Ltd.

Lennar Corporation Class A

Lennar is a homebuilder in the United States, an originator of residential and commercial mortgage loans, a provider of title insurance and closing services and a developer of multifamily rental properties. The company's homebuilding operations include the construction and sale of single-family attached and detached homes as well as the purchase, development and sale of residential land directly and through unconsolidated entities in which it has investments. The company operates under the Lennar brand name. The company creates and participates in joint ventures that acquire and develop land for its homebuilding operations, for sale to third parties or for use in the ventures' own homebuilding operations.

MGM Resorts International

MGM Resorts International is a holding company. Through its subsidiaries, the company owns and operates casino, hotel, and entertainment resorts across the United States and in Macau. The company's segments include: Las Vegas Strip Resorts, which consists of casino resorts such as Bellagio, MGM Grand Las Vegas, Mandalay Bay, The Mirage, Luxor, New York-New York, Excalibur, and Park MGM; Regional Operations, which consists of casino resorts such as MGM Grand Detroit, Beau Rivage, Gold Strike Tunica, Borgata, MGM National Harbor, MGM Springfield, Empire City, and MGM Northfield Park; and MGM China, which owns and operates casino resorts and the related gaming subconcession and land concessions.

Rockwell Automation Inc.

Rockwell Automation is a provider of industrial automation and digital transformation. The company's segments include: Architecture and Software, which contains automation and information platforms, including hardware and software; and Control Products and Solutions, which combines motor control and industrial control products, other solutions and a portfolio of lifecycle services. The company's automation platform products include programmable automation controllers, design, networking products, sensing devices, machine safety devices, motion control products, and independent cart technology products. The company's information platform includes manufacturing execution system software and analytics software.

SBA Communications Corp. Class A

SBA Communications is a holding company. Through its subsidiaries, the company is an owner and operator of wireless communications infrastructure, including tower structures, rooftops, and other structures that support antennas used for wireless communications. The company's operations are in the U.S. and its territories. In its site leasing business, the company leases antenna space to wireless service providers on towers that the company owns or operates and manages rooftop and tower sites for property owners under various contractual arrangements. In its site development business, the company assists wireless service providers in developing and maintaining their own wireless service networks.

Trane Technologies plc

Ingersoll-Rand provides products, services and solutions to enhance air in homes and buildings, transport and protect food. Co.'s segments are: Climate. which includes Trane® and American Standard® Heating & Air Conditioning, providing heating, ventilation and air conditioning systems, and commercial and residential building services, parts, support and controls, energy services and building automation as well as transport temperature control solutions; and Industrial, which includes compressed air and gas systems and services, power tools, material handling systems, ARO® fluid management equipment, as well as Club Car ® golf, utility and rough terrain vehicles.

Universal Corp

Universal is a holding company. Through its subsidiary, the company is engaged in supplying leaf tobacco. The company has the following segments: North America, South America, Africa, Europe, Asia, which are involved in flue-cured and burley leaf tobacco operations for supply to cigarette manufacturers; Dark Air-Cured, which supplies dark air-cured tobacco to manufacturers of cigars, pipe tobacco, and smokeless tobacco products; Oriental, which supplies oriental tobacco to cigarette manufacturers; and Special Services, which provides laboratory services, including physical and chemical product testing, electronic nicotine delivery system and e-liquid testing, and smoke testing for customers.

Zillow Group Inc. Class A

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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

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