Report
Valens Research

Valens Equity Insights and Inflections - 2021 02 16

Current market expectations for Vista Outdoor (VSTO) don't comprehend the company's
macro tailwinds. Markets expect UAFRS-based (Uniform) ROA (ROA') to fall back towards
historical lows, even as analysts are forecasting significant ROA' recovery, in line with the
tailwinds from the At-Home Revolution.

The company has a positive At-Home Revolution macro-trend likely driving strong returns and sustained growth, thanks to surging lifestyle changes around increased interest in gun
ownership to protect new homes as people move out of cities and invest more in their homes, and increased trends in things like hunting. These trends will create lasting demand for ammo that the market isn't comprehending and will mean strong persistent profitability for a market leader in the ammo space.

Management alignment points to reasons to believe the company can sustain strong returns. Management is compensated to focus on ROIC improvement. Also, management has shown confidence about strong demand, how its investment in its business is paying off, and around managing inventory and free cash flow.

Low market expectations, positive tailwinds, strong management alignment and execution,
and management's confidence about their outlook point to reason for upside.

AMZN Q3 2020 Embedded Expectations Analysis – Market expectations are for Uniform ROA to fade, but management is confident about their international investments, Prime Video, and measurement services

CSX Q4 2020 Embedded Expectations Analysis – Market expectations are record-high Uniform ROA, but management may have concerns about their operating ratio, efficiency, and demand

UNP Q4 2020 Embedded Expectations Analysis – Market expectations are for record high Uniform ROA, but management may have concerns about revenues, their investments, and fuel consumption

VSTO, AMZN, CSX, UNP, ADNT, BKR, CHGG, FB, GOOGL, LRCX, MA, MDLZ, PTC, RHP, SMG, UAA, ZTS
Underlyings
Adient plc

Alphabet Inc. Class A

Alphabet is a holding company. Through its subsidiaries, the company is engaged in a collection of businesses, which its primary business is Google. The company reports all non-Google businesses collectively as Other Bets. Google's main products and platforms are Android, Chrome, Gmail, Google Drive, Google Maps, Google Play, Search, and YouTube. The company also provides advertisers with tools that help them attribute and measure their advertising campaigns. In addition, Other Bets includes Access, Calico, CapitalG, GV, Verily, Waymo, and X, among others. Other Bets primarily engages in the sales of internet and TV services through Access as well as licensing and research and development services through Verily.

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.

Baker Hughes Company Class A

Baker Hughes is an energy technology company. The company's segments are: Oilfield Services, which provides products and services for onshore and offshore operations ranging from drilling, evaluation, completion, production, and intervention; Oilfield Equipment, which provides products and services for the subsea, offshore surface and onshore operating environments; Turbomachinery and Processing Solutions, which provides equipment and related services for mechanical-drive, compression and power-generation applications; and Digital Solutions, which includes condition monitoring, industrial controls, non-destructive technologies, measurement, sensing, and pipeline solutions.

Chegg Inc.

Chegg provides products and services that help students improve their outcomes throughout their educational journey. The company's offerings fall into two categories: Chegg Services, which encompasses all of its digital products and services such as Chegg Study, Chegg Writing, Chegg Tutors, Chegg Math Solver, and Other Services; and Required Materials, which primarily includes its print textbook and eTextbook offering. To deliver services to students, the company partners with a variety of third parties. The company sources print textbooks, eTextbooks, and supplemental materials directly or indirectly from publishers including Cengage Learning, Pearson, McGraw Hill, Sage Publications, and MacMillan.

CSX Corporation

CSX provides rail-based freight transportation services. The company's principal operating subsidiary, CSX Transportation, Inc., provides a link to the transportation supply chain through its rail network, which serves centers in states east of the Mississippi River, the District of Columbia and the Canadian provinces of Ontario and Quebec. The company's CSX Intermodal Terminals, Inc. subsidiary owns and operates a system of intermodal terminals, primarily in the eastern United States and also performs drayage services (the pickup and delivery of intermodal shipments). The company's Total Distribution Services, Inc. subsidiary serves the automotive industry with distribution centers and storage locations.

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.

Lam Research Corporation

Lam Research is a supplier of wafer fabrication equipment and services to the semiconductor industry. The company designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company's customer base includes semiconductor memory, foundry, and integrated device manufacturers that make products such as non-volatile memory, dynamic random-access memory, and logic devices. The company's services include customer service, spares, improvement, and refurbishment of its deposition, etch, and clean products. The company sells its products and services to companies in the United States, China, Europe, Japan, Korea, Southeast Asia, and Taiwan.

MASTERCARD INCORPORATED

Mastercard is a technology company in the global payments industry. The company's solutions enabling consumers to use electronic forms of payment instead of cash and checks. The company provides a range of payment solutions and services using its brands, including Mastercard?, Maestro? and Cirrus?. The company is a multi-rail network that provides customers one partner to turn to for their domestic and cross-border payment needs. The company has additional payment capabilities that include automated clearing house transactions. The company also provides offerings such as cyber and intelligence products, information and analytics services, consulting, loyalty and reward programs and processing.

Mondelez International Inc. Class A

Mondelez International sells food and beverage products. The company makes and sells primarily snacks, including biscuits (cookies, crackers and salted snacks), chocolate, gum and candy, as well as various cheese and grocery and powdered beverage products. The company's portfolio includes snack brands such as Cadbury, Milka and Toblerone chocolate; Oreo, belVita and LU biscuits; Halls candy; Trident gum and Tang powdered beverages. The company's operations and management structure are organized into four operating segments: Latin America; Asia, Middle East and Africa; Europe; and North America. The company sells its products to supermarket chains, wholesalers, supercenters, value stores and other retail food outlets.

PTC INC.

PTC is a software and services company. The company's products and services include: 3D Modeling, which enables users to create designs, analyze designs, perform engineering calculations and utilize the information created downstream using 2D, 3D, parametric and direct modeling; Lifecycle Management, which enables product data management, as well as communication and collaboration across the enterprise, including product development, manufacturing and the supply chain; Data Orchestration, which delivers tools, technologies, and solutions that enable companies to develop and deploy industrial IoT applications; and Experience Creation, which provides a way to capture, create, and deliver content.

Ryman Hospitality Properties Inc.

Ryman Hospitality Properties is a real estate investment trust that is focused on group-oriented, destination hotel assets in urban and resort markets. The company's business segments include Hospitality and Entertainment. The Hospitality segment includes the Gaylord Hotels branded hotels, the Inn at Opryland and the AC Hotel, as well as the company's equity investment in Gaylord Rockies Resort & Convention Center. The Entertainment segment includes the Grand Ole Opry, the Ryman Auditorium, WSM-AM, Ole Red, the General Jackson, the Wildhorse Saloon, and Gaylord Springs, among others.

Scotts Miracle-Gro Company Class A

Scotts Miracle-Gro is a manufacturer and marketer of consumer lawn and garden products in North America. The company's segments are: United States Consumer, which consists of the company's consumer lawn and garden business located in United States; Hawthorne, which consists of the company's indoor, urban and hydroponic gardening business; and Other, which consists of the company's consumer lawn and garden business in geographies other than the United States and the company's product sales to nurseries, greenhouses and other customers. The company manufactures, markets and sells lawn and garden products in the following categories: lawn care, gardening and landscape, hydroponics, and controls.

Under Armour Inc. Class A

Under Armour is engaged in the development, marketing and distribution of apparel, footwear and accessories for men, women and youth. The company provides HEATGEAR?, which is designed to be worn in warm to hot temperatures under equipment or as a single layer; and COLDGEAR?, which is designed to wick moisture from the body while circulating body heat from hot spots to help maintain core body temperature. The company's footwear products include running, basketball, cleated sports, slides, training, and outdoor. The company provides digital fitness subscriptions, along with digital advertising through its MapMyFitness, MyFitnessPal and Endomondo applications.

Union Pacific Corporation

Union Pacific, through its operating subsidiary, Union Pacific Railroad Company, is a Class I railroad operating in the United States. The company's network included route miles, linking Pacific Coast and Gulf Coast ports with the Midwest and eastern United States. gateways and providing several corridors to key Mexican gateways. The company serves the western two-thirds of the country and maintains coordinated schedules with other rail carriers for the handling of freight to and from the Atlantic Coast, the Pacific Coast, the Southeast, the Southwest, Canada, and Mexico. The company's business mix includes agricultural products, energy, industrial, and premium.

Vista Outdoor Inc

Vista Outdoor is a designer, manufacturer and marketer of consumer products in the outdoor sports and recreation markets. The company's Outdoor Products product lines are action sports, archery/hunting accessories, outdoor cooking, golf, hydration products, optics, shooting accessories and tactical products. The Shooting Sports segment designs, develops, produces, and sources ammunition and firearms for the hunting and sport shooting markets, as well as ammunition for local law enforcement, the U.S. government and international markets. The Shooting Sports product lines include centerfire ammunition, rimfire ammunition, shotshell ammunition, reloading components, and firearms.

Zoetis Inc. Class A

Zoetis is a holding company. Through its subsidiaries, the company is engaged in the discovery, development, manufacture and commercialization of animal health medicines, vaccines, and diagnostic products with a focus on both livestock and companion animals. The company operates in two segments: the United States and International. The company's main product categories are vaccines, anti-infectives, parasiticides, other pharmaceutical products, dermatology products, medicated feed additives, and animal health diagnostics. The company's other non-pharmaceutical product categories include nutritionals and agribusiness, as well as products and services including biodevices, genetic tests and precision livestock farming.

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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
  • 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.

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