Valens Equity Insights and Inflections - 2017 12 13
ICHR currently trades below corporate averages relative to Uniform Earnings, with a 9.8x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to decline from 59% in 2016 to 30% in 2021, accompanied by 14% Uniform Asset growth going forward. However, analysts have bullish expectations, projecting Uniform ROA to expand to 73% in 2018, accompanied by 52% Uniform Asset growth, and these expectations have been improving over the last year, suggesting continued fundamental momentum is likely. Moreover, Valens' qualitative analysis of the firm's Q3 2017 earnings call highlights that management is confident that their acquisitions are accretive to both gross margins and net income, and about the potential of their new LDM product, which suggest market expectations are overly bearish, supporting long-term upside.
MSFT Embedded Expectations Analysis – Market expectations are for improving Uniform ROA, and management is confident about gross margins and Azure
OC Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management has concerns about growth and pricing
RCL Q3 2017 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, and management is optimistic about their EPS targets and improving shareholder returns
AMD, BABA, CHK, DIS, FANG, FOXF, LXFT, MCD, MGM, MLM, MSI, MTH, PATK, WRK, X
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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