Report
Valens Research

Valens Equity Insights and Inflections - 2021 07 27

LPLA has created a powerful platform to empower independent and smaller scale wealth
advisors to compete with the big players like Merrill Lynch and Morgan Stanley. It has
effectively created a solution to let them focus on what they do best, build relationships with
their customers and manage their money. LPLA handles all the other back office work, from
paperwork and AML to basic market solutions
.
This strategy has unlocked robust UAFRS-based ROA (Uniform ROA or ROA') for the company that is likely sustainable as more people continue to flow to its platform, but the market doesn't recognize that, expecting ROA to fall by roughly half from 2019 peak levels. This looks unreasonable thanks to the company's sound strategy.

On top of that, LPLA's management's compensation framework aligns them to focus on
continuing to accumulate assets and advisors, while improving advisor experience to retain
their assets. This and the company's investments in technology will drive returns higher.
Management is also confident about their strategy, both in terms of their ability to accumulate wealth advisors and assets, and their ability to offer a superior solution that helps those wealth advisors succeed.

Considering the market's disbelief in the sustainability of the company's strategy, the company's strong operational framework, robust execution, management's appropriate alignment, and strong positive fundamental momentum, there appears to be material near-term and long-term equity upside for LPLA.

GM Q1 2021 Embedded Expectations Analysis – Market expectations are for Uniform ROA to remain muted, but management is confident about Ultium, Super Cruise, and the Chevy Silverado

MAR Q1 2021 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management may have concerns about occupancy growth, marketing, and EBITDA

DOCU Q1 2022 Embedded Expectations Analysis – Market expectations are for a positive inflection in Uniform ROA, but management may have concerns about growth, Agreement Cloud, and digital transformation

LPLA, DOCU, GM, MAR, AMD, APD, AVGO, CL, COTY, CRWD, EMR, EPD, FIS, ICE, IDXX, KFY, ORCL, ROST, STZ, UTHR, WDAY
Underlyings
Advanced Micro Devices Inc.

Advanced Micro Devices is a semiconductor company. The company primarily provides x86 microprocessors, as standalone devices or as incorporated into an accelerated processing unit, chipsets, graphics processing units (GPUs), data center and personnel GPUs, and development services; server and embedded processors, semi-custom System-on-Chip products, development services and technology for game consoles. The company also licenses portions of its intellectual property portfolio. The company's segments are: Computing and Graphics, which consists of desktop, notebooks, commercial, and chipsets products; and Enterprise, Embedded and Semi-Custom, which includes server processors, and embedded P\processors products.

Air Products and Chemicals Inc.

Air Products and Chemicals serves customers globally with a portfolio of products, services, and solutions that include atmospheric gases, process and other gases, equipment, and services. The company is a supplier of hydrogen and is engaged in helium and liquefied natural gas (LNG) process technology and equipment. The company also develops, engineers, builds, owns and operates industrial gas projects, including gasification projects that convert abundant natural resources into syngas for the production of power, fuels and chemicals. The company designs and manufactures equipment for air separation, hydrocarbon recovery and purification, LNG, and liquid helium and liquid hydrogen transport and storage.

Broadcom Inc.

Broadcom, via its subsidiaries, is a designer, developer and supplier of a range of semiconductor and infrastructure software solutions. The company develops semiconductor devices with a focus on digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products. The company provides products that are used in end products such as enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, and factory automation. The company has three segments: semiconductor solutions, infrastructure software and intellectual property licensing.

Colgate-Palmolive Company

Colgate-Palmolive manufactures and markets a variety of products in the United States and around the world. The company has two product segments: Oral, Personal and Home Care; and Pet Nutrition. Oral, Personal and Home Care products include toothpaste, toothbrushes and mouthwash, bar and liquid hand soaps, shower gels, shampoos, conditioners, deodorants and antiperspirants, skin care products, dishwashing detergents, fabric conditioners, household cleaners, and other similar items. Pet Nutrition products include specialty pet nutrition products manufactured and marketed by Hill's Pet Nutrition.

Constellation Brands Inc. Class A

Constellation Brands is an international beverage alcohol company. The company is a producer and marketer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand, Italy and Canada. The company has two segments: Beer, in which the company is engaged in the U.S. beer market that includes the imported, craft, domestic super premium, and alternative beverage alcohol categories and it has the right to import, market and sell these Mexican beer brands in the U.S.; and Wine and Spirits, in which its wine portfolio is supported by grapes purchased from independent growers, primarily in the U.S., New Zealand and Chile, and vineyard holdings in the U.S., New Zealand and Italy.

Coty Inc. Class A

Coty and its subsidiaries are a beauty company. The company manufactures, markets, sells and distributes beauty products, including fragrances, color cosmetics, hair care products and skin and body related products. The company is organized into three divisions, which is also its operating and reportable segments: Consumer Beauty, Luxury and Professional Beauty. Consumer Beauty is primarily focused on color cosmetics, retail hair coloring and styling products, body care and mass fragrances. Luxury is primarily focused on fragrances, skincare and cosmetics. Professional Beauty is primarily focused on hair and nail care products for salon personnel.

CrowdStrike Holdings Inc. Class A

CrowdStrike is a holding company. Through its subsidiaries, the company provides a cloud-delivered solution for next-generation endpoint protection that offers 10 cloud modules on its Falcon platform via a SaaS subscription-based model that spans multiple large security markets, including endpoint security, security and IT operations (including vulnerability management), and threat intelligence. The company conducts its business in the United States, as well as locations internationally, including in Australia, Germany, India, Romania, and the United Kingdom.

DocuSign Inc.

DocuSign provides e-signature solution as the main part of its cloud software suite for automating the agreement process. The company calls its suite the DocuSign Agreement Cloud. The DocuSign Agreement Cloud is designed to allow companies of various sizes and across various industries to make agreement, approval process, or transaction digital, from practically any device, from almost anywhere in the world.

Emerson Electric Co.

Emerson Electric is a company that brings technology and engineering together to provide solutions for customers in a range of industrial, commercial and consumer markets around the world. The company 's segments are: Automation Solutions, which provides measurement and analytical instrumentation, valves, actuators and regulators, industrial solutions, and process control systems and solutions; Climate Technologies, which provides products and services for residential heating and cooling, commercial air conditioning, commercial and industrial refrigeration, and cold chain management; and Tools and Home Products, which provides tools for personnel and homeowners and appliance solutions.

Enterprise Products Partners L.P.

Enterprise Products Partners is a provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals and refined products. The company's midstream energy operations include: natural gas gathering, treating, processing, transportation and storage; NGL transportation, fractionation, storage, and export and import terminals; crude oil gathering, transportation, storage, and export and import terminals; petrochemical and refined products transportation, storage, export and import terminals, and related services; and a marine transportation business that operates primarily on the U.S. inland and Intracoastal Waterway systems.

Fidelity National Information Services Inc.

Fidelity National Information Services is a provider of technology solutions for merchants, banks, and capital markets firms globally. The company's solutions include merchant acquiring solutions; payment solutions; global eCommerce solutions; processing and ancillary applications solutions; digital solutions; fraud, risk management and compliance solutions; electronic funds transfer and network services solutions; card and retail payment solutions; wealth and retirement solutions; item processing and output services solutions; securities processing and finance solutions; global trading solutions; asset management and insurance solutions; and corporate liquidity solutions.

General Motors Company

General Motors designs, builds and sells trucks, crossovers, cars and automobile parts. The company also provides automotive financing services through its subsidiary, General Motors Financial Company, Inc. (GM Financial). GM Financial provides retail loan and lease lending across the credit spectrum. GM Financial provides commercial lending products to dealers including new and used vehicle inventory floorplan financing and dealer loans, which are loans to finance improvements to dealership facilities, to provide working capital, and to purchase and/or finance dealership real estate. Other commercial lending products include financing for parts and accessories, dealer fleets and storage centers.

IDEXX Laboratories Inc.

IDEXX Laboratories develops, manufactures, and distributes products and provides services primarily for the companion animal veterinary, livestock and poultry, dairy and water testing markets. The company operates primarily through three business segments: Companion Animal Group, which provides diagnostic and information management-based products and services for the veterinary market; Water Quality Products, which designs, develops, manufactures, and distributes products used in the detection of various microbiological parameters in water; and Livestock, Poultry and Dairy, which provides diagnostic products and services for livestock and poultry health.

Intercontinental Exchange Inc.

Intercontinental Exchange is a holding company. Through its subsidiaries, the company is a global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, financial, fixed income and equity markets. The company operates regulated marketplaces for listing, trading and clearing an array of derivatives contracts and securities across primary asset classes, including metals, equities, bonds and currencies, and also provides mortgage and technology services. In addition, the company provides data services to support the trading, investment, risk management and connectivity needs of customers. The company has two segments: Trading and Clearing and Data and Listings.

Korn Ferry

Korn Ferry is an organizational consulting firm. The company is engaged in the business of giving client awareness to its range of talent management solutions. The company's segments include: Executive Search, in which the company's services are used to fill executive-level positions, such as board directors, chief executive officers, chief operating officers, chief information officers, chief human resource officers and other senior executive officers; Advisory, which helps clients design their organization and shows them the way to compensate, develop and motivate their people; and RPO and Professional Search, which combines people, process personnel and intellectual property enabled technology.

LPL Financial Holdings Inc.

LPL Financial Holdings is a holding company. Through its subsidiaries, the company is engaged in the retail financial advice market and independent broker-dealer. The company's product and solution access includes: Commission-Based Products, which include variable and fixed annuities, mutual funds, equities, and insurance, among others; Fee-Based Advisory Platforms and Support, which include wrap-fee programs, mutual fund asset allocation programs, financial planning services, and retirement plan consulting services; and Cash Sweep Programs, which manage their clients' cash balances through a money market sweep vehicle involving money market fund providers and insured sweep vehicles involving banks.

Marriott International Inc. Class A

Marriott International is a worldwide operator, franchisor, and licensor of hotel, residential and timeshare properties under various brand names at different price and service points. The company has operations in the following reportable business segments: North American Full-Service, which includes the company's Luxury and Premium properties located in United States and Canada; North American Limited-Service, which includes the company's Select properties located in United States and Canada; and Asia Pacific, which includes all properties in the company's Asia Pacific region.

Oracle Corporation

Oracle provides products and services that address enterprise information technology (IT) environments. The company's products and services include applications and infrastructure offerings. The company's cloud and license business engages in the sale, marketing and delivery of its applications and infrastructure technologies through cloud and on-premise deployment models including its cloud services and license support offerings; and its cloud license and on-premise license offerings. The company's hardware business provides Oracle Engineered Systems, servers, storage, industry-specific hardware, operating systems, virtualization, management and other hardware-related software to support diverse IT environments.

Ross Stores Inc.

Ross Stores and its subsidiaries operate two brands of off-price retail apparel and home fashion stores, which are Ross Dress for Less? (Ross) and dd's DISCOUNTS?. Ross provides name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. dd's DISCOUNTS provides name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day. Both of the company's Ross and dd's DISCOUNTS brands target women and men between the ages of 18 and 54.

United Therapeutics Corporation

United Therapeutics is a biotechnology company. The company markets and sells four commercial therapies to treat pulmonary arterial hypertension (PAH): Remodulin? (treprostinil) Injection; Tyvaso? (treprostinil) Inhalation Solution; Orenitram? (treprostinil) Extended-Release Tablets; and Adcirca? (tadalafil) Tablets. The company also markets and sells an oncology product, Unituxin? (dinutuximab) Injection for treatment of high-risk neuroblastoma. The company also engages in research and development of new indications and formulations and delivery devices for its existing products, as well as new products to treat PAH and other conditions. The company also engages in organ transplantation-related technologies.

Workday Inc. Class A

Workday is a provider of enterprise cloud applications for finance and human resources. The company's products include: Workday Financial Management, an application with financial capabilities, analytics and metrics, and auditable process management; and Workday Human Capital Management, which includes global human resources management (workforce lifecycle management, organization management, compensation, absence, and employee benefits administration) and global talent management (goal management, performance management, succession planning, and career and development planning). The company's other solutions include Adaptive Insights Business Planning Cloud, as well as Workday Data-as-a-Service.

Provider
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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