Valens Equity Insights and Inflections - 2018 01 17
YUM currently trades near historical highs relative to UAFRS-based (Uniform) Earnings, with a 28.4x UAFRS-based (Uniform) P/E. At these levels, the market is pricing in expectations for rapid Uniform ROA expansion, from peak 22% levels in 2016 to 49% by 2021, accompanied by no further Uniform Asset shrinkage. Moreover, analysts have similar expectations, projecting Uniform ROA to improve to 28% by 2018, accompanied by immaterial Uniform Asset shrinkage. However, Valens' qualitative analysis of the firm's Q3 2017 earnings call highlights that management has concerns about sales growth and other operational headwinds. At current valuations, markets are pricing in a best case scenario for the business, and considering management concerns about their outlook, any negative surprise could lead to material equity downside.AMT Q3 2017 Embedded Expectations Analysis – Market expectations are for improving Uniform ROA, but management concerns about driving revenue growth and customer's costs highlight operational concerns
APD Q4 2017 Embedded Expectations Analysis – Market expectations are for Uniform ROA to expand to record highs, but management has concerns about guidance, cash flows, and recent investments
ECL Q3 2017 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management has concerns about results, revenue growth, and domestic investments
AET, CTSH, FIS, HMTV, JD, K, MCO, ORCL, PSX, ROST, TGT, TSN, VFC,
Aetna is a health care benefits company. The company conducts its operations in three business segments: Health Care, which provides medical, pharmacy benefit management services, dental, behavioral health and vision plans provided on both an insured basis and an employer-funded basis and businesses products and services that complement its medical products; Group Insurance, which primarily includes group life insurance and group disability products and long-term care products; and Large Case Pensions, which manages a variety of retirement products (including pension and annuity products) primarily for tax-qualified pension plans.
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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