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Valens Research

Valens Equity Insights and Inflections - 2018 03 28

LMT currently trades near historical highs relative to UAFRS-based (Uniform) Earnings, with a 26.1x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to rapidly expand from 18% in 2016 to 29% in 2021, accompanied by 1% Uniform Asset growth going forward. However, analysts have less bullish expectations, projecting Uniform ROA to remain at current 18% levels through 2018, accompanied by 1% Uniform Asset growth. Moreover, Valens' qualitative analysis of the firm's Q4 2017 earnings call highlights that management has concerns about technology investments, sales, and their F-35 program. At current valuations, markets are pricing in a near-best-case scenario for LMT, and considering management concerns about their outlook, any negative surprise could lead to material equity downside.


APD Q1 2018 Embedded Expectations Analysis – Market expectations are for Uniform ROA to expand to record highs, but management has concerns about margins, investable cash flow, and volume improvements

WGO Q2 2018 Embedded Expectations Analysis – Management's confidence about their costs, balance sheet, and inventory imply that market expectations are overly bearish, suggesting that longer-term upside remains warranted

ZTS Q4 2017 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management has concerns about growth and new products


ASML:NLD, BDX, BIIB, CHK, DGE:GBR, EBAY, EL, FOXA, GNK, HUM, KHC, MAR, MMC, NFX, PSX, RCL, UTX
Underlyings
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.

ASML Holding N.V.

Becton Dickinson and Company

Becton, Dickinson and Company is a medical technology company engaged in the development, manufacture and sale of a range of medical supplies, devices, laboratory equipment and diagnostic products. The company's segments are: BD Medical, which produces an array of medical technologies and devices that are used to help improve healthcare delivery in a range of settings; BD Life Sciences, which provides products for the safe collection and transport of diagnostics specimens, and instruments and reagent systems to detect a range of infectious diseases, healthcare-associated infections and cancers; and BD Interventional, which provides vascular, urology, oncology and surgical products.

Biogen Inc.

Biogen is a biopharmaceutical company focused on discovering, developing and delivering therapies for people living with neurological and neurodegenerative diseases as well as related therapeutic adjacencies. The company's main growth areas include multiple sclerosis (MS) and neuroimmunology; Alzheimer's disease and dementia; neuromuscular disorders, including spinal muscular atrophy (SMA) and amyotrophic lateral sclerosis; movement disorders, including Parkinson's disease; and ophthalmology. The company's marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, VUMERITY and FAMPYRA for the treatment of MS, SPINRAZA for the treatment of SMA and FUMADERM for the treatment of severe plaque psoriasis.

Chesapeake Energy Corporation

Chesapeake Energy is a holding company. Through its subsidiaries, the company is an independent exploration and production company engaged in the acquisition, exploration and development of properties to produce oil, natural gas and natural gas liquid from underground reservoirs. The company owns a portfolio of onshore U.S. liquids and natural gas assets. The company has positions in the resource plays of the Eagle Ford Shale in South Texas, the stacked pay in the Powder River Basin in Wyoming and the Anadarko Basin in northwestern Oklahoma. The company's natural gas resource plays are the Marcellus Shale in the northern Appalachian Basin in Pennsylvania and the Haynesville/Bossier Shales in northwestern Louisiana.

Diageo plc

Diageo is a premium drinks business based in the United Kingdom. Co. is engaged in producing and distributing spirits, beer and wine. Co.'s operations include producing, distilling, brewing, bottling, packaging, distributing, developing and marketing of a range of brands. The brands that it produces and distributes include Smirnoff vodka, Johnnie Walker scotch whisky, Baileys Original Irish Cream liqueur, Captain Morgan rum, J&B scotch whisky, Tanqueray gin and Guinness stout. In addition, Co. also has the distribution rights for the Jose Cuervo tequila brands in North America and other countries.

EBay Inc.

eBay is a global commerce provider, which includes its Marketplace, StubHub and Classifieds platforms. The company's Marketplace platforms include its online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. The company's StubHub platforms include its online ticket platform located at www.stubhub.com, its localized counterparts and the StubHub mobile apps. These platforms connect fans with their favorite sporting events, shows and artists and enable them to buy and sell tickets whenever and wherever they want. The company's Classifieds platforms include a collection of brands such as mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others.

Estee Lauder Companies Inc. Class A

Estee Lauder Companies is a manufacturer and marketer of skin care, makeup, fragrance and hair care products. The company's products are sold under a number of brand names including: Estee Lauder, Clinique, Origins, MzAzC, Bobbi Brown, La Mer, Jo Malone London, Aveda and Too Faced. The company is also the global licensee for fragrances, cosmetics and/or related products sold under various designer brand names. The company's products include skin care, makeup and related items such as compacts, brushes and other makeup tools, fragrance sold in various forms, hair care, and other ancillary products and services.

Genco Shipping & Trading Ltd.

Humana Inc.

Humana is a holding company. Through its subsidiaries, the company is a health and well-being company. The company manages its business with three segments: Retail, which consists of products sold on a retail basis to individuals including medical and supplemental benefit plans, such as Medicare and state-based Medicaid Contracts; Group and Specialty, which consists of employer group commercial fully-insured medical and specialty health insurance benefits, including dental, vision and life insurance benefits, as well as administrative services only; and Healthcare Services, which includes pharmacy solutions, provider services, clinical care services, and predictive modeling and informatics services

Kraft Heinz Company

Kraft Heinz is a food and beverage company. The company manufactures and markets food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee, and other grocery products throughout the world. The company has three reportable segments defined by geographic region: United States, Canada, and Europe, Middle East, and Africa. The company's remaining businesses are combined and disclosed as Rest of World. Rest of World comprises two operating segments: Latin America and Asia Pacific.

Lockheed Martin Corporation

Lockheed Martin is a security and aerospace company. The company has four segments: Aeronautics, which is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of military aircraft; Missiles and Fire Control, which provides air and missile defense systems, logistics, fire control systems, and mission operations support; Rotary and Mission Systems, which provides design, manufacture, service and support for military and commercial helicopters, radar systems, and simulation and training services; Space, which researches, designs, develops, engineers and produces satellites, space transportation systems, and strategic, strike, and defensive systems.

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.

Marsh & McLennan Companies Inc.

Marsh & McLennan Companies is a holding company. Through its subsidiaries, the company provides clients advice and solutions in risk, strategy and people. The company provides analysis, advice and transactional capabilities to clients. The company conducts business through two segments: Risk and Insurance Services, which includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance and reinsurance broking and services; and Consulting, which includes health, wealth and career services and products, and other management, economic and brand consulting services.

Newfield Exploration Company

Newfield Exploration is an independent energy company engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids. The company's principal areas of operation are the Anadarko and Arkoma basins of Oklahoma, the Williston Basin of North Dakota and the Uinta Basin of Utah. In addition, the company has oil producing assets offshore China. As of Dec 31 2017, the company had proved reserves of 680.0 million barrels of oil equivalent, which consisted of 250.0 million barrels of oil and condensate, 1,704.00 billion cubic feet of natural gas, and 146 million barrels of natural gas liquids.

Phillips 66

Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. The company's segments include: Midstream, which provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and natural gas liquids transportation, storage, processing and marketing services; Chemicals, which manufactures and markets petrochemicals and plastics on a worldwide basis; Refining, which refines crude oil and other feedstocks into petroleum products; and Marketing and Specialties, which purchases for resale and markets refined petroleum products, mainly in the United States and Europe.

Raytheon Technologies Corporation

United Technologies provides technology products and services to the building systems and aerospace industries. The company has four segments: Otis, which designs, manufactures, sells and installs passenger and freight elevators; Carrier, which provides heating, ventilating, air conditioning refrigeration, fire, security and building automation products; Pratt & Whitney, which supplies aircraft engines for the commercial, military, business jet and general aviation market; and Collins Aerospace Systems, which provides aerospace products and aftermarket service solutions for aircraft manufacturers, airlines, regional, business and general aviation markets, military, space and undersea operations.

ROYAL CARIBBEAN GROUP

Twenty-First Century Fox Inc. Class A

Twenty-First Century Fox is a media and entertainment company with operations in the following segments: Cable Network Programming, which consists of the production and licensing of programming distributed primarily through cable television systems and others; Television, which consists of the broadcasting of network programming and the operation of power broadcast television stations; Filmed Entertainment, which consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of television programming worldwide; and Other, Corporate and Eliminations.

Winnebago Industries Inc.

Winnebago Industries is a manufacturer with a portfolio of recreation vehicles and marine products used primarily in leisure travel and outdoor recreation activities. The company's reportable segments include: Towable, which is comprised of products which are not motorized and are generally towed by another vehicle as well as other related manufactured products and services; and Motorhome, which is comprised of products that include a motorized chassis as well as other related manufactured products and services. The company's subsidiary, Chris-Craft USA, Inc., manufactures and sells boats in the recreational powerboat industry through a network of independent authorized dealers.

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.

Provider
Valens Research
Valens Research

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  • GAAP and IFRS have failed to provide rules for reliable financial statement reporting
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Many years later, our business model remains because little has changed on Wall Street.

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