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Valens Research

Valens Equity Insights and Inflections - 2019 02 27

CRUS currently trades well below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 14.1x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to decline from 22% in 2018 to 6% in 2023, accompanied by 5% Uniform Asset growth going forward. Analysts have similar expectations, projecting Uniform ROA to decline to 10% by 2020, accompanied by 7% Uniform Asset growth. However, management is confident about the potential of closed-loop controllers, their voice biometrics customer base and the utility of voice biometrics in global IT departments. Should CRUS just sustain profitability near current levels, as positive management sentiment would suggest, upside would be warranted.

CRUS Q4 2018 Embedded Expectations Analysis – Market expectations are for Uniform ROA compression, but management is confident about closed-loop controllers and voice biometrics

GOOGL Q4 2018 Embedded Expectations Analysis – Although management's sentiment suggests the potential for
near-term headwinds, market expectations are far too bearish, suggesting longer-term upside remains warranted

PINC Q2 2019 Embedded Expectations Analysis – Management is confident about Stanson Health, bundled payments, and sales growth, which coupled with overly bearish market expectations, suggests that upside remains warranted

TPR Q2 2019 Embedded Expectations Analysis – Strong fundamentals imply that market expectations for Uniform ROA compression to historical lows is far too bearish, though management have some near-term concerns

GOOGL, PINC, TPR, AGN, ALK, AXTA, BABA, CMCS.A, INTC, MO, RMR, SCCO, SWK, V, VZ, WDR
Underlyings
Alaska Air Group Inc.

Alaska Air Group operates two airlines, Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon). The company's operation also includes McGee Air Services, an aviation services provider. The company has three segments: Mainline, which includes scheduled air transportation on Alaska's Boeing or Airbus jet aircraft for passengers and cargo throughout the United States., and in parts of Canada, Mexico, and Costa Rica; Regional, which includes Horizon's and other third-party carriers' scheduled air transportation for passengers across a shorter distance network within the United States under capacity purchase agreements (CPA); and Horizon, which includes the capacity sold to Alaska under CPA.

Alibaba Group Holding Ltd. Sponsored ADR

Allergan 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.

Altria Group Inc

Altria Group is a holding company. The company's subsidiaries include: Philip Morris USA Inc., which is engaged in the manufacture and sale of cigarettes; John Middleton Co., which is engaged in the manufacture and sale of machine-made cigars and pipe tobacco; Sherman Group Holdings, LLC and its subsidiaries, which are engaged in the manufacture and sale of cigarettes and the sale of cigars; and UST LLC, which through its subsidiaries, including U.S. Smokeless Tobacco Company LLC and Ste. Michelle Wine Estates Ltd., is engaged in the manufacture and sale of smokeless tobacco products and wine. The products of the company's tobacco subsidiaries include smokeable tobacco products and machine-made cigars.

Axalta Coating Systems Ltd.

Cirrus Logic Inc.

Cirrus Logic focuses on low-power integrated circuits (ICs) for audio, voice and other signal-processing applications. The company's product lines include: Portable Products, including codecs, which are chips that integrate analog-to-digital converters (ADCs) and digital-to-analog converters (DACs) into a single IC, smart codecs, which are codecs with digital signal processing integrated, amplifiers, micro-electromechanical systems microphones, haptic drivers, standalone digital signal processors, and its SoundClear? technology, which includes a portfolio of tools, software and algorithms; and Non-Portable and Other Products, which include ICs, codecs, ADCs, DACs, digital interfaces and amplifiers.

Comcast Corporation Class A

Comcast is a media and technology company. The company's segments are: Cable Communications, which provides internet, video, voice, and security and automation services in the United States individually and as bundled services at a discounted rate over its cable distribution system to residential and business customers; NBCUniversal, which includes a portfolio of national cable networks that provide a variety of entertainment, news and information, and sports content, regional sports and news networks, international cable networks, and cable television studio production operations; and Sky, which owns a portfolio of pay television channels that provide entertainment, news, sports and movies.

Intel Corporation

Intel is a data-centric company. The company's operating segments are: Data Center Group, which develops platforms for compute, storage, and network functions; Internet of Things Group, which facilitates its customers creating, storing, and processing data; Mobileye, which provides assistance and automation solutions; Non-Volatile Memory Solutions Group, which provides memory and storage products based on Intel? Optane? technology and Intel? 3D NAND technology; Programmable Solutions Group, which provides programmable semiconductors; and Client Computing Group, which connects people to data, allowing each person to focus, create, and engage in ways that unlock their individual potential.

Premier Inc. Class A

Premier is a holding company. The company, together with its subsidiaries and affiliates, is a healthcare performance improvement company. The company provides technology-enabled platform that provides supply chain services, clinical, financial, operational and value based care software-as-a-service informatics products, consulting services and performance improvement collaborative programs. The company has two business segments: Supply Chain Services, which assists its members in managing their non-labor expense and capital spend through a combination of products, services and technologies; and Performance Services, which provides information technology analytics and workflow automation and consulting services.

RMR Group Inc. Class A

RMR Group is a holding company. Substantially various of the business of the company is conducted by its subsidiary, The RMR Group LLC (RMR LLC). The company's business consists of providing management services to its Managed Equity Real Estate Investment Trusts (REITs) and its real estate operating companies (Managed Operators). As manager of the Managed Equity REITs, the company implements investment strategies and manages day to day operations, subject to supervision and oversight by each Managed Equity REIT's board of trustees. RMR Advisors LLC, a subsidiary of RMR LLC, is an investment advisor which provides advisory services to the RMR Real Estate Income Fund.

Southern Copper Corporation

Southern Copper is a copper producer. The company's mining, smelting and refining facilities are located in Peru and Mexico and the company conducts exploration activities in those countries and in Argentina, Chile and Ecuador. The company's Peruvian copper operations involve mining, milling and flotation of copper ore to produce copper concentrates and molybdenum concentrates, the smelting of copper concentrates to produce blister and anode copper, and the refining of anode copper to produce copper cathodes. The company's Mexican operations are conducted through its subsidiary, Minera Mexico, S.A. de C.V., which engages primarily in the mining and processing of copper, molybdenum, zinc, silver, gold and lead.

Stanley Black & Decker Inc.

Stanley Black & Decker is a provider of hand tools, power tools and related accessories, engineered fastening systems and products, services and equipment for oil and gas and infrastructure applications, commercial electronic security and monitoring systems, healthcare solutions, and automatic doors. The company's segments include: Tools and Storage, which is comprised of the power tools and equipment and hand tools, accessories and storage businesses; Industrial, which is comprised of the engineered fastening and infrastructure businesses; and Security, which is comprised of the convergent security solutions and the mechanical access solutions businesses.

Tapestry Inc.

Tapestry is a lifestyle company. The company's primary product offerings, manufactured by third-party suppliers, include women's and men's bags, small leather goods, footwear, ready-to-wear including outerwear, watches, weekend and travel accessories, scarves, eyewear, fragrance, jewelry and other lifestyle products. The company has three reportable segments: Coach, which includes sales of Coach brand products to customers through Coach operated stores; Kate Spade, which includes sales primarily of Kate Spade New York brand products to customers through Kate Spade operated stores; and Stuart Weitzman, which includes sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores.

Verizon Communications Inc.

Verizon Communications is a holding company. Through its subsidiaries, the company provides communications, information and entertainment products and services to consumers, businesses and governmental agencies. The company has two reportable segments, Verizon Consumer Group (Consumer) and Verizon Business Group (Business). The company's Consumer segment provides consumer-focused wireless and wireline communications services and products under the Verizon brand and through wholesale and other arrangements. The company's Business segment provides, among others, wireless and wireline communications services and products, video and data services, corporate networking solutions, security and managed network services.

Visa Inc. Class A

Visa is engaged in digital payments. The company facilitates payments between consumers and businesses. The company is focused on its proprietary network, VisaNet, to provide products and services. The company provides a portfolio of business payment solutions, including small business, corporate (travel) cards, purchasing cards, virtual cards/digital credentials, non-card cross-border business-to-business payment options and disbursement accounts, covering various main industry segments around the world. The company also provides several capabilities and services, including fraud prevention and security, processing, loyalty, merchant and digital solutions, consulting and data solutions.

Waddell & Reed Financial Inc. Class A

Waddell & Reed Financial is a holding company. Through its subsidiaries, the company provides investment management and advisory services, investment product underwriting and distribution, and shareholder services administration to the Ivy Funds,Ivy Variable Insurance Portfolios, InvestEd Portfolios, Ivy High Income Opportunities Fund, and institutional accounts. The company also provides wealth management services, primarily to retail clients through Waddell & Reed, Inc. (W&R), and independent financial advisors associated with W&R, who provide financial planning and advice to their clients.

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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
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  • 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.

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  • The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming

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