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Valens Research

Valens Equity Insights and Inflections - 2019 10 02

INCY currently trades below recent averages relative to UAFRS-based (Uniform) Earnings, with a 11.7x Uniform P/E (Fwd V/E′). At these levels, the market is pricing in expectations for Uniform ROA to decline from 21% in 2018 to 6% through 2023, accompanied by 23% Uniform Asset growth going forward. However, analysts have less bearish expectations, projecting Uniform ROA to only fall to 20% by 2020, accompanied by 19% Uniform Asset growth. Additionally, management is confident about Jakafi trial results, H2 2019 momentum, and their hematological products driving revenue and margin. Current valuations appear to be pricing in overly bearish expectations for INCY, and should they see profitability remain flat or expand, as positive management sentiment would suggest, material upside would be warranted.

KO, MA and OLED.

KO currently trades above corporate averages relative to Uniform Earnings, with a 30.6x Uniform P/E (Fwd V/E'). At these levels, the market is pricing in expectations for Uniform ROA to nearly double, from 48% in 2018 to record-high 84% levels in 2023, accompanied by immaterial Uniform Asset growth.

MA currently trades above corporate averages relative to Uniform Earnings, with a 31.9x Uniform P/E (Fwd V/E'). At these levels, the market is pricing in expectations for Uniform ROA to expand from 76% in 2018 to 106% by 2023, accompanied by 8% growth in Uniform Assets going forward.

OLED currently trades above recent averages relative to Uniform Earnings, with a 41.8x Uniform P/E (Fwd V/E'). At these levels, the market is pricing in expectations for Uniform ROA to expand from 24% in 2018 to 52% in 2023, accompanied by 16% Uniform Asset growth going forward.
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.

Amazon.com Inc.

Amazon.com serves consumers through its online and physical stores. The company also manufactures and sells electronic devices, including Kindle, Fire tablet, Fire TV, Echo, and Ring, and the company develops and produces media content. The company operates customer service centers and provides programs that enable sellers to grow their businesses, sell their products in its stores, and fulfill orders through the company The company serves developers and enterprises of various sizes, including start-ups, government agencies, and academic institutions, through its Amazon Web Services segment, which provides a set of global compute, storage, database, and other service offerings. The company also provides services, such as advertising.

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.

Brookdale Senior Living Inc.

Brookdale Senior Living is a holding company. Through its subsidiaries, the company is an operator of senior living communities. The company's Community offerings include: independent living, which is for middle to upper income seniors; assisted living and memory care, which provides housing and assistance to mid-acuity frail and elderly residents; and continuing care retirement, which provides living arrangements and services to accommodate various physical ability and health. Through its Health Care Services segment the company provides home health, hospice and outpatient therapy services, and education and wellness programs, to residents of its communities and to seniors living outside of its communities.

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.

Coca-Cola Company

Coca-Cola is a nonalcoholic beverage company. The company owns or licenses and markets nonalcoholic beverage brands, which it groups into the following category clusters: sparkling soft drinks; water, enhanced water and sports drinks; juice, dairy and plant-based beverages; tea and coffee; and energy drinks. The company's nonalcoholic sparkling soft drink brands are Coca-Cola, Diet Coke, Fanta and Sprite. The company markets, manufactures and sells beverage concentrates and syrups, including fountain syrups; and finished sparkling soft drinks and other nonalcoholic beverages. The company's segments are Europe, Middle East and Africa; Latin America; North America; Asia Pacific; Global Ventures; and Bottling Investments.

Deutsche Lufthansa AG

Deutsche Lufthansa is an aviation group based in Germany. Co. maintains global operations and a total of more than 500 subsidiaries and associated companies. Co. operates in five major business segments: scheduled passenger air traffic ("Passenger Airline Group"); scheduled airfreight services ("Logistics"); maintenance, repair and overhaul ("MRO"); information technology ("IT Services") and catering ("Catering").

Eli Lilly and Company

Eli Lilly and Company discovers, develops, manufactures, and markets products in a single business segment: human pharmaceutical products. The company's human pharmaceutical products include: diabetes and other endocrinology products, immunology products, neuroscience products, oncology products, and other products. The company's diabetes and other endocrinology products include: Baqsimi? and Basaglar?. The company's immunology products include: Olumiant? and Taltz?. The company's neuroscience products include: Cymbalta? and Emgality?. The company's oncology products include: Alimta?, Cyramza?, Erbitux? and Verzenio?. The company's other products include: Cialis?.

Global Payments Inc.

Global Payments is a pure play payment technology company providing payments and software solutions to merchants and financial institutions. The company has three segments: Merchant Solutions, which includes authorization services, chargeback resolution, and payment security services; Issuer Solutions, which provides solutions that enable financial institutions and other financial service providers to manage their card portfolios and reduces technical difficulty and overhead on a single platform; and Business and Consumer Solutions, which provides general purpose reloadable prepaid debit and payroll cards, demand deposit accounts and other financial service solutions through its Netspend? brand.

INCYTE CORP

Incyte is a biopharmaceutical company focused on the discovery, development and commercialization of therapeutics. JAKAFI (ruxolitinib) has been approved for the treatment of patients with intermediate or high-risk myelofibrosis, for the treatment of patients with polycythemia vera, and for the treatment of steroid-refractory acute graft-versus-host disease in adult and pediatric patients 12 years and older. The company has also obtained a license to develop and commercialize ICLUSIG (ponatinib) in Europe and other select countries. In the European Union, ICLUSIG is approved for the treatment of adult patients with chronic phase, accelerated phase or blast phase chronic myeloid leukemia.

MASTERCARD INCORPORATED

Mastercard is a technology company in the global payments industry. The company's solutions enabling consumers to use electronic forms of payment instead of cash and checks. The company provides a range of payment solutions and services using its brands, including Mastercard?, Maestro? and Cirrus?. The company is a multi-rail network that provides customers one partner to turn to for their domestic and cross-border payment needs. The company has additional payment capabilities that include automated clearing house transactions. The company also provides offerings such as cyber and intelligence products, information and analytics services, consulting, loyalty and reward programs and processing.

Match Group Inc.

Match Group is a provider of dating products available in over 40 languages to its users all over the world through applications and websites it owns and operates. The company operates a portfolio of brands, including Tinder, Match, PlentyOfFish, Meetic, OkCupid, OurTime, Pairs and Hinge, as well as a number other brands. Through its portfolio of brands, the company provides tailored products to meet the varying preferences of its users. All the company's products enable users to establish a profile and review other users' profiles without charge. Each product also provides additional features, some of which are free, and some of which require payment depending on the particular product.

MSCI Inc. Class A

MSCI is a provider of decision support tools and services for the global investment community. The company's segments are: Index, in which Clients use the company's indexes in various areas of the investment process, including index-linked product creation; Analytics, which provides risk management, performance attribution and portfolio management content, applications and services; Environmental, Social and Governance (ESG), which helps institutional investors understand how ESG considerations can impact the long-term risk and reward of their portfolio and individual security-level investments; and Real Estate, which includes research, reporting, market data and benchmarking offerings.

Procter & Gamble Company

Procter & Gamble provides consumer packaged goods. The company's products are sold primarily through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, beauty stores, other stores and pharmacies. The company has five reportable segments: Beauty, which includes hair care, and skin and personal care products; Grooming, which includes shave care products; Health Care, which includes oral care and personal health care products; Fabric and Home Care, which includes fabric care and home care products; and Baby, Feminine and Family Care, which includes baby care, feminine care and family care products.

Starbucks Corporation

Starbucks is a roaster, marketer and retailer of coffee. The company's segments are: Americas, which is inclusive of the United States, Canada, and Latin America; International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, and Africa; and Channel Development. The company's Americas and International segments include both company-operated and licensed stores. The company's Channel Development segment includes roasted whole bean and ground coffees, Seattle's Best Coffee?, Starbucks- and Teavana-branded single-serve products, a variety of ready-to-drink beverages, and other products sold worldwide outside of the company's company-operated and licensed stores.

Take-Two Interactive Software Inc.

Take-Two Interactive Software is a developer, publisher and marketer of interactive entertainment for consumers. The company develops and publishes products principally through its two wholly-owned labels Rockstar Games and 2K, as well as its Private Division label and Social Point, a developer of mobile games. The company's products are designed for console gaming systems such as the Sony Computer Entertainment, Inc. PlayStation?4, Microsoft Corporation Xbox One?, and Xbox 360?, the Nintendo Switch, and personal computers, including smartphones and tablets. The company delivers its products through physical retail, digital download, online platforms and cloud streaming services.

Universal Display Corporation

Universal Display is engaged in the research, development and commercialization of organic light emitting diode (OLED) technologies and materials for use in displays and lighting applications. The company manufactures and sells its proprietary OLED materials to customers for evaluation and use in commercial OLED products. The company also enters into agreements with manufacturers of OLED display and lighting products under which the company grants them licenses to practice under the company's patents and to use the company's proprietary know-how. At the same time, the company works with these and other companies that are evaluating the company's OLED technologies and materials for possible use in commercial OLED display and lighting products.

Verisk Analytics Inc

Verisk Analytics is a data analytics provider serving customers in insurance, energy and specialized markets, and financial services. The company has three segments: Insurance, which provides underwriting and ratings and claims insurance data for the United States property and casualty insurance industry; Energy and Specialized Markets, which provides research and consulting data analytics for the global energy, chemicals, and metals and mining industries; and Financial Services, which provides benchmarking, decisioning algorithms, business intelligence, and customized analytic services to financial institutions, payment networks and processors, alternative lenders, regulators and merchants.

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.

Western Digital Corporation

Western Digital is a developer, manufacturer, and provider of data storage devices and solutions. The company's portfolio of technology and products address the following markets: Client Devices, which consist of hard disk drives (HDDs) and solid state drives (SSDs) for computing devices, flash-based embedded storage products, and flash-based memory wafers and components; Data Center Devices and Solutions, which consist of enterprise HDDs and enterprise SSDs, data center software and system solutions; and Client Solutions, which consist of HDDs and SSDs embedded into external storage products and removable flash-based products, such as cards, universal serial bus flash drives and wireless drives.

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