Report
Valens Research

Valens Equity Insights and Inflections - 2019 01 23

INTU currently trades at historical highs relative to UAFRS-based (Uniform) Earnings, with a 31.4x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to expand rapidly, from 37% in 2018 to 60% by 2023, accompanied by 1% Uniform Asset growth going forward. However, analysts have less bullish expectations, projecting Uniform ROA to only improve to 40% levels through 2020, accompanied by 5% Uniform Asset growth. Moreover, Valens' qualitative analysis of the firm's Q1 2019 earnings call highlights that management may have concerns about product features, client servicing, and tax product demand. At current valuations, markets are pricing in a near-best-case scenario for INTU, and considering management concerns about their outlook, any negative surprise could lead to material equity downside.


YUM Q3 2018 Embedded Expectations Analysis – Market expectations are for record-high profitability, but management may have concerns about growth, shareholder returns, and franchise results

ZTS Q3 2018 Embedded Expectations Analysis – Market expectations are for continued Uniform ROA expansion, but management has concerns about their sales growth, market positioning, and Abaxis

SQ Q3 2018 Embedded Expectations Analysis – Market expectations are for continued Uniform ROA expansion, and management is confident about product offerings, product efficiencies, user innovations, and finding a replacement CFO

ALXN, CERN, EA, EQT, GLEN:GBR, GWW, INCY, IRM, IT, JD, LUV, ROK, SHW, STZ, TJX, VAR
Underlyings
Alexion Pharmaceuticals Inc.

Alexion Pharmaceuticals is a biopharmaceutical company serving patients and families affected by rare diseases through the discovery, development and commercialization of therapies. The company has developed and commercialized two complement inhibitors to treat patients with paroxysmal nocturnal hemoglobinuria and atypical hemolytic uremic syndrome, as well as the complement inhibitor to treat anti-acetylcholine receptor antibody-positive generalized myasthenia gravis and neuromyelitis optica spectrum disorder in patients who are anti-aquaporin-4 antibody positive. In addition, the company has two enzyme replacement therapies for metabolic disorders, hypophosphatasia and lysosomal acid lipase deficiency.

Cerner Corporation

Cerner designs, develops, markets, installs, hosts and supports health care information technology, health care devices, hardware and content solutions for health care organizations and consumers. The company also provides a range of services, including implementation and training, remote hosting, operational management services, revenue cycle services, support and maintenance, transaction processing, employer health centers, employee wellness programs and third party administrator services for employer-based health plans. The company has two operating segments: Domestic, which includes business activity in the United States; and International, which includes business activity outside the United States.

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.

Electronic Arts Inc.

Electronic Arts develops, markets, publishes and distributes games, content and services that can be played and watched on a variety of platforms, including game consoles, personal computers, and mobile phones. The company markets and sells its games and services through digital distribution channels and through retail channels. Digitally, the company's console games and services can be purchased through third-party storefronts. In its games and services, the company utilizes brands that it either wholly own or license from others. The company develops and publishes games and services across genres. Within and alongside its games, the company provides live services, including in-game purchases, downloadable content, and esports.

EQT Corporation

EQT is a natural gas production company with operations focus in the Marcellus and Utica shales of the Appalachian Basin.

Gartner Inc.

Gartner is a research and advisory company. The company's principal products and services are delivered through its three business segments: Research, which provides insights and advice across various functional areas of the enterprise through research, briefings, proprietary tools, access to the company's research personnel, peer networking services and membership programs; Conferences, which provides business personnel across an organization the opportunity to learn, share and network; and Consulting, which helps chief information officers and other senior executives driving technology-related strategic initiatives move from insight to action.

Glencore plc

Glencore is engaged as a natural resource companies. Co. is organized and operates on a worldwide basis in three main business segments: Metals and minerals, which comprised of zinc, copper, lead, alumina, aluminium, ferroalloys, nickel, cobalt and iron ore; Energy products, which comprised of crude oil, oil products, steam coal and metallurgical coal; and Agricultural products, which comprised of wheat, corn, canola, barley, rice, oil seeds, meals, edible oils, biofuels, cotton and sugar supported by investments in storage, handling, processing and port facilities.

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.

Intuit Inc.

Intuit helps consumers, small businesses, and the self-employed prosper by delivering financial management and compliance products and services. The company also provides tax products to accounting personnels, who are main partners that help the company serves small business customers. The company organizes its businesses into three reportable segments: Small Business and Self-Employed, which provides QuickBooks financial management solutions to solve financial and compliance problems; Consumer, which includes TurboTax products and services to prepare and file income tax returns; and Strategic Partner, which includes professional tax offerings and serve professional accountants in United States and Canada.

Iron Mountain Inc.

Iron Mountain is a holding company. Through its subsidiaries, the company stores physical records and data backup media, providing information management solutions, and providing data center space for colocation and hyperscale deployments. The company's segments are: Global Records and Information Management Business, which provides records management, data management, information governance and digital solutions, secure shredding, and consumer storage; Global Data Center Business, which provides data center facilities; and Corporate and Other Business, which provides entertainment and media that helps industry clients store, safeguard and deliver physical media of various types.

JD.com Inc. Sponsored ADR Class A

Rockwell Automation Inc.

Rockwell Automation is a provider of industrial automation and digital transformation. The company's segments include: Architecture and Software, which contains automation and information platforms, including hardware and software; and Control Products and Solutions, which combines motor control and industrial control products, other solutions and a portfolio of lifecycle services. The company's automation platform products include programmable automation controllers, design, networking products, sensing devices, machine safety devices, motion control products, and independent cart technology products. The company's information platform includes manufacturing execution system software and analytics software.

Sherwin-Williams Company

Sherwin-Williams is engaged in the development, manufacture, distribution and sale of paint, coatings and related products to industrial, commercial and retail customers. The company's segments are: The Americas Group, which markets and sells Sherwin-Williams? and other controlled brand architectural paint and coatings, protective and marine products, OEM product finishes and related products; Consumer Brands Group, which supplies architectural paints, stains, varnishes, and industrial products, among others; and Performance Coatings Group, which develops and sells industrial coatings, automotive refinish, protective and marine coatings, coil coatings, packaging coatings and resins and colorants.

SOUTHWEST AIRLINES CO.

Southwest Airlines operates Southwest Airlines, a passenger airline that provides scheduled air transportation in the United States and near-international markets. The company has Boeing 737 aircraft in its fleet and serves destinations in various states, the District of Columbia, the Commonwealth of Puerto Rico, and other near-international countries such as Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos. The company principally provides point-to-point service, which allows for direct nonstop routing. The company also provides a suite of digital platforms to support Customers' needs prior to and during the course of their travel.

Square Inc. Class A

Square is a commerce ecosystem that combines software with hardware to enable sellers to turn mobile devices and computing devices into payment and point-of-sale solutions. With the company's offering, a seller can accept payments via magnetic stripe, Europay, MasterCard, and Visa, or Near Field Communication; or online via Square Invoices, Square Virtual Terminal, or the seller's website or app. Also, sellers can gain access to reporting and analytics, next-day settlements, digital receipts, payment dispute and chargeback management, security, and Payment Card Industry compliance. The company's Cash App enable individuals to send and receive money electronically to and from individuals and businesses.

TJX Companies Inc

TJX Companies is an off-price apparel and home fashions retailer. The company's segments comprised of: Marmaxx, which sells family apparel (including footwear and accessories), home fashions (including home basics, decorative accessories and giftware) and other merchandise; HomeGoods, which provides a range of home fashions, including home fashions, including furniture, rugs, lighting, soft home, decorative accessories, tabletop and cookware as well as pet, kids and gourmet food departments; TJX Canada, which operates the Winners, HomeSense and Marshalls chains in Canada; and TJX International, which operates the T.K. Maxx and HomeSense chains in Europe and the T.K. Maxx chain in Australia.

VARIAN MEDICAL SYSTEMS INC

Varian Medical Systems is a manufacturer of medical devices and software for treating cancer and other medical conditions. The company's segments are: Oncology Systems, which designs, manufactures, sells and services hardware and software products for treating cancer with radiotherapy, and treatments such as fixed field intensity-modulated radiation therapy, image-guided radiation therapy, volumetric modulated arc therapy, stereotactic radiosurgery, stereotactic body radiotherapy and brachytherapy, as well as associated equipment; and Proton Solutions, which develops, designs, manufactures, sells and services products and systems for delivering proton therapy, for the treatment of cancer.

W.W. Grainger Inc.

W.W. Grainger is a distributor of maintenance, repair and operating (MRO) products and services in North America, Japan and Europe. The company's MRO product offering is grouped under material-handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies and metalworking tools categories. The company's segments are the United States, which provides MRO products and services through its eCommerce platform, catalogs, branches and sales and service representatives; and Canada, which serves Canadian customers through its distribution center and branch network as well as sales and service representatives.

Yum! Brands Inc.

Yum! Brands franchises or operates a system of quick service restaurants through its KFC, Pizza Hut and Taco Bell brands. The company's operating segments consist of the KFC Division, the Pizza Hut Division and the Taco Bell Division. KFC restaurants provides fried and non-fried chicken products such as sandwiches, chicken strips, chicken-on-the-bone and other chicken products marketed under a variety of names. Pizza Hut is engaged in the sale of ready-to-eat pizza products. Pizza Hut operates in the delivery, carryout and casual dining segments. Taco Bell is engaged in Mexican-style food products, including various types of tacos, burritos, quesadillas, salads, nachos and other related items.

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.

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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
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Many years later, our business model remains because little has changed on Wall Street.

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