Report
Valens Research

Valens Equity Insights and Inflections - 2021 10 05

Citigroup (C) looks to finally be rounding the corner of its transformational reconstruction. Uniform Accounting shows both the company's significant operational improvements, and that the market isn't pricing them in sustainably. That makes Citi a compelling buy.

Citi has historically been a worst-in-class performer in terms of Uniform ROE, around 5% in
the early 2010s, however these operational improvements have already lifted ROE towards peer levels, approaching double digit levels, and there is still more progress management is making around both back-office operations.

Citi management are aligned to focus on improving profitability, making smart capital allocation decisions, and growing the business, exactly how investors should want them aligned. Also, after prior CEO Corbat's groundwork on cleaning up Citi's portfolio of businesses, new CEO Fraser is set up well, and has the experience to, finish cleaning up
Citi's operations.

Management confidence in the Q2 earnings call about both momentum in their most profitable unit and the success of their technology partnerships highlight that management is executing to perfection.

MDLZ Q2 2021 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management may have concerns about growth, investments, and inflation

BA Q2 2021 Embedded Expectations Analysis – Market expectations are for Uniform ROA to rebound, but management may have concerns about air travel, 787 deliveries, and margins

CPRT Q4 2021 Embedded Expectations Analysis – Markets are pricing in expectations for record-high Uniform ROA, but management may have concerns about ASPs, inventory levels, and their market position

C, BA, CPRT, MDLZ, ALGN, AMAT, BJ, BKNG, CHD, G, GPS, MNST, MSCI, NIO, NXPI, NXST, ROST, RTX, TDG, TSN, UTHR
Underlyings
Align Technology Inc.

Align Technology is a medical device company engaged in the design, manufacture and marketing of Invisalign? clear aligners and iTero? intraoral scanners and services for orthodontics, restorative and aesthetic dentistry. The company's segments are: Clear Aligner, which includes the Invisalign System, a method for treating malocclusion based on a proprietary computer-simulated virtual treatment plan and a series of doctor-prescribed, custom manufactured, clear plastic, removable aligners; and Scanners and Services, which includes Intraoral scanning that enables the dental practitioner to create a 3D image of the patient's teeth (digital scan) using a handheld intraoral scanner.

Applied Materials Inc.

Applied Materials provides manufacturing equipment, services and software to the semiconductor, display and related industries. The company's segments are: Semiconductor Systems, which develops, manufactures and sells a range of manufacturing equipment used to fabricate semiconductor chips; Applied Global Services, which provides integrated solutions to support equipment and fab performance and productivity; and Display and Adjacent Markets, which is comprised of products for manufacturing liquid crystal displays, organic light-emitting diodes and other display technologies for TVs, monitors, laptops, personal computers, electronic tablets, smart phones, and other consumer-oriented devices.

BJ's Wholesale Club Holdings

BJ's Wholesale Club holding is a holding company. Through its subsidiary, the company is a warehouse club operator. The company delivers value to its members, consistently providing 25% or more savings on a representative basket of manufacturer-branded groceries compared. The company provides a curated assortment focused on perishable products, continuously refreshed general merchandise, gasoline and other ancillary services to deliver a shopping experience. The company operates warehouse club in New York, Florida, Massachusetts, New Jersey, Pennsylvania, Connecticut, Virginia, Maryland, North Carolina, New Hampshire, Ohio, Georgia, Delaware, Maine, Rhode Island and South Carolina.

BOEING COMPANY (THE)

The Boeing is an aerospace firm. The company's segments include: Commercial Airplanes, which develops, produces and markets commercial jet aircraft and provides fleet support services, mainly to the commercial airline industry; Defense, Space and Security, which engages in the research, development, production and modification of manned and unmanned military aircraft and weapons systems for strike, surveillance and mobility, vertical lift, and commercial derivative aircraft; Global Services, which provides supply chain and logistics management, pilot and maintenance training systems and services, and data analytics and digital services; and Boeing Capital, which manages overall financing exposure.

Booking Holdings Inc.

Booking Holdings provides travel and restaurant online reservation and related services. The company's brands include: Booking.com and Rentalcars.com, in which Booking.com provides booking online accommodation reservations, based on room nights booked, and Rentalcars.com provides online rental car reservation services; KAYAK, which provides an online price comparison service; Priceline, which provides consumers hotel, rental car and airline ticket reservation services, and vacation packages and cruises; Agoda, which is an online accommodation reservation service; and OpenTable, which provides online restaurant reservation services to consumers and reservation management services to restaurants.

Church & Dwight Co. Inc.

Church & Dwight develops, manufactures and markets a range of consumer products. The company's consumer products include: ARM & HAMMER? baking soda, cat litter, laundry detergent, carpet deodorizer and other baking soda based products; TROJAN? condoms, lubricants and vibrators; OXICLEAN? stain removers, cleaning solutions, laundry detergents and bleach alternatives; SPINBRUSH? battery-operated toothbrushes; FIRST RESPONSE? home pregnancy and ovulation test kits; NAIR? depilatories; ORAJEL? oral analgesic; XTRA? laundry detergent; L'IL CRITTERS? and VITAFUSION? gummy dietary supplements; BATISTE? dry shampoo; WATERPIK? water flossers and showerheads, and FLAWLESS? hair removal products.

Citigroup Inc.

Citigroup is a financial services holding company whose businesses provide consumers, corporations, governments and institutions with a range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services and wealth management. The company operates via two primary business segments: Global Consumer Banking, which provides banking services to retail customers through retail banking, Citi-branded cards and Citi retail services; and Institutional Clients Group, which includes banking and markets and securities services.

Copart Inc.

Copart is a provider of online auctions and vehicle remarketing services. The company provides vehicle sellers with a range of services to process and sell vehicles primarily over the Internet through its Virtual Bidding Third Generation Internet auction-style sales technology. Vehicle sellers consist primarily of insurance companies, but also include banks, finance companies, charities, fleet operators, dealers and vehicles sourced directly from individual owners. The company sells the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters and, at certain locations, to the general public.

Gap Inc.

The Gap is an apparel retail company. The company provides apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, Athleta, Intermix, and Hill City brands. The company has stores in the U.S., Canada, the U.K., France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico, and has franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, and Banana Republic stores throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate stores that sell apparel and related products under the company's brand names.

Genpact Limited

Mondelez International Inc. Class A

Mondelez International sells food and beverage products. The company makes and sells primarily snacks, including biscuits (cookies, crackers and salted snacks), chocolate, gum and candy, as well as various cheese and grocery and powdered beverage products. The company's portfolio includes snack brands such as Cadbury, Milka and Toblerone chocolate; Oreo, belVita and LU biscuits; Halls candy; Trident gum and Tang powdered beverages. The company's operations and management structure are organized into four operating segments: Latin America; Asia, Middle East and Africa; Europe; and North America. The company sells its products to supermarket chains, wholesalers, supercenters, value stores and other retail food outlets.

Monster Beverage Corporation

Monster Beverage is a holding company. Through its subsidiaries, the company develops, markets, sells and distributes energy drink beverages and concentrates for energy drink beverages. The company has the following operating and reportable segments: Monster Energy? Drinks segment, which is primarily comprised of the company's Monster Energy? drinks and Reign Total Body Fuel? energy drinks; Strategic Brands segment, which is comprised primarily of the various energy drink brands from The Coca-Cola Company, as well as its energy drinks; and Other segment, which is comprised of certain prod ucts sold by American Fruits and Flavors, LLC, a wholly-owned subsidiary, to independent third-party customers.

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.

Nexstar Media Group Inc. Class A

Nexstar Media Group is a television broadcasting and digital media company focused on the acquisition, development and operation of television stations and interactive community websites and digital media services. The stations provide over-the-air programming. This programming includes programs produced by networks with which the stations are affiliated; programs that the stations produce; and first-run and rerun syndicated programs that the stations acquire. The company's digital media businesses provide digital publishing and content management platform, digital video advertising platform, social media advertising platform and other digital media solutions to media publishers and advertisers.

NIO Inc. Sponsored ADR Class A

NXP Semiconductors NV

NXP Semiconductors is a holding company. Through its subsidiaries, Co. is engaged as a global semiconductor company and a long-standing supplier in the industry. Co. provides High-Performance Mixed-Signal and Standard Product solutions. Co.'s product solutions are used in automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer and computing applications. Co. engages with original equipment manufacturers (OEM) and sell products in all major geographic regions.

Raytheon Technologies Corporation

Raytheon Technologies is an aerospace and defense company providing systems and services for commercial, military and government customers. Collins Aerospace Systems specializes in aerostructures, avionics, interiors, mechanical systems, mission systems and power controls that serve customers across the commercial, regional, business aviation and military sectors. Pratt & Whitney designs, manufactures and services aircraft engines and auxiliary power systems for commercial, military and business aircraft. Raytheon Intelligence & Space develops sensors, training, and cyber and software solutions. Raytheon Missiles & Defense provides end-to-end solutions to detect, track and engage threats.

Ross Stores Inc.

Ross Stores and its subsidiaries operate two brands of off-price retail apparel and home fashion stores, which are Ross Dress for Less? (Ross) and dd's DISCOUNTS?. Ross provides name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. dd's DISCOUNTS provides name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day. Both of the company's Ross and dd's DISCOUNTS brands target women and men between the ages of 18 and 54.

TransDigm Group Incorporated

TransDigm Group is a holding company. Through its subsidiaries, the company designs, produces and supplies aircraft components for use on commercial and military aircraft. The company's segments are: Power and Control, which develops, produces and markets systems and components that provide power to or control power of the aircraft utilizing electronic, fluid, power and mechanical motion control technologies; Airframe, which develops, produces and markets systems and components that are used in non-power airframe applications utilizing airframe and cabin structure technologies; and Non-aviation, which develops, produces and markets products for non-aviation markets.

Tyson Foods Inc. Class A

Tyson Foods is a food company. The company's operations consist of breeding stock, contract farmers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Through its wholly-owned subsidiary, Cobb-Vantress, Inc., the company is engaged as poultry breeding stock supplier. The company also processes live fed cattle and hogs and fabricates dressed beef and pork carcasses into primal and sub-primal meat cuts, case-ready beef and pork and fully-cooked meats. The company produces a range of fresh, frozen and refrigerated food products. The company operates in Beef, Pork, Chicken and Prepared Foods segments.

United Therapeutics Corporation

United Therapeutics is a biotechnology company. The company markets and sells four commercial therapies to treat pulmonary arterial hypertension (PAH): Remodulin? (treprostinil) Injection; Tyvaso? (treprostinil) Inhalation Solution; Orenitram? (treprostinil) Extended-Release Tablets; and Adcirca? (tadalafil) Tablets. The company also markets and sells an oncology product, Unituxin? (dinutuximab) Injection for treatment of high-risk neuroblastoma. The company also engages in research and development of new indications and formulations and delivery devices for its existing products, as well as new products to treat PAH and other conditions. The company also engages in organ transplantation-related technologies.

Provider
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
  • 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.

Analysts
Valens Research

Other Reports on these Companies
Other Reports from Valens Research

ResearchPool Subscriptions

Get the most out of your insights

Get in touch