Report
Valens Research

Valens Equity Insights and Inflections - 2019 09 11

HCA currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 15.2x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to decline from 13% in 2018 to 11% in 2023, accompanied by 3% Uniform Asset growth going forward. However, analysts have bullish expectations, projecting Uniform ROA to improve to 14% levels through 2020, accompanied by 3% Uniform Asset growth. Additionally, management is confident about their approach to building networks and their near-term momentum. Current valuations appear to be pricing in overly bearish expectations for HCA, and should they see profitability remain flat or continue expanding, as positive management sentiment and historical profitability trends would suggest, material upside would be warranted.


SYY Q4 2019 Embedded Expectations Analysis – Market expectations are for Uniform ROA to reach new peaks, but management may be concerned about costs, profit, and competition.

UPS Q2 2019 Embedded Expectations Analysis – Market expectations are for Uniform ROA expansion, but management may be concerned about growth, EPS, and efficiency
PTC Q3 2019 Embedded Expectations Analysis – Market expectations are for record Uniform ROA, but management may be concerned about growth, guidance, and their strategy.

ADM, AKS, AMGN, CW, EA,FLS, GT, HCA, LUV, MO, MPC, PSX, PTC, QCOM, SYY, TDG, TEVA, TMUS, TRU, UPS, WLK, ZTS.
Underlyings
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.

AMGEN INC.

Amgen is a biotechnology company that discovers, develops, manufactures and delivers human therapeutics. The company's products include: Enbrel? (etanercept), which is used in indications for the treatment of adult patients with moderately to severely active rheumatoid arthritis, patients with chronic moderate-to-severe plaque psoriasis who are candidates for systemic therapy or phototherapy and patients with active psoriatic arthritis; and Prolia? (denosumab), which is used for the treatment of postmenopausal women with osteoporosis at high risk of fracture or multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapy.

Archer-Daniels-Midland Company

Archer Daniels Midland is a human and animal nutrition and an agricultural origination and processing company. The company has three segments: Ag Services and Oilseeds, which includes activities related to the origination, merchandising, transportation, and storage of agricultural raw materials, and the crushing and further processing of oilseeds such as soybeans and soft seeds into vegetable oils and protein meals; Carbohydrate Solutions, which is engaged in corn and wheat wet and dry milling and other activities; and Nutrition, which engages in the manufacturing, sale, and distribution of an array of products including plant-based proteins, natural flavor ingredients, and flavor systems.

Curtiss-Wright Corporation

Curtiss-Wright is a manufacturing and service company that designs, manufactures, and overhauls components and provides engineered products and services. The company's segments are: Commercial/Industrial, which provides engineered products and services including industrial vehicle products, sensors, valves and surface technology services; Defense, which provides Commercial Off-the-Shelf embedded computing board-level modules, integrated subsystems, instrumentation and control systems, turret aiming and stabilization products, and weapons handling systems; and Power, which provides hardware, pumps, valves, fastening systems, containment doors, airlock hatches, and spent fuel management products.

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.

Flowserve Corporation

Flowserve is a manufacturer and aftermarket service provider of flow control systems. The company develops and manufactures flow control equipment integral to the movement, control and protection of the flow of materials in its customers' processes. The company's segments are: Flowserve Pump Division, which are for custom, pumps, pre-configured industrial pumps, pump systems, mechanical seals, auxiliary systems and replacement parts and related services; and Flow Control Division, which are for engineered and industrial valves, control valves, actuators and controls and related services.

Goodyear Tire & Rubber Company

Goodyear Tire & Rubber develops, manufactures, distributes and sells tires and related products and services worldwide. The company manufactures and markets various lines of rubber tires for: automobiles, trucks, buses, aircraft, motorcycles, earthmoving and mining equipment, farm implements, industrial equipment, and various other applications. The company manufactures and sells tires under the Goodyear, Dunlop, Kelly, Debica, Sava and Fulda brands and various other Goodyear owned house brands, and the private-label brands of certain customers. The company operates its business through three operating segments representing its regional tire businesses: Americas; Europe, Middle East and Africa; and Asia Pacific.

HCA Healthcare Inc

HCA Healthcare is a holding company. Through its subsidiaries, partnerships and joint ventures, the company owns and operates hospitals and related health care entities. Most of the company's general, acute care hospitals provide medical and surgical services, including inpatient care, intensive care, cardiac care, diagnostic services and emergency services. The general, acute care hospitals also provide outpatient services such as outpatient surgery, laboratory, radiology, respiratory therapy, cardiology and physical therapy. The company's psychiatric hospitals provide therapeutic programs including child, adolescent and adult psychiatric care, adolescent and adult alcohol and drug abuse treatment and counseling.

Marathon Petroleum Corporation

Marathon Petroleum is an independent petroleum refining and marketing, retail and midstream company. The company's segments include: Refining and Marketing, which refines crude oil and other feedstocks at its refineries, purchases refined products and ethanol for resale and distributes refined products; Retail, which sells transportation fuels and convenience products in the retail market across the U.S.; and Midstream, which transports, stores, distributes and markets crude oil and refined products via refining logistics assets, pipelines, terminals, towboats and barges, gathers, processes and transports natural gas, and gathers, transports, fractionates, stores and markets 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.

PTC INC.

PTC is a software and services company. The company's products and services include: 3D Modeling, which enables users to create designs, analyze designs, perform engineering calculations and utilize the information created downstream using 2D, 3D, parametric and direct modeling; Lifecycle Management, which enables product data management, as well as communication and collaboration across the enterprise, including product development, manufacturing and the supply chain; Data Orchestration, which delivers tools, technologies, and solutions that enable companies to develop and deploy industrial IoT applications; and Experience Creation, which provides a way to capture, create, and deliver content.

Qualcomm Inc

Qualcomm is engaged in the development and commercialization of foundational technologies for the wireless industry. The company's segments include: Qualcomm CDMA Technologies, which is a developer and supplier of integrated circuits and system software based on code division multiple access, orthogonal frequency division multiple access and other technologies; Qualcomm Technology Licensing, which grants licenses or otherwise provides rights to use portions of its intellectual property portfolio, which, among other rights, include certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products; and Qualcomm Strategic Initiatives, which makes investments.

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.

Sysco Corporation

Sysco, acting through its subsidiaries and divisions, is a distributor of food and related products primarily to the foodservice or food-away-from-home industry. The company has three reportable segments: United States Foodservice Operations, which primarily include United States Broadline operations, which distribute a line of food products, including custom-cut meat, seafood, specialty produce, specialty imports and a variety of non-food products; International Foodservice Operations, which include operations in the Americas and Europe, which distribute a line of food products and a variety of non-food products; and SYGMA, which consists of its United States customized distribution subsidiary.

T-Mobile US Inc.

T-Mobile US provides mobile communications services, including voice, messaging and data, under its brands, T-Mobile and Metro? by T-Mobile, in the United States, Puerto Rico and the United States Virgin Islands. The company provides mobile communications services using its 4G Long-Term Evolution network and its 5G technology network. The company also provides various wireless devices, including handsets, tablets and other mobile communication devices, and accessories for sale, as well as financing through Equipment Installment Plans and leasing through JUMP! On Demand?. The company provides reinsurance for handset insurance policies and extended warranty contracts offered to its mobile communications customers.

Teva Pharmaceutical Industries Limited Sponsored ADR

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.

TransUnion

TransUnion is an information and insights company. The company provides consumer reports, actionable insights and analytics such as credit and other scores, and decisioning capabilities to businesses. The company has the following reportable segments: United States Markets, which provides consumer reports, actionable insights and analytics such as credit and other scores, and decisioning capabilities to businesses; International, which provides services similar to its United States Markets segment to businesses in select regions outside the United States; and Consumer Interactive, which provides solutions that help consumers manage their personal finances and take precautions against identity theft.

United Parcel Service Inc. Class B

United Parcel Service provides transportation services, primarily domestic and international letter and package delivery. The company reports its operations in three segments: United States Domestic Package, which includes the time-definite delivery of letters, documents and packages throughout the United States; International Package, which includes delivery to several countries and territories worldwide, including shipments wholly outside the United States, as well as shipments with either origin or destination outside the United States; and Supply Chain & Freight, which includes the company's Forwarding, Logistics, Coyote, Marken, UPS Mail Innovations, UPS Freight and other aggregated business units.

Westlake Chemical Corporation

Westlake Chemical operates as a manufacturer and marketer of basic chemicals, vinyls, polymers and building products. The company operates in two operating segments: Olefins, which manufactures and markets polyethylene, styrene monomer and various ethylene co-products; and Vinyls, which manufactures and markets polyvinyl chloride (PVC), vinyl chloride monomer, ethylene dichloride, chlor-alkali (chlorine and caustic soda), chlorinated derivative products and ethylene, as well as manufactures and sells building products fabricated from PVC, including residential siding, trim and mouldings, pipe and fittings for various water, sewer and industrial applications, and profiles for windows and doors.

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

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

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