Report
Valens Research

Valens Equity Insights and Inflections - 2020 11 10

ENS currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 17.1x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to decline from 12% in 2020 to 10% in 2025, accompanied by 3% Uniform asset growth going forward. However, analysts have bullish expectations, projecting Uniform ROA to expand to 13% by 2022, accompanied by 3% Uniform asset shrinkage. Furthermore, management is confident about their investments, technology, and expansion progress. Current valuations appear to be pricing in overly bearish expectations for ENS, and if the company is able to maintain current profitability levels, material upside may be warranted.

LYFT Q2 2020 Embedded Expectations Analysis – Market expectations are for a positive inflection in Uniform ROA, but management may be concerned about their product, investments, and margins

ZM Q2 2021 Embedded Expectations Analysis – Market expectations are for Uniform ROA to reach all-time highs, but management may have concerns about growth, Zoom Phone, and Zoom For Home

CCI Q2 2020 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management may have concerns about capital investments, yields, and small cells

ENS, CCI, LYFT, ZM, AMGN, AVGO, CF, EXC, FIS, HD, HDS, HXL, LB, LCII, LKQ, LMT, PLD, QCOM, TGT, VGR
Underlyings
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.

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.

CF Industries Holdings Inc.

CF Industries Holdings is a global fertilizer and chemical company. The company's principal nitrogen fertilizer products are anhydrous ammonia, granular urea, urea ammonium nitrate solution and ammonium nitrate. The company's other nitrogen products include diesel exhaust fluid, urea liquor, nitric acid and aqua ammonia, which are sold primarily to its industrial customers, and compound fertilizer products, which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus, and potassium. The company serves its customers in North America through its production, storage, transportation and distribution network.

Crown Castle International Corp

Crown Castle International is a holding company. Through its subsidiaries, the company owns, operates and leases shared communications infrastructure that is geographically dispersed throughout the U.S., including towers and other structures, such as rooftops (collectively, towers), and fiber primarily supporting small cell networks (small cells) and fiber solutions. The company's towers, fiber and small cells assets are collectively referred to herein as communications infrastructure. The company's core business is providing access, including space or capacity, to its shared communications infrastructure via long-term contracts in various forms, including lease, license, sublease and service agreements.

EnerSys

EnerSys is a manufacturer, marketer and distributor of industrial batteries. The company also manufactures, markets and distributes products such as battery chargers, power equipment, battery accessories, and outdoor cabinet enclosures. The company's product lines are: reserve power products, which are used for backup power for the continuous operation of critical applications in telecommunications systems, uninterruptible power systems applications for computer and computer-controlled systems, and other specialty power applications; and motive power products, which are used to provide power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications.

Exelon Corporation

Exelon is a utility services holding company engaged in the generation, delivery and marketing of energy through Exelon Generation Company, LLC and the energy distribution and transmission businesses through Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company, Potomac Electric Power Company, Delmarva Power & Light Company and Atlantic City Electric Company. Through its business services subsidiary Exelon Business Services Company, LLC, the company provides its subsidiaries with a variety of support services.

Fidelity National Information Services Inc.

Fidelity National Information Services is a provider of technology solutions for merchants, banks, and capital markets firms globally. The company's solutions include merchant acquiring solutions; payment solutions; global eCommerce solutions; processing and ancillary applications solutions; digital solutions; fraud, risk management and compliance solutions; electronic funds transfer and network services solutions; card and retail payment solutions; wealth and retirement solutions; item processing and output services solutions; securities processing and finance solutions; global trading solutions; asset management and insurance solutions; and corporate liquidity solutions.

HD Supply Holdings Inc.

HD Supply Holdings is a holding company. Through its subsidiaries, the company is an industrial distributor in North America. The company's segments include: Facilities Maintenance and Construction and Industrial. The company's Facilities Maintrnance segment distributes maintenance, repair and operations products, provides services and fabricates custom products. Products include electrical and lighting items, and plumbing, heating, ventilating, and air conditioning products. The company's Construction and Industrial segment distributes hardware, tools and materials to non-residential and residential contractors. Products include tilt-up brace systems, forming and shoring systems, concrete chemicals, and cutting tools.

Hexcel Corporation

Hexcel is a composites company with two reportable segments. The Composite Materials segment manufactures and markets carbon fibers, fabrics and specialty reinforcements, prepregs and other fiber-reinforced matrix materials, structural adhesives, honeycomb, molding compounds, tooling materials, polyurethane systems and laminates that are incorporated into several applications, including military and commercial aircraft, wind turbine blades, recreational products, transportation and other industrial applications. The Engineered Products segment manufactures and markets composite structures and precision machined honeycomb parts primarily for use in the aerospace industry.

Home Depot Inc.

The Home Depot is a home improvement retailer. The company provides its customers an assortment of building materials, home improvement products, lawn and garden products, and decor products and provides a number of services, including home improvement installation services and tool and equipment rental. The company also maintains a network of distribution and fulfillment centers, as well as a number of e-commerce websites. The company provides a number of programs for its Professional Customers to meet their particular needs, and for its Do-It-Yourself and Do-It-For-Me customers, the company provides a number of installation services. The company also provides tool and equipment rentals for its customers.

L Brands Inc.

L Brands is a holding company. Through its subsidiaries, the company is a specialty retailer of women's intimate and other apparel, personal care, beauty and home fragrance products. The company sells its merchandise through company-owned specialty retail stores in the U.S., Canada, the U.K., Ireland and Greater China, and through its websites and other channels. The company's other international operations are primarily through franchise, license and wholesale partners. The company has three reportable segments: Victoria's Secret, Bath & Body Works and Victoria's Secret and Bath & Body Works International. The company operates the following retail brands: Victoria's Secret, PINK and Bath & Body Works.

LCI Industries

LCI Industries supplies an array of components for the original equipment manufacturers in the recreation and industrial product markets, consisting of recreational vehicles and adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; trucks; boats; trains; manufactured homes; and modular housing. The company also supplies components to the related aftermarkets of these industries, primarily by selling to retail dealers, wholesale distributors and service centers. The company's products include steel chassis and related components, axles and suspension solutions, slide-out mechanisms and solutions, and thermoformed bath, kitchen and other products.

LKQ Corporation

LKQ is a holding company. Through its subsidiaries, the company provides alternative vehicle collision replacement products and alternative vehicle mechanical replacement products. The company is also a provider of alternative vehicle replacement and maintenance products in the United Kingdom, Germany, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Poland, Slovakia, Austria, and other European countries. In addition to its wholesale operations, the company operates self service retail facilities across the United States that sell recycled automotive products from end-of-life-vehicles. The company is also a distributor of specialty vehicle aftermarket equipment and accessories.

Lockheed Martin Corporation

Lockheed Martin is a security and aerospace company. The company has four segments: Aeronautics, which is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of military aircraft; Missiles and Fire Control, which provides air and missile defense systems, logistics, fire control systems, and mission operations support; Rotary and Mission Systems, which provides design, manufacture, service and support for military and commercial helicopters, radar systems, and simulation and training services; Space, which researches, designs, develops, engineers and produces satellites, space transportation systems, and strategic, strike, and defensive systems.

Lyft

Lyft operates a peer-to-peer marketplace for on-demand ridesharing in the United States and Canada. The company provides Ridesharing Marketplace, which facilitates lead generation, billing and settlement, support, and related activities to enable drivers to provide their transportation services to riders. The company also offers a network of shared bikes and scooters in various cities to address the needs of riders for shorter routes; Express Drive program, a flexible car rentals program which connects drivers who need access to a car with third-party rental car companies; and concierge for organizations to manage the transportation needs of their customers and employees.

Prologis Inc.

Prologis is a self-administered and self-managed real estate investment trust and is the sole general partner of Prologis, L.P. The company owns, manages and develops logistics facilities, with a focus on the consumption side of the global supply chain. Most of the company's properties in the United States are wholly owned, while its properties outside the United States are primarily held in co-investment ventures. The company has two segments: Real Estate Operations, which represents the ownership and development of operating properties, and includes land held for development and properties under development; and Strategic Capital, which represents the management of unconsolidated co-investment ventures.

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.

Target Corporation

Target provides its customers everyday essentials and merchandise. The company sells an assortment of general merchandise and food. The majority of the company's general merchandise stores provide an edited food assortment, including perishables, dry grocery, dairy, and frozen items. The company's small format stores provide curated general merchandise and food assortments. The company's digital channels include merchandise assortment, including various items found in its stores, along with a complementary assortment. The company also sells merchandise through periodic design and partnerships. The company's owned brands merchandise include: A New Day?, Archer Farms?, Art Class?, Ava & Viv?, Cat & Jack?, and Cloud Island?, among others.

Vector Group Ltd.

Vector Group is a holding company. The company is engaged principally in the manufacture and sale of cigarettes in the U.S. through its Liggett Group LLC (Liggett) and Vector Tobacco Inc. subsidiaries; and the real estate business through its New Valley LLC (New Valley) subsidiary. The company's business segments were Tobacco, and Real Estate. The Tobacco segment consists of the manufacture and sale of conventional cigarettes. The Real Estate segment includes the company's investment in New Valley, which includes Douglas Elliman, Escena, Sagaponack and investments in real estate ventures.

Zoom Video Communications Inc. Class A

Zoom Video Communications provides a video-first communications platform that delivers happiness and fundamentally changes how people interact. The company connects people through frictionless video, voice, chat and content sharing and enable face-to-face video experiences for thousands of people in a single meeting across disparate devices and locations. The company's cloud-native platform delivers reliable, high-quality video that is easy to use, manage and deploy, provides an attractive return on investment, is scalable and easily integrates with physical spaces and applications.

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.

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