Valens Equity Insights and Inflections - 2017 12 20
HD currently trades near historical highs relative to Uniform Earnings, with a 24.9x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to see an acceleration in recent improvements, and grow from 20% in 2017 to 37% in 2022, accompanied by 1% Uniform Asset shrinkage going forward. However, analysts have slightly less bullish expectations, projecting Uniform ROA to only expand to 22% by 2019, accompanied by immaterial Uniform Asset shrinkage. That said, Valens' qualitative analysis of the firm's Q3 2017 earnings call highlights that management is confident about the sustainability of same-store sales growth, and increasing Pro customer engagement, suggesting that although HD may look expensive at first glance, there may be room for further upside.
DLX Q3 2017 Embedded Expectations Analysis – Market expectations are for declining Uniform ROA, but management is confident about their MOS business
PANW Q1 2018 Embedded Expectations Analysis – Market expectations are for declining Uniform ROA, and management has concerns about their guidance, customer acquisition strategy, and contract duration
TMO Q3 2017 Embedded Expectations Analysis – Market expectations are for fading Uniform ROA, and management has concerns about mix headwinds, revenues, and synergy targets
7203:JPN, AER, AGN, AMKR, AN, AVP, BA, BBY, CHK, CNX, LMT, SUM, UIS, UNP, V, WYN
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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