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Valens Research

Valens Equity Insights and Inflections - 2020 01 28

HGV currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 16.6x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to decline from 16% in 2018 to 8% in 2023, accompanied by 8% Uniform Asset growth. Meanwhile, analysts have similar expectations, projecting Uniform ROA to fade to 12% by 2020, accompanied by immaterial Uniform Asset shrinkage. Meanwhile, management generated an excitement marker when talking about their data systems, and they are confident about their interest rates and contract sales. Current valuations appear to be pricing in overly bearish expectations for HGV, and should they see profitability remain stable or only decline modestly, as positive management sentiment would suggest, upside would be warranted.
MTCH Q3 2019 Embedded Expectations Analysis – Market expectations are for slight Uniform ROA declines, but management is confident about their new products, Tinder, and Ablo
COP Q3 2019 Embedded Expectations Analysis – Market expectations are for improvements in Uniform ROA, but management may be concerned about working capital, M&A, and costs
G Q3 2019 Embedded Expectations Analysis – Market expectations are for slight compression in Uniform ROA, but management is confident about their pipeline, TAM, and bookings
HGV, COP, G, MTCH, ADP, ANET, ARMK, EPAM, ETSY,INTU, KAR, LK, MDLZ, NXST, REGN,TGNA, TGT, UTHR, VRSK
Underlyings
Aramark

Aramark is a provider of food, facilities and uniform services. The company manages its Food and Support Services (FSS) business in segments split between its United States and International operations. The company's FSS segments manage a number of interrelated services-including food, hospitality, procurement and facility services-for school districts, colleges and universities, healthcare facilities, businesses, sports, entertainment and recreational venues, conference and convention centers, national and state parks and correctional institutions. The company's Uniform and Career Apparel segment provides employee uniform solution, including design, sourcing and manufacturing, delivery, cleaning and maintenance.

Arista Networks Inc.

Arista Networks is engaged in providing cloud networking solutions, which consist of its Extensible Operating System (EOS), a set of network applications and its Ethernet switching and routing platforms. The programmability of EOS enable the company to create a set of software applications that address the requirements of cloud networking, including workflow automation, network visibility and analytics, and enable the company to integrate with third-party applications for virtualization, management, automation, orchestration and network services. EOS supports cloud and virtualization solutions, including VMware NSX, Microsoft System Center, OpenStack and other cloud management frameworks.

Automatic Data Processing Inc.

Automatic Data Processing is a provider of cloud-based human capital management (HCM) solutions to employers, providing solutions to businesses of various sizes. The company's two reportable business segments are Employer Services, which provides a range of technology-based HCM solutions, including payroll services, benefits administration, talent management, HR management, workforce management, compliance services, insurance services and retirement services; and Professional Employer Organization, which provides clients with employment administration outsourcing solutions through a relationship in which employees who work for a client are co-employed by the company and the client.

CONOCOPHILLIPS

ConocoPhillips is an exploration and production company engaged in exploring for, producing, transporting and marketing crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids. The company's segments include: Alaska, which operates in Alaska; Lower 48, which operates in the United States and the Gulf of Mexico; Canada, which operates in Alberta and British Columbia; Europe and North Africa, which consists of operations and exploration activities in Norway, the United Kingdom and Libya; Asia Pacific and Middle East, which operates in China, Indonesia, Malaysia, Australia, Qatar, and Timor-Leste; and Other International, which operates in Colombia, Chile and Argentina.

EPAM Systems Inc.

Epam Systems is a provider of software product development and digital platform engineering services to customers located around the world, primarily in North America, Europe, Asia and Australia. The company's industry services include financial services, travel and consumer, software and hi-tech, business information and media, life sciences and healthcare, as well as other industries.

Etsy Inc.

Etsy provides sellers a marketplace with buyers along with a range of seller tools and services that are specifically designed to help its creative entrepreneurs generate more sales and scale their businesses. The company's platform includes the Etsy and Reverb Holdings, Inc. (Reverb) online marketplaces, its seller tools and services, its engaged sellers and buyers, and its technology. The company's primary marketplace, Etsy.com, is where buyers come to discover a selection of goods that are hard to find elsewhere. Reverb, the company's subsidiary, operates as a standalone marketplace. This two-sided marketplace connects buyers and sellers of new, used, and vintage musical gear from all over the world.

Genpact Limited

Hilton Grand Vacations Inc.

Hilton Grand Vacations is a timeshare company engaged in developing, marketing, selling and managing timeshare resorts under the Hilton Grand Vacations brand. The company's operations mainly consist of: selling vacation ownership intervals for it and third parties; financing and servicing loans provided to consumers for their timeshare purchases; operating resorts; and managing its points-based Hilton Grand Vacations Club and Hilton Club exchange program. The company has properties located in vacation destinations such as the Orlando, Las Vegas, Hawaiian Islands, New York City, Washington D.C. and South Carolina. The company's segments are: real estate sales and financing and resort operations and club management.

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.

KAR Auction Services Inc.

KAR Auction Services is a holding company. Through its subsidiaries, the company provides used vehicle auctions and related vehicle remarketing services in North America and Europe. The company facilitates a marketplace by providing auction services for sellers of used, or whole car, vehicles through its North American physical auction locations. The company's segments include: ADESA, Inc.'s Auctions, which provides whole car auctions and related services to the vehicle remarketing industry in North America through online auctions and auction facilities; and Automotive Finance Corporation, which provides floorplan financing to independent used vehicle dealers through branches throughout North America.

Luckin Coffee Inc Sponsored ADR Class A

Match Group Inc.

Match Group is a provider of dating products available in over 40 languages to its users all over the world through applications and websites it owns and operates. The company operates a portfolio of brands, including Tinder, Match, PlentyOfFish, Meetic, OkCupid, OurTime, Pairs and Hinge, as well as a number other brands. Through its portfolio of brands, the company provides tailored products to meet the varying preferences of its users. All the company's products enable users to establish a profile and review other users' profiles without charge. Each product also provides additional features, some of which are free, and some of which require payment depending on the particular product.

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.

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.

Regeneron Pharmaceuticals Inc.

Regeneron Pharmaceuticals is a biotechnology company that discovers, invents, develops, manufactures, and commercializes medicines for the treatment of diseases. The company's commercialized medicines and product candidates in development are designed to assist patients with eye disease, allergic and inflammatory diseases, cancer, cardiovascular and metabolic diseases, neuromuscular diseases, infectious diseases, and rare diseases. The company's products include: EYLEA (aflibercept) injection, which is used for the treatment of neovascular age-related macular degeneration, diabetic macular edema; and Dupixent (dupilumab) injection, which is used for the treatment of adult patients with atopic dermatitis.

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.

TEGNA Inc.

TEGNA is a media company. The company's business provides television programming and digital content. Each television station also has a digital presence across online, mobile and social platforms. The company provides advertising and marketing services, which include local and national non-political television advertising, digital marketing services, and advertising on stations' websites and tablet and mobile products; subscription by satellite, cable, Over the Top and telecommunications providers; political advertising; and other services, such as production of programming and advertising material. The company's portfolio of Big 4 NBC, CBS, ABC and FOX stations operate under long-term affiliation agreements.

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.

Verisk Analytics Inc

Verisk Analytics is a data analytics provider serving customers in insurance, energy and specialized markets, and financial services. The company has three segments: Insurance, which provides underwriting and ratings and claims insurance data for the United States property and casualty insurance industry; Energy and Specialized Markets, which provides research and consulting data analytics for the global energy, chemicals, and metals and mining industries; and Financial Services, which provides benchmarking, decisioning algorithms, business intelligence, and customized analytic services to financial institutions, payment networks and processors, alternative lenders, regulators and merchants.

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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
  • 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
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  • 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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