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Valens Research

Valens Equity Insights and Inflections - 2020 09 08

BHC currently trades well below corporate averages relative to Uniform earnings, with a 9.1x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to fall from 45% in 2019 to 20% in 2024, accompanied by 2% Uniform asset growth going forward. However, analysts have bullish expectations, projecting Uniform ROA to expand to 51% by 2021, accompanied by 3% Uniform asset shrinkage. Furthermore, management is confident about the eye health spinoff, script recovery, and ProBalance Technology. Current valuations appear to be pricing in overly bearish expectations for BHC, and if the company is able to maintain or increase profitability levels, material upside may be warranted.

SONO Q3 2020 Embedded Expectations Analysis – Given management's excitement about demand and confidence about Arcs and product launches, market expectations are still too bearish, suggesting equity outperformance remains warranted

CTAS Q4 2020 Embedded Expectations Analysis – Market expectations are for Uniform ROA to reach new peaks, but management may be concerned about their customers, offerings, and coronavirus

CRUS Q1 2021 Embedded Expectations Analysis – Although management's concerns about opportunities, innovation, and client performance suggest the potential for near-term headwinds, market expectations are too bearish, and equity outperformance is likely

BHC, CRUS, CTAS, SONO, ADP, ARMK, CSCO, FTDR, IBM, LGIH, LPLA, LVGO, SBGI, UNH, UNP, VZ
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.

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.

Bausch Health Companies Inc.

Valeant Pharmaceuticals International is a pharmaceutical and medical device company that develops, manufactures, and markets a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices). Co. has two operating and reportable segments: Developed Markets, which focuses in dermatology, neurology, gastrointestinal disorders, and eye health therapeutic; and Emerging Markets, which focuses primarily on branded generics, OTC products, and medical devices.

Cintas Corporation

Cintas is a provider of corporate identity uniforms through rental and sales programs, as well as a provider of related business services, including entrance mats, restroom cleaning services and supplies, carpet and tile cleaning services, first aid and safety services and fire protection products and services. The company's segments are Uniform Rental and Facility Services, which consists of the rental and servicing of uniforms and other garments, including flame resistant clothing, mats, mops and shop towels and other ancillary items; and The First Aid and Safety Services, which consists of first aid and safety products and services.

Cirrus Logic Inc.

Cirrus Logic focuses on low-power integrated circuits (ICs) for audio, voice and other signal-processing applications. The company's product lines include: Portable Products, including codecs, which are chips that integrate analog-to-digital converters (ADCs) and digital-to-analog converters (DACs) into a single IC, smart codecs, which are codecs with digital signal processing integrated, amplifiers, micro-electromechanical systems microphones, haptic drivers, standalone digital signal processors, and its SoundClear? technology, which includes a portfolio of tools, software and algorithms; and Non-Portable and Other Products, which include ICs, codecs, ADCs, DACs, digital interfaces and amplifiers.

Cisco Systems Inc.

Cisco Systems designs and sells a range of technologies that power the Internet. The company's business is organized into the following three geographic segments: Americas; Europe, Middle East, and Africa; and Asia Pacific, Japan, and China. The company's products and technologies are grouped into the following categories: Infrastructure Platforms; Applications; Security and Other Products. In addition to its product offerings, the company provides a range of service offerings, including technical support services and other services. The company delivers its technologies through software and services. The company's customers include businesses of all sizes, public institutions, governments, and service providers.

Frontdoor Inc.

Frontdoor is a provider of home service plans in the U.S., and operates under the American Home Shield, HSA, OneGuard and Landmark brands. The company's home service plans help customers protect and maintain their homes, typically their asset, from costly and unplanned breakdowns of essential home systems and appliances. The company's home service plans cover the repair or replacement of main components of household systems and appliances, including electrical, plumbing, central heating, ventilation and air conditioning systems, water heaters, refrigerators, dishwashers and ranges/ovens/cooktops. The company serves customers across various states and the District of Columbia.

International Business Machines Corporation

International Business Machines provides integrated solutions and products that utilize data, information technology, capability in industries and business processes. The company has five segments: Cloud and Cognitive Software, which provides a range of software offerings; Global Business Services, which provides consulting, systems integration, application management and business process outsourcing services; Global Technology Services, which provides project services, managed and outsourcing services, cloud-delivered services, and technical and IT support services; Systems, which provides technology and service; and Global Financing, which provides client financing, among others.

LGI Homes Inc.

LGI Homes is a holding company. Through its subsidiaries, the company is engaged in the design, construction, and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, and Nevada. The company's product offerings include entry-level homes, including both detached homes and townhomes, and move-up homes sold, which are sold under its LGI Homes brand, and its luxury series homes, which are sold under its Terrata Homes brand. The company's homebuilding operations are organized and managed by seven divisions: West, Northwest, Central, Midwest, Florida, Southeast and Mid-Atlantic.

Livongo Health

Livongo Health is engaged in Applied Health Signals, which is involved in the management of chronic conditions. The company's platform provides cellular-connected devices, supplies, informed coaching, and data science-enabled insights and facilitates access to medications across multiple chronic conditions. The company provides the following solutions: Livongo for diabetes; Livongo for hypertension; Livongo for prediabetes and weight management; and Livongo for behavioral health by myStrength.

LPL Financial Holdings Inc.

LPL Financial Holdings is a holding company. Through its subsidiaries, the company is engaged in the retail financial advice market and independent broker-dealer. The company's product and solution access includes: Commission-Based Products, which include variable and fixed annuities, mutual funds, equities, and insurance, among others; Fee-Based Advisory Platforms and Support, which include wrap-fee programs, mutual fund asset allocation programs, financial planning services, and retirement plan consulting services; and Cash Sweep Programs, which manage their clients' cash balances through a money market sweep vehicle involving money market fund providers and insured sweep vehicles involving banks.

Sinclair Broadcast Group Inc. Class A

Sinclair Broadcast Group is a television broadcasting company with using the company's spectrum to bring together content providers, advertisers, and consumers on various platforms. The content, distributed through the company's broadcast platform, consists of programming provided by third-party networks and syndicators, local news, the company's own networks, and other original programming produced by the company The company also distributes its original programming, and owned and operated network, on other third-party platforms. The company operates technical services companies focused on supply and maintenance of broadcast transmission systems as well as research and development for the development of broadcast technology.

Sonos

Sonos designs, develops, manufactures and sells multi-room audio products. The Sonos home sound system provides customers with a listening activity created by the design of its speakers and components, a proprietary software platform and the ability to stream content from a variety of sources over the customer's wireless network or over Bluetooth. The company's products are sold via third-party retail stores, including custom installers of home audio systems. The company also sells via select e-commerce retailers and its website sonos.com. The company's products are distributed through its wholly owned subsidiaries: Sonos Europe B.V., Beijing Sonos Technology Co., Ltd., Sonos Japan GK and Sonos Australia Pty Ltd.

Union Pacific Corporation

Union Pacific, through its operating subsidiary, Union Pacific Railroad Company, is a Class I railroad operating in the United States. The company's network included route miles, linking Pacific Coast and Gulf Coast ports with the Midwest and eastern United States. gateways and providing several corridors to key Mexican gateways. The company serves the western two-thirds of the country and maintains coordinated schedules with other rail carriers for the handling of freight to and from the Atlantic Coast, the Pacific Coast, the Southeast, the Southwest, Canada, and Mexico. The company's business mix includes agricultural products, energy, industrial, and premium.

UnitedHealth Group Incorporated

UnitedHealth Group is a health care company. The company has four reportable segments across its two business platforms, UnitedHealthcare and Optum: UnitedHealthcare, which provides health care benefits to an array of customers and markets through its UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State and UnitedHealthcare Global; OptumHealth, which serves the physical, emotional and health-related financial needs of individuals; OptumInsight, which provides services, technology and health care knowledge to main participants in the health care industry; and OptumRx, which provides pharmacy care services and programs.

Verizon Communications Inc.

Verizon Communications is a holding company. Through its subsidiaries, the company provides communications, information and entertainment products and services to consumers, businesses and governmental agencies. The company has two reportable segments, Verizon Consumer Group (Consumer) and Verizon Business Group (Business). The company's Consumer segment provides consumer-focused wireless and wireline communications services and products under the Verizon brand and through wholesale and other arrangements. The company's Business segment provides, among others, wireless and wireline communications services and products, video and data services, corporate networking solutions, security and managed network services.

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Valens Research

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  • GAAP and IFRS have failed to provide rules for reliable financial statement reporting
  • Stock analyst recommendations are not grounded in disciplined financial analysis
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Many years later, our business model remains because little has changed on Wall Street.

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