BKI - Embedded Expectations Analysis - 2022 04 21
Black Knight (BKI) currently trades above corporate and historical averages relative to Uniform earnings, with a 29.8x Uniform P/E (Fwd. V/E').At these levels, markets are pricing in expectations for Uniform ROA to remain at 64%, accompanied by 5% Uniform asset growth.
Meanwhile, analysts expect Uniform ROA to compress to 57% in 2023, accompanied by 10% Uniform asset growth.
If sustained going forward, these levels would imply a stock price closer to $70, representing approximately 5% equity upside for the firm.
That said, the firm's most recent earnings call suggests management may have concerns about their client relationships and innovation capabilities.
Black Knight is a provider of software, data and analytics solutions to the mortgage and consumer loan, real estate and capital market verticals. The company's solutions facilitate and automate business processes across the homeownership lifecycle. The company's business is organized into two segments: Software Solutions, which provides software and hosting solutions that facilitate and automate business processes across the homeownership lifecycle; and Data and Analytics, which supports the company's software solutions and is designed to help lenders and servicers make informed decisions, improve performance, identify and predict risk and generate qualified leads.
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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