CPE - Valens Credit Report - 2022 09 01
Credit markets are grossly overstating CPE's credit risk with a YTW of 8.711% relative to an Intrinsic YTW of 4.601% and an Intrinsic CDS of 143bps. Furthermore, Moody's is materially overstating CPE's fundamental credit risk with its B2 credit rating seven notches below Valens' IG4+ (Baa1) credit rating.Incentive Dictate Behavior™ analysis highlights mostly positive signals for both equity holders and creditors. CPE's compensation framework should drive them to focus on asset efficiency and margin expansion, leading to potential Uniform ROA improvement and higher cash flows available to service obligations. Moreover, the Net Debt/EBITDA metric should discourage management from overleveraging the balance sheet, thus reducing credit risk. Additionally, management has low change-in-control compensation relative to their annual compensation, indicating they may not be incentivized to pursue or accept a takeover or sale of the company.
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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