Valens Equity Insights and Inflections - 2018 01 03
SBUX currently trades near historical averages relative to UAFRS-based (Uniform) Earnings, with a 28.3x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to recover from 17% in 2017 to record-high 26% levels in 2022, accompanied by 7% Uniform Asset growth going forward. However, analysts have less bullish expectations, projecting Uniform ROA to only improve to 19% levels in 2018-2019, accompanied by 7% Uniform Asset growth. Additionally, Valens' qualitative analysis of the firm's Q4 2017 earnings call highlights that management has concerns about margins in their international businesses, and growth in the US. At current valuations, markets are pricing in a best case scenario for the business, and considering management concerns about their outlook, any negative surprise could lead to material equity downside.
TXN Q3 2017 Embedded Expectations Analysis – Market expectations are for continued Uniform ROA expansion, but management has concerns about revenues and margins
UTX Q3 2017 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management has concerns about their EPS guidance, inflation headwinds, and
GTF shipments WBA Q4 2017 Embedded Expectations Analysis – Market expectations are for sustained peak Uniform ROA, but management has concerns about margins and the Rite Aid acquisition
CAT, CHTR, CRM, EL, KHC, LOW, MTH, NEE, PCLN, PX, RY:CAN, TMO, V, VOW3:DEU
Starbucks is a roaster, marketer and retailer of coffee. The company's segments are: Americas, which is inclusive of the United States, Canada, and Latin America; International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East, and Africa; and Channel Development. The company's Americas and International segments include both company-operated and licensed stores. The company's Channel Development segment includes roasted whole bean and ground coffees, Seattle's Best Coffee?, Starbucks- and Teavana-branded single-serve products, a variety of ready-to-drink beverages, and other products sold worldwide outside of the company's company-operated and licensed stores.
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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