Report
Valens Research

Valens Equity Insights and Inflections - 2018 05 16

RPM currently trades near historical lows relative to UAFRS-based (Uniform) Earnings, with a 16.7x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to decline from 15% in 2017 to 12% through 2022, accompanied by 4% Uniform Asset growth going forward. However, analysts have less bearish expectations, projecting Uniform ROA to remain around recent highs at 15%-16% levels through 2019, accompanied by 5% Uniform Asset growth. Given positive analyst outlook and management's confidence in their consolidation initiatives and sales, market expectations appear too bearish. Should RPM succeed with their efficiency initiatives and maintain profitability at current levels, equity upside would be warranted.


GRMN Q1 2018 Embedded Expectations Analysis – Given management's confidence in their margins, new products, and revenues, bearish market expectations are unwarranted, and upside is likely


SHOP Q1 2018 Embedded Expectations Analysis – Market expectations are for record-high Uniform ROA, but management has concerns about their costs, the potential for further operating losses, and future opportunities


VZ Q1 2018 Embedded Expectations Analysis – Market expectations are for Uniform ROA to remain at recent lows, but management is confident about their initiatives, balance sheet, and 5G

CAT, CRUS, CTXS, CVI, CVX, EA, ETN, FND, FSLR, GILD, JCP, LB, OC, PM, THRM, XRAY
Underlyings
Caterpillar Inc.

Caterpillar is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company segments include: Construction Industries, which supports customers using machinery in infrastructure, forestry and building construction; Resource Industries, which supports customers using machinery in mining, heavy construction, quarry and aggregates, waste and material handling applications; Energy and Transportation, which supports customers in oil and gas, power generation, marine, rail and industrial applications, including Cat? machines; and Financial Products, which provides financing and related services.

Chevron Corporation

Chevron is engaged in energy and chemicals operations. Upstream operations consist primarily of, among others, exploring for, developing and producing crude oil and natural gas; processing, liquefaction, transportation and regasification associated with liquefied natural gas, storage and marketing of natural gas; and a gas-to-liquids plant. Downstream operations consist primarily of, among others, refining crude oil into petroleum products; marketing of crude oil and refined products; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant additives.

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.

Citrix Systems Inc.

Citrix Systems is an enterprise software company. The company markets and licenses its solutions through multiple channels worldwide, including selling through resellers, direct and over the Web. The company's partner community comprises thousands of value-added resellers known as Citrix Solution Advisors, value-added distributors, systems integrators, independent software vendors, original equipment manufacturers and Citrix Service Providers. The company provides solutions and services that it categorizes into three inter-related and complementary areas: Workspace, Networking and Professional Services.

CVR Energy Inc.

CVR Energy is a holding company. The company is engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through its holdings in CVR Refining, LP (CVR Refining) and CVR Partners, LP (CVR Partners). CVR Refining is an independent petroleum refiner and marketer of transportation fuels. CVR Partners produces and markets nitrogen fertilizers in the form of urea ammonium nitrate and ammonia. The company's segments include: Petroleum, which includes refineries located in Coffeyville, KS and Wynnewood, OK and supporting logistics assets in the region; and Nitrogen Fertilizer, which includes nitrogen fertilizer manufacturing facilities located in Coffeyville, KS and East Dubuque, IL.

DENTSPLY SIRONA Inc.

DENTSPLY SIRONA is a manufacturer of dental products and technologies. The company's Consumables segment is responsible for the design, manufacture, sales and distribution of the company's dental consumable products which include preventive, restorative, endodontic, and dental laboratory products. The company's Technologies and Equipment segment includes responsibility for the design, manufacture, sales and distribution of the company's dental technology and equipment products and healthcare consumable products, including dental implants, computer-aided design/computer-aided manufacturing systems, orthodontic clear aligner products, imaging systems, treatment centers, instruments, and consumable medical device products.

Eaton Corp. Plc

Electronic Arts Inc.

Electronic Arts develops, markets, publishes and distributes games, content and services that can be played and watched on a variety of platforms, including game consoles, personal computers, and mobile phones. The company markets and sells its games and services through digital distribution channels and through retail channels. Digitally, the company's console games and services can be purchased through third-party storefronts. In its games and services, the company utilizes brands that it either wholly own or license from others. The company develops and publishes games and services across genres. Within and alongside its games, the company provides live services, including in-game purchases, downloadable content, and esports.

First Solar Inc.

First Solar is a provider of photovoltaic (PV) solar energy solutions. The company designs, manufactures and sells PV solar modules with a thin film semiconductor technology, and also develops and sells PV solar power systems that mainly use the modules it manufactures. The company also provides operations and maintenance (O&M) services to system owners. The company's modules segment involves the design, manufacture and sale of cadmium telluride solar modules, which convert sunlight into electricity. The company's second segment is its systems segment, through which it provides power plant solutions, which include project development, engineering, procurement, and construction services and O&M services.

Floor & Decor Holdings Inc. Class A

Floor & Decor Holdings is a holding company. Through its subsidiaries, the company is a specialty retailer of hard surface flooring and related accessories. The company's customers include installers and commercial businesses, Do It Yourself customers and customers who buy the products for installation. The company's primary product categories include Tile, Wood, Laminate/Luxury Vinyl Plank, Natural Stone, Decorative Accessories, and Installation Materials and Tools. In addition to its stores, the company's website FloorandDecor.com showcases its products, provides informational training and design ideas and has its products available for sale, which a customer can pick up in store or have delivered.

Garmin Ltd.

Gentherm Incorporated

Gentherm designs, develops, and manufactures thermal management technologies. The company's products provide solutions for automotive passenger comfort, battery thermal management, remote power generation, patient temperature management, and other consumer and industrial temperature control needs. The company has two segments: Automotive, which includes climate comfort systems, automotive cable systems, battery thermal management, and automotive electronic and software systems; and Industrial, which includes the company's remote power generation systems business, its patient temperature management systems business, its environmental testing equipment business and its research and product development division.

Gilead Sciences Inc.

Gilead Sciences is a research-based biopharmaceutical company that discovers, develops and commercializes medicines. The company's primary areas of focus include viral diseases, inflammatory and fibrotic diseases and oncology. The company's products include: Biktarvy for the treatment of HIV-1 infection in certain patients; Vosevi?, a single tablet regimen of sofosbuvir, velpatasvir and voxilaprevir for the re-treatment of chronic hepatitis C virus infection in adults; Vemlidy? for the treatment of chronic hepatitis B virus infection in adults with compensated liver disease; and Yescarta (axicabtagene ciloleucel) for the treatment of adult patients with relapsed or refractory large B-cell lymphoma.

L Brands Inc.

L Brands is a holding company. Through its subsidiaries, the company is a specialty retailer of women's intimate and other apparel, personal care, beauty and home fragrance products. The company sells its merchandise through company-owned specialty retail stores in the U.S., Canada, the U.K., Ireland and Greater China, and through its websites and other channels. The company's other international operations are primarily through franchise, license and wholesale partners. The company has three reportable segments: Victoria's Secret, Bath & Body Works and Victoria's Secret and Bath & Body Works International. The company operates the following retail brands: Victoria's Secret, PINK and Bath & Body Works.

Old COPPER Company. Inc.

J. C. Penney Company is a holding company whose principal operating subsidiary is J. C. Penney Corporation, Inc. The company's business consists of selling merchandise and services to consumers through its department stores and its website at jcpenney.com. The company's department stores and website serve the same type of customers, its website provides the same mix of merchandise as its store assortment along with other extended categories that are not provided in store, and its department stores accept returns from sales made in stores and via its website. The company sells family apparel and footwear, accessories, jewelry, beauty products through Sephora inside JCPenney, and home furnishings.

OWENS CORNING

Owens Corning is engaged in manufacturing and delivering a range of insulation, roofing, and fiberglass composite materials. The company's Composites segment includes vertically integrated downstream activities. The company manufactures, fabricates and sells glass reinforcements in the form of fiber. The company's Insulation segment includes a portfolio of high, mid and low-temperature products with a geographic mix of United States, Canada, Europe, Asia-Pacific and Latin America, a market mix of residential, commercial, industrial and other markets, and a channel mix of retail, contractor and distribution. The company's products in the Roofing segment are laminate and strip asphalt roofing shingles.

Philip Morris International Inc.

Philip Morris International is a holding company. Through its subsidiaries, the company is a tobacco company engaged in the manufacture and sale of cigarettes, smoke-free products and associated electronic devices and accessories, and other nicotine-containing products in markets outside the United States. The company's portfolio comprises international and local brands including Marlboro, which is complemented in the premium-price category by Parliament. The company's other international cigarette brands are Bond Street, Chesterfield, L&M, Lark and Philip Morris. The company also owns various local cigarette brands, such as Dji Sam Soe, Sampoerna A and Sampoerna U in Indonesia, and Fortune and Jackpot in the Philippines.

RPM INTERNATIONAL INC

RPM International manufactures, markets and sells various chemical product lines, including paints, infrastructure rehab and repair products, protective coatings, roofing systems, sealants and adhesives. The company's segments include: industrial, which includes maintenance and protection products and services for roofing and waterproofing systems; specialty, which includes industrial cleaners, restoration services equipment, colorants, exterior finishes, edible coatings and other coatings; and consumer, which includes rust-preventative, special purpose and decorative paints, caulks, sealants, primers, nail enamels, cement cleaners, floor sealers and woodcare coatings and other consumer products.

SHOPIFY INC.

Shopify provides a cloud-based commerce platform designed for small and medium-sized businesses. Merchants use its software to run their business across all of their sales channels, including web, tablet and mobile storefronts, social media storefronts, and brick-and-mortar and pop-up shops. Co. provides a platform for merchants to create an omni-channel experience that helps showcase the merchant's brand and grow its business. Co.'s platform provides merchants with a single view of their business and customers across all of their sales channels and enables them to manage products and inventory, process orders and payments, build customer relationships and leverage analytics and reporting.

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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  • Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available

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Many years later, our business model remains because little has changed on Wall Street.

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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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