EXPE - Valens Credit Report - 2020 03 25
Credit markets are grossly overstating credit risk, with a cash bond YTW of 11.690% and a CDS of 469bps, relative to an Intrinsic YTW of 2.070% and an Intrinsic CDS of 169bps. Meanwhile, Moody's is materially overstating the firm's fundamental credit risk, treating EXPE as a cross-over credit, with its Baa3 rating five notches lower than Valens' IG3+ (A1) ratingIncentives Dictate BehaviorTM analysis highlights that although most management members do not own substantial EXPE equity relative to their annual compensation, Chairman Diller's significant holdings may lead him to influence other NEOs to align with shareholders for long-term value creation. Moreover, management members have low change-in-control compensation, indicating they are not well incentivized to seek a sale or accept a buyout of the company, reducing event risk for creditors
EXPE currently trades at historical lows relative to Uniform Assets, with a 1.4x Uniform P/B (V/A'). At these levels, the market is pricing in expectations for Uniform ROA to fall from 14% in 2019 to 8% through 2023, accompanied by 2% Uniform Asset growth going forward.
Expedia Group is an online travel company. The company's portfolio of brands includes: Expedia.com?, an online travel brand; Hotels.com?, a global lodging company operating websites with its Hotels.com? Rewards loyalty program; Vrbo?, a global online marketplace with a focus on providing lodging options for families; Egencia?, a corporate travel management company; Hotwire?, an online travel website providing spontaneous travel through its Hot Rate? deals; trivago?, an online hotel metasearch platform; and SilverRail Technologies, Inc., provider of a global rail retail and distribution platform connecting rail carriers and suppliers to both online and offline travel distributors.
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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