FLR - Valens Credit Report - 2021 03 22
Credit markets are overstating FLR's credit risk with a YTW of 3.273%, relative to an Intrinsic YTW of 1.953% and an Intrinsic CDS of 158bps. Moody's is also overstating the firm's fundamental credit risk, with its non-investment grade speculative Ba1 credit rating three notches lower than Valens' IG4+ (Baa1) credit ratingIncentives Dictate Behavior™ analysis highlights mostly positive signals for FLR credit holders. Management's compensation framework should drive them to focus on all three value drivers; asset efficiency, margin expansion and revenue growth, which may lead to Uniform ROA improvement and higher cash flows available for servicing obligations. In addition, management members are not well-compensated in a change-in-control scenario, indicating they are unlikely to pursue a sale or accept a buyout of the firm, limiting event risk
Earnings Call Forensics™ of the firm's Q4 2020 earnings call (02/26) highlights that management generated an excitement marker when stating their strategic plan will lead to sales flatness in 2021, before picking up in 2022 and 2023. Additionally, management is confident they are focused on engaging with customers and ensuring their strategic priorities line up
Fluor is a holding company. Through its subsidiaries, the company provides engineering, procurement, construction, fabrication and modularization, operations, maintenance and asset integrity, as well as project management services. The company serves a set of industries including oil and gas, chemicals and petrochemicals, mining and metals, transportation, power, life sciences and manufacturing. The company is also a service provider to the U.S. federal government and governments abroad; and it performs operations, maintenance and asset integrity activities for industrial clients. The company has four segments: Energy & Chemicals; Mining, Industrial, Infrastructure & Power; Diversified Services; and Government.
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
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