GATX - Valens Credit Report - 2021 10 19
Cash bond markets are understating credit risk, with a YTW of 2.033%, relative to an Intrinsic YTW of 2.823%. Furthermore, Moody's is understating the firm's fundamental credit risk, with its Baa2 credit rating three notches higher than Valens' HY1 (Ba2) credit ratingIncentives Dictate Behavior™ analysis highlights that management's compensation framework does not punish management for overleveraging the balance sheet or over-spending on assets, potentially limiting cash available for servicing debt
Earnings Call Forensics™ of the firm's Q2 2021 earnings call (07/20) highlights that management may lack confidence in their ability to sustain higher utilization and lease rates, provide accurate quarterly guidance, and continue creating excess capacity and driving throughput through their shops. Furthermore, they may also have concerns about SNCF's exclusive agreement with CDPQ and DWS over the sale of Ermewa and the sustainability of revenue increases in the North America segment. Finally, management may be concerned about the availability of investment opportunities in the aircraft engine leasing business and they may be overstating the progress of efforts to structurally reduce costs
GATX is a global railcar lessor. The Rail North America segment provides railcars pursuant to full-service leases under which it maintains the railcars, pays ad valorem taxes and property insurance, and provides other ancillary services. The Rail International segment leases railcars pursuant to full-service leases under which it maintains the railcars and provides services according to customer requirements. The Portfolio Management segment leases aircraft spare engines, as well as five liquefied gas-carrying vessels. The American Steamship Company segment provides waterborne transportation of dry bulk commodities such as iron ore, coal, limestone aggregates, and metallurgical limestone.
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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