IAA - Valens Credit Report - 2021 10 22
Credit markets are overstating IAA's credit risk with a YTW of 3.851%, relative to an Intrinsic YTW of 2.641% and an Intrinsic CDS of 156bps. Meanwhile, Moody's is overstating the firm's fundamental credit risk, with its speculative Ba3 credit rating four notches lower than Valens' IG4 (Baa2) credit rating.Incentives Dictate Behavior™ analysis highlights mostly positive signals for creditors. Specifically, IAA's compensation metrics will likely drive management to focus on all three value drivers: margin expansion, asset efficiency, and top-line growth, which should lead to Uniform ROA expansion. Furthermore, while most management members are not material holders of IAA equity relative to their annual compensation, CEO Kett's significant holdings indicate he may be able to convince other NEOs to align with shareholders for long-term value creation.
Earnings Call Forensics™ of the firm's Q2 2021 earnings call (8/3) highlights that management is confident they are focused on driving competitive differentiation and growth through technology and innovation.
IAA provides automotive salvage and auction services. The company offers total loss, lightly damaged, and high mileage vehicles, agricultural equipment, heavy trucks, and material handling equipments. The company serves customers throughout the United States.
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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