KAR - Embedded Expectations Analysis - 2021 04 12
KAR Auction Services, Inc. (KAR:USA) currently trades below recent averages relative to UAFRS-based (Uniform) earnings, with a 17.4x Uniform P/E. At these levels, the market has expectations for profitability to fade, and management may have concerns about their Simulcast Plus platform, financial performance, and the BacklotCars acquisitionSpecifically, management may be concerned about the sustainability of labor cost reductions from their digital business transition and the results of their pilot TradeRev-BacklotCars transaction migration in U.S. markets. Also, they may be exaggerating the capabilities of their Simulcast Plus platform, their commitment to invest in their digital platform strategy, and the potential of the BacklotCars acquisition. In addition, they may lack confidence in their ability to exceed 2019 financial performance, despite lower sales volume
KAR Auction Services is a holding company. Through its subsidiaries, the company provides used vehicle auctions and related vehicle remarketing services in North America and Europe. The company facilitates a marketplace by providing auction services for sellers of used, or whole car, vehicles through its North American physical auction locations. The company's segments include: ADESA, Inc.'s Auctions, which provides whole car auctions and related services to the vehicle remarketing industry in North America through online auctions and auction facilities; and Automotive Finance Corporation, which provides floorplan financing to independent used vehicle dealers through branches throughout North America.
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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