Valens Equity Weekly Insights - 2023 07 04
Credit markets are overstating DVN's credit risk with a YTW of 5.832% and a CDS of 143bps relative to an Intrinsic YTW of 4.612% and an Intrinsic CDS of 48bps.Incentives Dictate Behavior™ analysis highlights positive signals for credit holders. DVN's metrics should drive management to focus on improving margins and asset utilization, which could lead to Uniform ROA expansion and increased cash flows available for obligations going forward. Additionally, management members are material owners of DVN equity relative to their annual compensation, indicating they are aligned with shareholders to pursue long-term value creation for the company. Moreover, most members of management have low change-in-control compensation relative to their annual compensation. This indicates they may not be sufficiently incentivized to pursue a takeover or sale of the company, decreasing event risk for creditors.
NVT
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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