SERV - Embedded Expectations Analysis - 2019 08 02
ServiceMaster Global Holdings, Inc. (SERV:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) Earnings, with a 23.4x Uniform P/E, implying fairly bullish expectations for the firm. However, management has concerns about their growth opportunities, capital allocation strategy, and their ability to sustain recent sales growth.Specifically, management may be concerned about their ability to meet 2019 guidance, and they may lack confidence in their ability to maintain recent growth rates in their commercial and national accounts. Furthermore, they may be concerned about the sustainability of recent core termite sales growth and about their ability to expand into ancillary markets. Finally, management may be concerned about the impact of salesforce implementation costs, and they may lack confidence in their capital allocation strategy.
ServiceMaster Global Holdings is a holding company. Through its subsidiaries, the company provides services to residential and commercial customers in the termite, pest control, cleaning and restoration markets, operating through a network of company-owned locations and franchise and license agreements. The company's portfolio of brands includes Terminix (residential termite and pest control), Terminix Commercial (commercial termite and pest control), Copesan (commercial national accounts pest management), ServiceMaster Restore (restoration), ServiceMaster Clean (commercial cleaning), Merry Maids (residential cleaning), Furniture Medic (cabinet and furniture repair) and AmeriSpec (home inspections).
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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