SERV - Embedded Expectations Analysis - 2020 01 16
ServiceMaster Global Holdings, Inc. (SERV:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 19.4x Uniform P/E. At these levels, markets have bullish expectations for the firm, but management appears concerned about non-litigation damage claims, termite renewal reductions, and their initiatives to improve performanceSpecifically, management may lack confidence in their ability to improve margins, sustain acquisition revenue, and settle non-litigation claims. Moreover, they may be downplaying concerns about Formosan termite renewal reductions, and they may be exaggerating the strength of their base business cash generation and their sales functions. Furthermore, they may lack confidence in their ability to expand into the European market and implement initiatives to improve performance and customer service. Management may also be concerned about the impact of pricing increases on volume declines and about the sustainability of favorable conditions in debt markets
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
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