SNA - Embedded Expectations Analysis - 2019 11 21
Snap-on Incorporated (SNA:USA) currently trades below historical averages relative to UAFRS-based (Uniform) Earnings, with a 13.5x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management may be concerned about international growth, capital allocation, and operating incomeSpecifically, management may be exaggerating the transformation they are seeing in the repair industry, and they may be concerned about further erosion in international demand. Furthermore, they may lack confidence in their ability to sustain recent organic growth rates and to market to independent repair shops. In addition, they may lack confidence in their ability to sell advanced products without training and sustain year-over-year operating income growth. Finally, they may lack confidence in their ability to execute on their capital allocation program, and they may be concerned about the returns from their field support investments
Snap-on is a manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions. Products and services include hand and power tools, tool storage, diagnostics software, handheld and PC-based diagnostic products, information and management systems, shop equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, such as aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical education. The company also provides financing programs designed to facilitate the sales of its products and support its franchise business.
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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