TEX - Valens Credit Report - 2023 04 14
Credit markets are overstating credit risk with a YTW of 6.554% and a CDS of 271bps relative to an Intrinsic YTW of 5.404% and an Intrinsic CDS of 188bps. Furthermore, Moody's is materially overstating TEX's fundamental credit risk with its speculative Ba3 credit rating five notches below Valens' IG4+ (Baa1) credit rating.Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. TEX's compensation metrics should drive management to focus on all three value drivers: margins, turns, and growth, which could lead to Uniform ROA expansion and increased cash flows available for obligations. Furthermore, most management are material owners of TEX equity relative to their annual compensation, indicating they are aligned with shareholders to pursue long-term value creation for the company.
Earnings Call Forensics™ of TEX's Q4 2022 (2/10/2023) call highlights that management is confident the replenishment of dealer inventory due to the conversion of customers from rent to ownership is a source of strength.
Terex is a global manufacturer of aerial work platforms, materials processing machinery and cranes. The company has two segments: Aerial Work Platforms, which designs, manufactures, services and markets aerial work platform equipment, utility equipment, telehandlers and light towers, including portable material lifts, self-propelled articulating and telescopic booms, scissor lifts, and trailer-mounted light towers as well as, their related components and replacement parts; and Material Processing, which designs, manufactures and markets materials processing and other equipment, including crushers, washing systems, apron feeders, conveyors, and their related components and replacement parts.
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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