TEX - Valens Credit Report - 2023 10 24
Credit markets are overstating TEX's credit risk with a YTW of 7.596% relative to an Intrinsic YTW of 6.386%, and a CDS of 237bps relative to an Intrinsic CDS of 152bps. Furthermore, Moody's is materially overstating TEX's fundamental credit risk with its highly 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 metrics should generally drive management to focus on all three value drivers: margins expansion, asset efficiency, and revenue growth. Moreover, all members of management are material owners of TEX equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the firm.
Earnings Call Forensics™ of the firm's Q2 2023 (08/02/2023) earnings call highlights that management generated an excitement marker when saying they have seen better sales volume in their AWP segment. Additionally, they are confident the products they sell will allow them to battle Chinese competitors all over the world and be on an equal playing field that they can win. Lastly, management is confident manufacturing efficiencies offset increasing costs, leading to AWP's improved margins.
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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