VREX - Valens Credit Report - 2021 03 02
Credit markets are grossly overstating VREX's credit risk with a YTW of 6.284%, relative to an Intrinsic YTW of 3.454% and an Intrinsic CDS of 299bps. Meanwhile, Moody's is materially overstating the firm's fundamental credit risk, with its highly speculative B2 credit rating seven notches lower than Valens' IG4+ (Baa1) credit ratingIncentives Dictate Behavior™ analysis highlights mostly positive signals for VREX credit holders. Management's compensation framework should drive them to focus on all three value drivers: asset efficiency, margin expansion, and revenue growth, which may lead to Uniform ROA improvement and higher cash flows available for servicing obligations. In addition, management members are not well-compensated in a change-in-control scenario, indicating they are unlikely to pursue a sale or accept a buyout of the firm, limiting event risk
Earnings Call Forensics™ of the firm's Q4 2020 earnings call (11/17) highlights that management is confident streamlining manufacturing operations is incremental to their Santa Clara related cost savings
Varex Imaging is a designer and manufacturer of X-ray imaging components. In its Medical business segment, the company designs, manufactures, sells and services X-ray imaging components for use in a range of radiographic or fluoroscopic imaging applications including computed tomography, mammography, oncology, cardiac, surgery, dental, and computer-aided detection. In its Industrial business segment, the company designs, manufactures, sells and services X-ray imaging products for use in several markets, including security applications, such as cargo screening at ports and borders and baggage screening at airports, and nondestructive testing and inspection applications used in several other markets.
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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