VRSK - Embedded Expectations Analysis - 2020 09 24
Verisk Analytics, Inc. (VRSK:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 37.1x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about free cash flow, product demand, and segment performanceSpecifically, management may lack confidence in their ability to maintain free cash flow, continue improving revenues, and sustain strong operational controls. Furthermore, they may be exaggerating the potential of the newly launched micro business insurance program and the demand for their products. Moreover, they may lack confidence in their ability to maintain the structure and position of their business and sustain subscription business performance. In addition, they may be concerned about the Wood Mackenzie and the Energy and Specialized businesses. Finally, management may lack confidence in the sustainability of improvement in commercial surveys, and may be concerned about the effect of a new U.K. law on their tax rate
Verisk Analytics is a data analytics provider serving customers in insurance, energy and specialized markets, and financial services. The company has three segments: Insurance, which provides underwriting and ratings and claims insurance data for the United States property and casualty insurance industry; Energy and Specialized Markets, which provides research and consulting data analytics for the global energy, chemicals, and metals and mining industries; and Financial Services, which provides benchmarking, decisioning algorithms, business intelligence, and customized analytic services to financial institutions, payment networks and processors, alternative lenders, regulators and merchants.
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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