October 19, 2016

Valens Equities Weekly Insights and Inflections for October 19, 2016


Each week the Valens Securities team highlights our most interesting insights from across our tools and our analysis, including individual company industry and macro insights

Market expectations for WM to see substantial ROA’ expansion are too aggressive, as management and analysts have a poor outlook for the firm

veii-2016-10-19

WM is trading at a 1.7x V/A’, near historical highs. At these levels, the market is pricing in expectations for an increasing ROA’, from 6% in 2015 to historically high 12% levels in 2020, accompanied by 1% Asset’ shrinkage. However, analysts have bearish expectations relative to the market, projecting ROA’ to decline to 5% levels in 2016-2017, accompanied by immaterial Asset’ growth. Moreover, Valens’ qualitative analysis of the firm’s Q2 2016 earnings call highlights that management appears to have concerns about various operating expenses and the impact of their current strategies. Given poor analyst outlook for the firm, and declining management confidence surrounding the firm’s fundamentals, current market expectations are too bullish, and equity downside may be warranted.

Market Insights
Most Compelling Long Ideas
FB, ZG, TWTR, NOV, MYL

Most Compelling ECF™ Inflections
CRUS, ABC, AYI, WCN, MA

Company Specific Highlights & Insights:
ABY, AMAT, AMCX, ATO, BIP, CI, CNP, CPG, DDD, EEP, DB:FRE, GME, KR, NI, NSC, OKS, PAA, PCG, PKD, PWR, SE, SRE, SXL, WBA, WGP

Aggregate ECF™ Trend Analysis:

Management confidence levels continue to be volatile, ranging between 24 month highs and 24 month lows in the past 6 months. In April, Management Confidence spiked higher, but the metric subsequently rolled over in recent months, falling to the low end of its range. This signaling that growth remains elusive, as management teams continue to not be confident enough to invest in their businesses.


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