October 26, 2016

Valens Equities Weekly Insights and Inflections for October 26, 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 MNST to see substantial ROA’ expansion are too aggressive, as management has concerns about their international strategy, as well as overall growth and profitability

veii-2016-10-26

MNST is currently trading at a 29.8x V/E’, which is near historical highs. At these levels, the market is pricing in expectations for increasing ROA’, from 93% in 2015 to 150% in 2020, accompanied by 11% Asset’ growth. Analysts have expectations in line with the market, projecting ROA’ to increase to 117% in 2017, accompanied by 8% Asset’ growth. However, Valens’ qualitative analysis of the firm’s Q2 2016 earnings call highlights that management appears to have concerns about their potential internationally, as well as margins and sales.  Given 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:
AWK, DB:BAYN, BID, BPL, CELG, TSX:FTS, NJR, RPM, TLLP, TSO, UNT, WCN, WR, WTR

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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