September 7, 2016

Valens Equities Weekly Insights and Inflections for September 7, 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.

Expectations for CHKP to see a reversal in positive ROA’ trends are unwarranted, as both management and analysts are gaining confidence in the firm’s outlook

chkp-stock-chart

CHKP is trading at a 14.9x V/E’, which is near historical averages. At these levels, the market is pricing in expectations for a declining ROA’, from 184% in 2015 to 140% in 2020, accompanied by 1% Asset’ shrinkage. Analysts have similar expectations relative to the market, expecting ROA’ to decline to 133% by 2017, accompanied by 18% Asset’ growth. However, Valens’ qualitative analysis highlights that management is confident about their transition to a new revenue model, as well as about the sustainability of growth in their businesses. Furthermore, though analyst estimates are muted, they have grown over the past year, indicating that they are growing more confident about the firm’s outlook. Given growing management and analyst confidence surrounding the firm’s fundamentals, current market expectations are too bearish and equity upside for CHKP may be warranted.

Market Insights
Most Compelling Long Ideas
FB, ZG, DLTR, DHI, GOOGL
Most Compelling ECF™ Inflections
CRUS, ABC, AYI, WCN, MA

Company Specific Highlights & Insights:
SEHK:700, AGN, AMT, APC, BABA, CAT, CERN, COG, COP, DIS, F, FOXA, MTD, NATI, NEE, PXD, RIG, ASX:RIO, SABR, DB:SIE, TEVA, VAR,VRX, WU

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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