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OII – Base Case iCDS 140bps, Negative Case iCDS 200bps, 2028 6.000% Bond YTW of 6.429%, iYTW of 5.684%, Ba2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
November 22, 2024
Credit markets are accurately stating credit risk with a YTW of 6.429% relative to an Intrinsic YTW of 6.274% and an Intrinsic CDS of 199bps. Meanwhile, credit markets are overstating the firm’s fundamental credit risk, with its Ba2 credit rating four notches lower than Valens’ IG4+ (Baa1) credit rating.
Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Management’s compensation framework should incentivize them to improve all three value drivers: sales, margins, and asset utilization, which should drive Uniform ROA improvement and lead to increased cash flows available for servicing debt obligations going forward. In addition, most management are material owners of OII equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company.
Earnings Call Forensics™ analysis of the firm’s Q3 2024 (10/24/2024) earnings call highlights that management is confident they have a stronger pipeline than the last five years in aerospace, defense, and other mobile robotics..
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