TEX – Traded CDS 160bps, Base Case iCDS 141bps, Negative Case 341bps, 2029 5.000% Bond YTW of 6.259%, iYTW of 5.819%, Ba3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

May 23, 2024

  • Cash bond markets are slightly overstating TEX’s credit risk with a YTW of 6.259% relative to an Intrinsic YTW of 5.819. Furthermore, Moody’s is materially overstating TEX’s fundamental credit risk with its speculative Ba3 credit rating five notches below Valens’ IG4+ (Baa1) credit rating.
  • Incentives Dictate Behavior™ analysis highlights positive signals for credit holders. TEX’s metrics should generally drive management to focus on all three value drivers: margins, turns, and growth, which could lead to Uniform ROA expansion and increased cash flows available for obligations. In addition, all management members are material owners of TEX equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company. Furthermore, most management members have low change-in-control compensation relative to their average annual compensation, indicating they may not be incentivized to pursue a takeover or accept a buyout of the company, decreasing event risk for creditors.
  • Earnings Call Forensics™ of the firm’s Q1 2024 (04/26/2024) earnings call highlights that management is confident their return on invested capital is up significantly by 370 basis points to 27.6%, and that they are increasing their EPS outlook from $6.85-$7.25 to $6.95-$7.35.

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