Valens Equities Weekly Insights and Inflections for July 27, 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 PXD to see ROA’ expand past historical highs is unwarranted, as management is not incentivized to focus on ROA’ expansion, and has concerns about their ability to effectively manage costs
PXD is trading at a 1.9x V/A’, near historically average valuations. At these levels, the market is pricing in expectations for ROA’ to improve from 2.3% in 2015 to 18.7% in 2020, accompanied by consistent Asset’ shrinkage of 2.6%. Analysts have more bearish expectations than the market, expecting ROA’ to continue declining, with slight Asset’ growth going forward. Moreover, Valens’ qualitative analysis highlights that management is growing concerned about their ability to further improve operations as well as their ability to meet cash flow expectations. Additionally, management’s compensation is not designed to incentivize them to improve profitability, limiting potential ROA’ upside going forward. Aggressive market expectations appear unwarranted in the face of poor management compensation structure as well as management concerns about cash flows and operations, and equity downside may be justified.
Market Insights
Most Compelling Long Ideas
FB, ZG, DLTR, DHI, GOOGL
Most Compelling ECF™ Inflections
ABC, AYI, WCN, SCI, AMZN
Company Specific Highlights & Insights:
ECL, EQM, HD, HEP, HRS, INTU, KFY, LKQ, NSC, OKE, PANW, PCG, PCLN, PRGO, SCTY, SWKS, TK, VRSK, WMB
If you are interested in seeing any of the highlighted analyses, please contact the Valens team at valens@valens-securities.com