VALENS RESEARCH - CFA Society
62
FIDO VALENS RESEARCH Cross-Capital Investing Credit to Equity – Equity to Credit Joel Litman September 2019 Valens Research 110 Cambridge Street, Cambridge, Massachusetts 02141 [email protected] PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
Transcript of VALENS RESEARCH - CFA Society
PowerPoint PresentationJoel Litman
September 2019
Valens Research
[email protected]
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the
document nor any of the information contained herein may be reproduced or disclosed to any person under any
circumstances without express written permission.
2
wealth-creation process as an equity investor.”
Mitch Julis Canyon Capital
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
4
wealth-creation process as an equity investor.”
Mitch Julis Canyon Capital
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
6
"If the rating agencies will downgrade only when we can all see the losses, then why do we need the rating agencies?“ - Jim Chanos, the head of Kynikos Associates
“…the ratings that were developed by the credit rating agencies were a major factor in the cause of the problems…” - Federal Reserve Chairman Alan Greenspan re: the 2007-2009 crisis
"The ratings agencies, basically, without looking at the underlying bond, they just pretty much gave almost everything that came out AAA ratings,“ - Smith, West Virginia Labourers Trust Fund, $300 million pension fund
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
issuer defaults
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
? PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
CDS vs. Avg Credit Rating 1,216 Companies Worldwide with CDS and Credit Rating
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
Credit Rating from AAA+ to C-
C re
d it
D e
fa u
lt S
w a
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
11
AMD
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
12
Stock Price
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
13
Stock Price
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
14
ADVANCED MICRO DEVICES
-40%
-20%
0%
20%
40%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
ROI'
-6%
3%
0%
-20%
-10%
0%
10%
20%
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
15
ADVANCED MICRO DEVICES
-40%
-20%
0%
20%
40%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
ROI'
-6%
-20%
-10%
0%
10%
20%
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
16
AMD: If cash flow will really grow, why 600bps CDS?
ADVANCED MICRO DEVICES
-40%
-20%
0%
20%
40%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
ROI'
-6%
-20%
-10%
0%
10%
20%
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
17
AMD: Months later, CDS continued to climb to over 1000bps
Stock Price
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
18
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
what that means for the credit.”
Mitch Julis Canyon Capital
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
$2.50
operations was over
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
As-reported CFFO is terribly
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Referring to The Statement of Cash Flows
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
in the Cash Flow Statement?
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
in the Cash Flow Statement?
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
in the Cash Flow Statement?
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Acquisitions in the Cash Flow Statement?
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Warren Buffett PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
“It is not clear why investors suddenly came to accept EBITDA as a measure of corporate cash
flow.
EBIT did not accurately measure the cash flow from a company‘s
ongoing income stream.
Adding back 100% of depreciation and amortization to arrive at EBITDA rendered it even
less meaningful.” Seth Klarman
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
DAL
• Pens Exp 885mm vs. 603mm vs. ZERO
• ROA of 6% versus Adjusted ROA’ of 14%
• P/E of 9 versus Adjusted P/E of 20.5
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Source: Valens Credit Analysis
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Source: Valens Credit Analysis
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Source: Valens Credit Analysis
“It's in the interest of Wall Street, enormously, to focus on something called EBITDA because it results in higher borrowing power, higher
valuations, and all of those sort of things.”
Warren Buffet Chairman and CEO, Berkshire Hathaway
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
STX
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Actual
Intrinsic
Price
0
5
10
15
20
25
30
35
40
Price
0
200
400
600
800
1000
1200
Actual
Intrinsic
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PALM
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
CDS vs. Avg Credit Rating 1,216 Companies Worldwide with CDS and Credit Rating
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
Credit Rating from AAA+ to C-
C re
d it
D e
fa u
lt S
w a
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
U.S. Corporate Return on Assets (ROA’) U.S. Corporate Value/Earnings Ratio (V/E’)
7% 8% 7% 6% 8% 8% 9% 10% 10% 9%
8% 10% 11% 11%
11%
0%
5%
10%
15%
20%
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019E Mkt Imp
ROA'
Source: Capital IQ, Valens Research Analysis (2,767 US Corporation Aggregate) Data Date: 3-May-2019
27.7 31.5 30.8
20.5 18.5
22.7 22.5 21.9 21.9 21.5 21.4
0
10
20
30
40
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019E
Fwd V/E'
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
U.S.Corporate Return on Assets (ROA’) U.S. Corporate Value/Earnings Ratio (V/E’)
2,771 U.S. companies (non-financial)
7% 8% 7% 6% 8% 8% 9% 10% 10% 9%
8% 10% 11% 11%
11%
0%
5%
10%
15%
20%
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019E Mkt Imp
ROA'
Source: Capital IQ, Valens Research Analysis (2,767 US Corporation Aggregate) Data Date: 3-May-2019
27.7 31.5 30.8
20.5 18.5
22.7 22.5 21.9 21.9 21.5 21.4
0
10
20
30
40
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019E
Fwd V/E'
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Joel Litman
September 2019
Valens Research
[email protected]
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the
document nor any of the information contained herein may be reproduced or disclosed to any person under any
circumstances without express written permission.
Disclosures
Disclosures
© 2014 Valens Securities and/or its licensors and affiliates (collectively, “Valens”).
All rights reserved. CREDIT ANALYSES ISSUED BY VALENS CREDIT AND ITS AFFILIATES ARE VALENS’ CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF
ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT ANALYSES AND RESEARCH PUBLICATIONS PUBLISHED BY VALENS (“VALENS
PUBLICATIONS”) MAY INCLUDE VALENS’ CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE
SECURITIES. VALENS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE, AND
ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. VALENS’ CREDIT ANALYSES DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO:
LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. VALENS’ CREDIT ANALYSES AND OPINIONS INCLUDED IN VALENS PUBLICATIONS ARE NOT
STATEMENTS OF CURRENT OR HISTORICAL FACT. VALENS’ CREDIT ANALYSES AND VALENS PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR
FINANCIAL ADVICE. VALENS’ CREDIT ANALYSES AND VALENS PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD
PARTICULAR SECURITIES. NEITHER VALENS’ CREDIT ANALYSES NOR VALENS PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY
PARTICULAR INVESTOR. VALENS ISSUES ITS CREDIT ANALYSES AND PUBLISHES VALENS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT
EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. ALL
INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED
OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR
SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT
VALENS’ PRIOR WRITTEN CONSENT.
All information contained herein is obtained by VALENS from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as
other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. VALENS adopts all necessary measures so that the information it uses in
assigning a credit rating is of sufficient quality and from sources VALENS considers to be reliable including, when appropriate, independent third-party sources. However, VALENS is
not an auditor and cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall VALENS have any liability to any
person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or
outside the control of VALENS or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation,
communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without
limitation, lost profits), even if VALENS is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ANALYSIS,
financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of
opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation
of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY VALENS IN
ANY FORM OR MANNER WHATSOEVER.
VALENS’ credit analyses are opinions as to the creditworthiness of a debt obligation of the issuer, not on the equity securit ies of the issuer or any form of security that is available to
retail clients. It would be dangerous for retail clients to make any investment decision based solely on VALENS’ credit ratings. If in doubt, you should contact your financial or other
professional adviser.
September 2019
Valens Research
[email protected]
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the
document nor any of the information contained herein may be reproduced or disclosed to any person under any
circumstances without express written permission.
2
wealth-creation process as an equity investor.”
Mitch Julis Canyon Capital
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
4
wealth-creation process as an equity investor.”
Mitch Julis Canyon Capital
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
6
"If the rating agencies will downgrade only when we can all see the losses, then why do we need the rating agencies?“ - Jim Chanos, the head of Kynikos Associates
“…the ratings that were developed by the credit rating agencies were a major factor in the cause of the problems…” - Federal Reserve Chairman Alan Greenspan re: the 2007-2009 crisis
"The ratings agencies, basically, without looking at the underlying bond, they just pretty much gave almost everything that came out AAA ratings,“ - Smith, West Virginia Labourers Trust Fund, $300 million pension fund
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
issuer defaults
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
? PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
CDS vs. Avg Credit Rating 1,216 Companies Worldwide with CDS and Credit Rating
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
Credit Rating from AAA+ to C-
C re
d it
D e
fa u
lt S
w a
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
11
AMD
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
12
Stock Price
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
13
Stock Price
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
14
ADVANCED MICRO DEVICES
-40%
-20%
0%
20%
40%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
ROI'
-6%
3%
0%
-20%
-10%
0%
10%
20%
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
15
ADVANCED MICRO DEVICES
-40%
-20%
0%
20%
40%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
ROI'
-6%
-20%
-10%
0%
10%
20%
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
16
AMD: If cash flow will really grow, why 600bps CDS?
ADVANCED MICRO DEVICES
-40%
-20%
0%
20%
40%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
ROI'
-6%
-20%
-10%
0%
10%
20%
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 LFY+1 LFY+2 LFY+3 LFY+4 LFY+5
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
17
AMD: Months later, CDS continued to climb to over 1000bps
Stock Price
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
18
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
what that means for the credit.”
Mitch Julis Canyon Capital
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
$2.50
operations was over
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
As-reported CFFO is terribly
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Referring to The Statement of Cash Flows
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
in the Cash Flow Statement?
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
in the Cash Flow Statement?
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
in the Cash Flow Statement?
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Acquisitions in the Cash Flow Statement?
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Warren Buffett PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
“It is not clear why investors suddenly came to accept EBITDA as a measure of corporate cash
flow.
EBIT did not accurately measure the cash flow from a company‘s
ongoing income stream.
Adding back 100% of depreciation and amortization to arrive at EBITDA rendered it even
less meaningful.” Seth Klarman
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
DAL
• Pens Exp 885mm vs. 603mm vs. ZERO
• ROA of 6% versus Adjusted ROA’ of 14%
• P/E of 9 versus Adjusted P/E of 20.5
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Source: Valens Credit Analysis
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Source: Valens Credit Analysis
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Source: Valens Credit Analysis
“It's in the interest of Wall Street, enormously, to focus on something called EBITDA because it results in higher borrowing power, higher
valuations, and all of those sort of things.”
Warren Buffet Chairman and CEO, Berkshire Hathaway
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
STX
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Actual
Intrinsic
Price
0
5
10
15
20
25
30
35
40
Price
0
200
400
600
800
1000
1200
Actual
Intrinsic
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PALM
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
CDS vs. Avg Credit Rating 1,216 Companies Worldwide with CDS and Credit Rating
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
Credit Rating from AAA+ to C-
C re
d it
D e
fa u
lt S
w a
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
U.S. Corporate Return on Assets (ROA’) U.S. Corporate Value/Earnings Ratio (V/E’)
7% 8% 7% 6% 8% 8% 9% 10% 10% 9%
8% 10% 11% 11%
11%
0%
5%
10%
15%
20%
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019E Mkt Imp
ROA'
Source: Capital IQ, Valens Research Analysis (2,767 US Corporation Aggregate) Data Date: 3-May-2019
27.7 31.5 30.8
20.5 18.5
22.7 22.5 21.9 21.9 21.5 21.4
0
10
20
30
40
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019E
Fwd V/E'
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
U.S.Corporate Return on Assets (ROA’) U.S. Corporate Value/Earnings Ratio (V/E’)
2,771 U.S. companies (non-financial)
7% 8% 7% 6% 8% 8% 9% 10% 10% 9%
8% 10% 11% 11%
11%
0%
5%
10%
15%
20%
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019E Mkt Imp
ROA'
Source: Capital IQ, Valens Research Analysis (2,767 US Corporation Aggregate) Data Date: 3-May-2019
27.7 31.5 30.8
20.5 18.5
22.7 22.5 21.9 21.9 21.5 21.4
0
10
20
30
40
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019E
Fwd V/E'
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of
the information contained herein may be reproduced or disclosed to any person under any circumstances without express written
permission.
Joel Litman
September 2019
Valens Research
[email protected]
PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the
document nor any of the information contained herein may be reproduced or disclosed to any person under any
circumstances without express written permission.
Disclosures
Disclosures
© 2014 Valens Securities and/or its licensors and affiliates (collectively, “Valens”).
All rights reserved. CREDIT ANALYSES ISSUED BY VALENS CREDIT AND ITS AFFILIATES ARE VALENS’ CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF
ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT ANALYSES AND RESEARCH PUBLICATIONS PUBLISHED BY VALENS (“VALENS
PUBLICATIONS”) MAY INCLUDE VALENS’ CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE
SECURITIES. VALENS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE, AND
ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. VALENS’ CREDIT ANALYSES DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO:
LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. VALENS’ CREDIT ANALYSES AND OPINIONS INCLUDED IN VALENS PUBLICATIONS ARE NOT
STATEMENTS OF CURRENT OR HISTORICAL FACT. VALENS’ CREDIT ANALYSES AND VALENS PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR
FINANCIAL ADVICE. VALENS’ CREDIT ANALYSES AND VALENS PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD
PARTICULAR SECURITIES. NEITHER VALENS’ CREDIT ANALYSES NOR VALENS PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY
PARTICULAR INVESTOR. VALENS ISSUES ITS CREDIT ANALYSES AND PUBLISHES VALENS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT
EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. ALL
INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED
OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR
SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT
VALENS’ PRIOR WRITTEN CONSENT.
All information contained herein is obtained by VALENS from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as
other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. VALENS adopts all necessary measures so that the information it uses in
assigning a credit rating is of sufficient quality and from sources VALENS considers to be reliable including, when appropriate, independent third-party sources. However, VALENS is
not an auditor and cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall VALENS have any liability to any
person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or
outside the control of VALENS or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation,
communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without
limitation, lost profits), even if VALENS is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ANALYSIS,
financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of
opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation
of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY VALENS IN
ANY FORM OR MANNER WHATSOEVER.
VALENS’ credit analyses are opinions as to the creditworthiness of a debt obligation of the issuer, not on the equity securit ies of the issuer or any form of security that is available to
retail clients. It would be dangerous for retail clients to make any investment decision based solely on VALENS’ credit ratings. If in doubt, you should contact your financial or other
professional adviser.
![Overview of Financial Valuation Models - CFA Society Chicago · Prepared for the CFA Society Chicago CFA Research ... / Tota l Assets. t] / [(Current Liabilities. t-1 ... (1) Common](https://static.fdocuments.in/doc/165x107/5ecbd6e2b4b56f2b4666cf64/overview-of-financial-valuation-models-cfa-society-chicago-prepared-for-the-cfa.jpg)
