Our quarterly earnings quality (EQ) score is an objective way to identify potential accounting related short ideas and as a risk tool to avoid potential blow-ups in the portfolio. Our EQ Score uses seven financial ratios along with sentiment and valuation metrics to find potential underperforming stocks. The EQ Score ranges from a minimum of 0 (lowest quality) to a maximum of 100, and we rank companies within each sector on a relative basis, using ‘3Q 2019 reported financial information. This analysis covers ~2,000 companies, representing Russell 3000 companies with market cap’s over $250 million, excluding the FIN sector. See inside for details.
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Danaher (DHR) [Market cap ~$97.8bn] announced that it will commence an exchange offer related to the split-off of its remaining interest (80.6%) in Envista Holdings Corporation (NVST). The exchange offer will expire at midnight at the end of the day on December 13, 2019. Envista generates annual revenues of approximately $2.8 bn and provides a comprehensive portfolio of dental consumables, equipment and services to dental professionals.
Reverse factoring (a.k.a., supply chain financing or structured trade payables) has come under increased scrutiny after contributing to several liquidity crunches and stock blow ups at international companies (Carillion and Grupo ACS). Disclosure in financial statements is mostly non-existent and the accounting is suboptimal as these transactions often result in understated debt balances and overstated operating cash flow.
According to Bloomberg, DuPont de Nemours (DD) is considering divesting its transportation and industrial business, its third largest division. Celanese Corp (CE) has been rumored to be a possible buyer of the business.
Increasingly, over the past year, we’ve been focused on identifying potential short stock ideas/avoiding stock blow-ups. Our short screens comprise the 13 most potent valuation, earnings quality, capital creation, capital allocation, and sentiment metrics we’ve found to be most useful in searching for ideas on which to complete additional fundamental analysis. These short screens represent the backbone of the process we use into which to dig deeper and identify the most compelling short ideas.
Each month, we publish our favorite long idea stock screens. They encompass many investment styles and themes including value, growth, capital creation, cash usage, corporate actions, dividends, and financial institutions.
Each month, we publish Senyek’s Long Stock Screens and Senyek’s Short Stock Screens, featuring our favorite long and short ideas across many investment styles. In this report, we track the share price performance of the ~50 thematic stock baskets on an absolute and relative basis. In the pages that follow, we provide details of these thematic baskets’ performance for 2019 year-to-date. In addition, we include market, sector, and industry long-term relative valuations.
Marathon Petroleum (MPC) announced that it intends to spin off Speedway. Speedway will contain MPC’s company-owned retail store operations with an expected 2019 EBITDA of approximately $1.5b, according to company guidance. Additionally, MPC announced that it intends to form a special committee to enhance the evaluation of potential value-creating options for the Midstream business.
M&G Plc (MNG LN) completed its demerger from Prudential PLC (PRU LN) on October 21st. Prudential is now an Asia-led portfolio of businesses focused on structural growth markets.
BellRing Brands (BRBR) had its IPO yesterday. After completing the offering, Post (POST) now owns approximately 74% of BellRing. BellRing manufactures and sells nutrition products in the U.S. and internationally.
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