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Pyxus International Inc. (PYX)
NYSE - Consumer Non-cyclicals
Investment Recommendation
• We recommend investors sell PYX.
• PYX earns our Unattractive rating. See Investment Rating Details below.
• An Unattractive rating means this stock has more downside risk than upside potential.
• PYX ranks in the 28th percentile of the 2750+ stocks we cover.
• Ranks 107th out of 133 Consumer Non-cyclicals Sector stocks.
Price 01/31/2019:
Economic Book Value per share 52-Week Range
Closing Price as of 01/31/2019: $16.23 Dividend Yield: - Period End Date: 09/30/2018
4 - Unattractive
$16.23 ($75.82) $11.30 - $52.43
Investment Rating Details
Risk/Reward Rating
5 - Very Unattractive 4 - Unattractive
3 - Neutral
2 - Attractive
1 - Very Attractive
Quality of Earnings
Valuation Price-to-EBV Ratio
> 3.5 or -1 < 0 2.4 < 3.5 or < -1 1.6 < 2.4 1.1 < 1.6
0 < 1.1
Accounting vs Economic Earnings
Accounting Adjustments Summary
Stock Price Performance
Last 30 Days Last 60 Days Last 90 Days Last Year
Formulas for Key Metrics
36.8%
13.6% (29.4%) 23.4%
Key Market Statistics
Enterprise Value (MM) EV/EBITDA
P/E (TTM)
$1,756 13.33 5.14
Economic vs Reported EPS
Misleading Trend False Positive Neutral EE Positive EE Rising EE
Return on Invested Capital (ROIC)
Bottom Quintile 4th Quintile 3rd Quintile 2nd Quintile Top Quintile
FCF Yield
<-5% -5%<-1% -1%<3% 3%<10% >10%
Growth Appreciation Period (yrs)
> 50 20 < 50 10 < 20 3 < 10 0 < 3
• Economic Earnings = (ROIC - WACC) * Average Invested Capital • ROIC = NOPAT / Average Invested Capital
• Free Cash Flow = NOPAT - change in Invested Capital
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Pyxus International Inc. (PYX)
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•
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PYX's accounting earnings overstate its economic earnings, which equal (ROIC - WACC) * Average Invested Capital.
For PYX, we made a total of $1,563 million in income statement and balance sheet adjustments to convert accounting earnings to economic earnings in FY18.
We made $1,630 million in adjustments in our DCF valuation of the stock.
Wemake,ingeneral,10typesofincomestatementadjustments to derive NOPAT, 12 types of balance sheet adjustments to derive Average Invested Capital, & 10 types of valuation adjustments in our reverse DCF valuation models.
About New Constructs
• Ourresearchaimstoempowermoreinformed investment decision by providing the most comprehensive and accurate analysis of firms' true profitability and valuation.
• This Ernst & Young white paper demonstrates the superiority of our data and models. The Appendix details exactly how we stack up against traditional firms.
• HarvardBusinessSchool'scasestudy"NewConstructs: Disrupting Fundamental Analysis with Robo-Analysts" features our unique research automation technology.
ROBO-ANALYST RESEARCH
ROBO-ANALYST RESEARCH
02/01/2019
Economic Earnings are 4 - Unattractive
Economic Earnings are almost always meaningfully different than reported earnings. We believe Economic Earnings provide a truer measure of profitability and shareholder value creation than reported earnings because they have been adjusted to remove over twenty accounting distortions.[color=red][/color]
The majority of data required to reverse accounting distortions is available only in the Footnotes and MD&A, which we analyze rigorously. Our core competency is gathering and analyzing all relevant financial data from filings so that we can deliver earnings analysis that best represents the true profitability of businesses.
Economic Earnings per share (EEPS) for PYX for the trailing twelve months earn our Unattractive rating.
Appendix 1 in the report available to members of our website provides a detailed reconciliation between economic and accounting earnings.
Return on Invested Capital (ROIC)
ROIC is 5 - Very Unattractive
ROIC measures a company's return on all cash invested in the business. It is the truest measure of profitability. Stock valuations are more highly correlated to ROIC than any other metric. ROIC is calculated as NOPAT divided by Average Invested Capital.
Weighted-Average Cost of Capital (WACC) is the average of debt and equity capital costs that all publicly traded companies with debt and equity stakeholders incur as a cost of operating.
Companies must earn an ROIC greater than WACC to generate positive economic earnings and create value for shareholders.
PYX's ROIC for the trailing twelve months earns our Very Unattractive rating.
Appendix 1 in the report available to members of our website provides details on all the accounting adjustments we make to provide the best ROIC in the business as demonstrated by Ernst & Young.
Free Cash Flow Yield (FCF Yield)
Free Cash Flow Yield is 4 - Unattractive
Free Cash Flow reflects the amount of cash free for distribution to all stakeholders (including debt & equity). FCF Yield divides free cash flow by enterprise value.
Using Free Cash Flow Yield to pick stocks is not a new strategy. However, our strategy yields superior results because we use a better measure of Free Cash Flow. In the same way our Economic EPS are better measures of profitability than reported EPS, our measure of Free Cash Flow is better than traditional accounting-based Free Cash Flow.
PYX's FCF Yield for the trailing twelve months earns our Unattractive rating.
Appendix 1 in the reports available members of our website provides the income statement and balance sheet adjustments required for an accurate measure of FCF.
Economic vs Reported Earnings
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ROBO-ANALYST RESEARCH
02/01/2019
Price-to-EBV Ratio is 5 - Very Unattractive
Price-to-Economic Book Value (EBV) measures the difference between the market's expectations for future profits and the no-growth value of the stock.
EBV measures the no-growth value of the company based on the company's current Net Operating Profit After Tax (NOPAT).
When prices are higher than EBV, the market predicts the NOPAT of the company will increase and expectations for profit growth are reflected in the stock. If the stock price equals EBV, the market predicts NOPAT will remain the same and there are no expectations for profit growth reflected in the stock. When
stock prices are lower than EBV, the market predicts NOPAT will decrease and expectations for permanent profit decline are reflected in the stock.
In general, we like to buy stocks with low expectations for profit growth and sell/short stocks with high expectations for profit growth.
PYX's current Price-to-EBV per share earns our Very Unattractive rating.
Appendix 2 in the reports available to member of our website details all the valuation adjustments required for an accurate measure of economiv book value.
Growth Appreciation Period
The Growth Appreciation Period is 2 - Attractive
The market-implied duration of profit growth or GAP measures the number of years the company must maintain an edge over its competitors by earning ROIC greater than the weighted-average cost of capital on new investments.
We believe PYX embeds an Attractive level of market expectations because there is a fairly conservative level of expected financial performance implied by its market price compared to the company's historical performance.
At PYX's current stock price of $16.23, the market is expecting revenue to grow at 5.3% for the next 9 years. Over this period, PYX is also expected to generate an average Economic Earnings Margin of (1.4%).
These results are derived using our dynamic discounted cash flow model.
Learn More
Members of our website get exclusive access to more data and detailed analytics on the 10,000 securities we cover. Stock reports from our website include detailed information on the number and dollar value of every income statement, balance sheet and DCF valuation adjustments we make.
Members also get exclusive access to multiple model portfolios, weekly Long Ideas, and Danger Zone calls, IPO Research, Market Outlooks, Webinars and thought leadership on Machine Learning & AI for Investing and Fiduciary Rule fulfillment.
Members get advanced screening capabilities on our best-in-class metrics like ROIC and Free Cash Flow Yield and alerts whenever there are changes to any of the securities in your custom portfolio.
Performance Hurdles
5 Yr
Historical Performance
3Yr
Last FY
Market Expectations
Default
based on current price
Stock Price
$29.20
$17.56
$26.05
$16.23
Revenue CAGR
(5.9%)
(1.6%)
1.1%
5.3%
ROIC - WACC
(3.7%)
(3.7%)
(4.0%)
(1.4%)
Growth Appreciation Period
-
-
-
9 years
Take a free tour and get a risk-free trial today!
Price-to-EBV Ratio
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ROBO-ANALYST RESEARCH
02/01/2019
Appendix: Explanation of New Constructs' Stock Ratings
Ratings
In-depth risk/reward analysis underpins our stock rating. Our stock rating methodology grades every stock according to what we believe are the 5 most important criteria for assessing the quality of a stock. Each grade reflects the balance of potential risk and reward of buying that stock. Our analysis results in the 5 ratings described below. Very Attractive and Attractive correspond to a "Buy" rating, Very Unattractive and Unattractive correspond to a "Sell" rating, while Neutral corresponds to a "Hold" rating.
Risk/Reward Rating
Economic vs Reported EPS
Quality of Earnings
Return on Invested Capital (ROIC)
5 -Very Unattractive
Misleading Trend
Bottom Quintile
False Positive
4th Quintile
3% < 10% > 10%
Ratings
Economic earnings and return on capital metrics are significantly more accurate when as-reported financial statements have been adjusted to reverse accounting distortions and Red Flags. The majority of the data required to reverse accounting distortions is available only in the Notes to the Financial Statements, which we analyze rigorously. Our core competency is gathering and analyzing all relevant financial data (from the Financial Statements and Notes) so that we can deliver earnings analysis that best represents the true profitability of businesses. See the figure below for a list of the Red Flag adjustments we make to a company's reported GAAP profits in order to reverse accounting distortions and arrive at a better measure of a firm's profits.
< -5%
-5% < -1%
Valuation
FCF Yield
Price-to-EBV Ratio
> 3.5 or -1 < 0
Growth Appreciation Period
> 50
4 - Unattractive
2.4 < 3.5 or < -1
20 < 50
3 - Neutral
Neutral EE
3rd Quintile
-1% < 3%
1.6 < 2.4
10 < 20
2 - Attractive
Positive EE
2nd Quintile
1.1 < 1.6
3 < 10
1 - Very Attractive
Rising EE
Top Quintile
0 < 1.1
0<3
Accounting Issues and Red Flags that Distort GAAP
• [color=red]Employee Stock Options
• Pension Over/Under Funding • Excess Cash
• Restructuring Charges
• Pooling Goodwill
• Minority Interests
• Discontinued Operations
• Preferred Stock
• Mid-Year Acquisitions
• Off-Balance-Sheet Financing • LIFO Reserve
• Unrealized Gains/Losses
• Goodwill Amortization
• Unconsolidated Subsidiaries
• Capitalized Expenses
• Deferred Compensation
• Net Deferred tax Assets and Liabilities[color=red][/color][/color]
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ROBO-ANALYST RESEARCH
02/01/2019
New Constructs® - Research to Fulfill the Fiduciary Duty of Care
Ratings & screeners on 3000 stocks, 650 ETFs and 7000 mutual funds help you make prudent investment decisions.
New Constructs leverages the latest in machine learning to analyze structured and unstructured financial data with unrivaled speed and accuracy. The firm's forensic accounting experts work alongside engineers to develop proprietary NLP libraries and financial models. Our investment ratings are based on the best fundamental data in the business for stocks, ETFs and mutual funds. Clients include many of the top hedge funds, mutual funds and wealth management firms. David Trainer, the firm's CEO, is regularly featured in the media as a thought leader on the fiduciary duty of care, earnings quality, valuation and investment strategy.
To fulfill the Duty of Care, research should be:
1. Comprehensive - All relevant publicly-available (e.g. 10-Ks and 10-Qs) information has been diligently reviewed, including footnotes and the management discussion & analysis (MD&A).
2. Un-conflicted - Clients deserve unbiased research.
3. Transparent - Advisors should be able to show how the analysis was performed and the data behind it.
4. Relevant - Empirical evidence must provide tangible, quantifiable correlation to stock, ETF or mutual fund performance.
Value Investing 2.0: Diligence Matters: Technology is Key to Value Investing with Scale
Accounting data is only the beginning of fundamental research. It must be translated into economic earnings to truly understand profitability and valuation. This translation requires deep analysis of footnotes and the MD&A, a process that our robo-analyst technology empowers us to perform for thousands of stocks, ETFs and mutual funds.
DISCLOSURES
New Constructs®, LLC (together with any subsidiaries and/or affiliates, 'New Constructs') is an independent organization with no management ties to the companies it covers. None of the members of New Constructs' management team or the management team of any New Constructs' affiliate holds a seat on the Board of Directors of any of the companies New Constructs covers. New Constructs does not perform any investment or merchant banking functions and does not operate a trading desk.
New Constructs' Stock Ownership Policy prevents any of its employees or managers from engaging in Insider Trading and restricts any trading whereby an employee may exploit inside information regarding our stock research. In addition, employees and managers of the company are bound by a code of ethics that restricts them from purchasing or selling a security that they know or should have known was under consideration for inclusion in a New Constructs report nor may they purchase or sell a security for the first 15 days after New Constructs issues a report on that security.
DISCLAIMERS
The information and opinions presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or solicitation of an offer to buy or sell securities or other financial instruments. New Constructs has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor and nothing in this report constitutes investment, legal, accounting or tax advice. This report includes general information that does not take into account your individual circumstance, financial situation or needs, nor does it represent a personal recommendation to you. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about any such investments or investment services.
Information and opinions presented in this report have been obtained or derived from sources believed by New Constructs to be reliable, but New Constructs makes no representation as to their accuracy, authority, usefulness, reliability, timeliness or completeness. New Constructs accepts no liability for loss arising from the use of the information presented in this report, and New Constructs makes no warranty as to results that may be obtained from the information presented in this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information and opinions contained in this report reflect a judgment at its original date of publication by New Constructs and are subject to change without notice. New Constructs may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and New Constructs is under no obligation to insure that such other reports are brought to the attention of any recipient of this report.
New Constructs' reports are intended for distribution to its professional and institutional investor customers. Recipients who are not professionals or institutional investor customers of New Constructs should seek the advice of their independent financial advisor prior to making any investment decision or for any necessary explanation of its contents.
This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would be subject New Constructs to any registration or licensing requirement within such jurisdiction.
This report may provide the addresses of websites. Except to the extent to which the report refers to New Constructs own website material, New Constructs has not reviewed the linked site and takes no responsibility for the content therein. Such address or hyperlink (including addresses or hyperlinks to New Constructs own website material) is provided solely for your convenience and the information and content of the linked site do not in any way form part of this report. Accessing such websites or following such hyperlink through this report shall be at your own risk.
All material in this report is the property of, and under copyright, of New Constructs. None of the contents, nor any copy of it, may be altered in any way, copied, or distributed or transmitted to any other party without the prior express written consent of New Constructs. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of New Constructs.
Copyright New Constructs, LLC 2003 through the present date. All rights reserved.
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