Notes from explainvalue
Investment theses with every assumption shown. Written as we work through the companies we follow.
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HBAN HBAN USB residual-income Financials portfolio-update
Correcting our bank cost of equity — exiting HBAN and USB
We found that our cost-of-equity input for banks was too low: a 0.76 beta where the realized figure is about 1.1, which lifts Ke from about 7.7% to 9.1%. At the corrected rate HBAN trades above its fair value and USB's discount is gone, so we are exiting both positions.
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methodology dcf-multistage valuation-framework
When the History Doesn't Project: Structural FCF Breaks
Our default DCF method extrapolates one of four FCF archetypes — cyclical, mature, secular, declining — calibrated against a ten-year history. When a company crosses a structural break (policy, technology, business model), every archetype is wrong, and the headline fair value will be plausibly precise and structurally meaningless. We explain how we identify the break, why we switch to dcf-multistage with an explicit phase schedule, and why the rule generalizes beyond First Solar.
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FSLR FSLR dcf-multistage Information Technology
FSLR: The Policy Trade Inside a Manufacturer
Our dcf-multistage fair value of $221 sits at the low end of the 9 analysts currently covering the stock. Section 45X tax credits drive a binary-like outcome with risk of a large decline, and we have no informational edge in this area. Not enough margin of safety in our valuation to initiate a position.
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HBAN HBAN residual-income Financials
HBAN at $15.51: Buying a Super-Regional Bank at Book
Huntington Bancshares trades at $15.51 against $16.05 book value. Three valuation methods converge near $20. The trade is six quarters of disciplined operating delivery against a raised 18-19% ROTCE guide, with rate sensitivity and CRE exposure that disclosure tells us are not load-bearing.
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methodology Financials regulation
Bigger banks earn less: the regulatory capital ladder
The Fed's tailoring rule sorts US banks into four categories. As a bank grows across category boundaries, the minimum capital it must hold goes up — same earnings divided by a bigger denominator means a lower return on equity. This is the structural reason a $700B bank cannot earn what a $200B bank earns, even on identical underlying franchises. We explain the four tiers, what changes at each boundary, and why USB sitting near the Cat III/II boundary is a load-bearing input to our valuation.
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USB USB residual-income Financials
USB at $53.42: A 17% ROTCE Franchise at 1.27× Book
U.S. Bancorp earns a top-quartile 16.94% through-cycle ROTCE at 94% of management's target, hedged to rate-neutrality on small parallel moves, and trades at $53.42 against our residual-income fair value of $75. The discount is real and traceable to two specific overhangs — the Category II framework transition and a self-flagged office CRE credit concern — both of which we believe clear over the next 4-6 quarters. We are above sell-side consensus on this name and we explain why.
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BMY BMY pharma-SOTP Healthcare
BMY at $58.26: A Sum-of-Parts in Three Layers
We value Bristol-Myers Squibb the same way the company actually generates value: as a portfolio of approved drugs, plus a pipeline in development, plus the R&D engine that produces the next round. The three layers stack to $83/share against a $58.26 market — and the margin of safety is in how few of them you need to believe.
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methodology pharma-SOTP R&D
Why Our Pharma Platform Multiple Is the Sector Average
We wanted to value each pharma's R&D engine separately — give the good ones a bigger platform multiple, the bad ones a smaller one. We tried. The 2018→2025 backtest came back with zero forward predictability. So we use the sector mean of 1.5x for everyone, including BMY.
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UNH UNH SOTP Healthcare
UNH at $325: You're Paying Fair Value for UnitedHealthcare and Getting Optum at 4x
Our sum-of-parts puts UnitedHealth at $494/share. The argument isn't about the segments — it's about the holding-company discount, the DOJ tail, and what you're implicitly paying for Optum. At $325 we get a 2:1 payoff.