Subtle changes in the pricing of a firms credit instruments generally precede changes in the price of its common stock.
It is a polite way of saying "changes in credit - precede - changes in common".
Our Long / Short product encompasses everything we do and reflects our ability to discern subtle fundamental changes in a firms overall credit situation, credit pricing and possible catalysts, parts of which, many equity analysts tend to overlook. These recommendations are the product of our proven credit based fundamental analysis methodology and (this cannot be said firmly enough) we are not trying to hit the ball out of the park. Here's how it works:
Egan-Jones Ratings Company analyses and rates at least 450 companies per month. Of the 450 (or more) names a number stand out as being "of interest," in terms of very subtle, often unrecognized, good or not-so-good changes in a firms financial condition. We believe these names are worthy of considerable further analysis. Our Long / Short recommendations are the product of that further in-depth fundamental analysis.
Clients receive 8 to 10 (or more, but not less) fundamental long / short recommendations per year. Over the past year there have been more long recommendations than short, however, given that the credit cycle has turned, our % of short recommendations may be going up. We attempt to identify the catalysts and quantify possible returns for what we consider to be an overlooked "situation". You might receive 8 to 10 longs or vice versa. Rather than a balance of long and short, we give you what we believe has a high probability that it will work.
Our objective is consistent singles or an occasional double. Sometimes we do a whole lot better, sometimes it doesn't work at all. We are not swinging for the fences. These tend to be longer term holdings. They definitely are not short term trades.
Each fundamental Long / Short recommendation includes:
1. List of possible catalysts.
2. Full balance sheet analysis.
3. Helpful median share valuation estimates (which have proven to be quite accurate) using EBIT, EBITDA and Revenues with optimistic, base and pessimistic scenarios.
4. Feasibilty analysis for ease of private equity buy-out with estimated returns to the acquirer(s) and impact on credit ratings.
5. A one page summary of the EJR Rating Analysis Report in tear sheet form.
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