Room to raise the ceiling: management says its own prices, rates, or terms sit below what the market would currently bea
The model's full reasoning — Q3 2021 call → NOWe need to determine if management conveys that the company is currently charging less than the market would bear, and that it is actively closing that gap while customers stay. Looking at the transcript, there are several mentions of pricing, loan yields, deposit costs, etc. But the key is whether management claims that its own prices (interest rates on loans, fees, etc.) are below what the market would support, and that they are now raising them or tightening terms. In the Q&A, David DePillo discusses loan pricing: "What's kind of interesting as we've discussed in previous calls, there's a little bit of lag effect to the market. So it takes a while for the competition to adjust. So we kind of feel that we're in on a little bit of a range-bound level, especially pricing around the 5- and 7-year. Our expectations is we'll continue to see pricing at or above the current level. But as we see from time to time, competition can drive that slightly lower. But our expectations are we'll continue to see improving yields. As we mix our percentage of C&I to real estate lending, we are starting to see those levels modestly improve." This suggests that they are seeing improving yields, but it's not clear that they claim they were undercharging relative to value. They mention that competition can drive pricing lower, but they expect to see improving yields. However, they don't explicitly say that they are leaving money on the table and now closing the gap. Later, Scott Kavanaugh says: "I think that's an important comment that Dave just touched on. Only a couple of years ago, we were pretty liability sensitive. Today based on some of the research that we've done, we feel like that from an asset liability perspective, we're almost completely neutral. And with the combination of TGRF or First Florida Integrity, that should put us in a position where we believe we'll be asset sensitive. So that's a huge transformation from just 2 years ago with the way the balance sheet looked." That's about asset sensitivity, not pricing. There is also discussion about deposit costs being low, but that's about cost of funds, not pricing. The question is about charging less for what they sell. They sell loans (interest income) and other services. The transcript mentions that loan yields are improving, but it's not clear that they are below market.
| Ticker | Company | Call | Date | Call grade |
|---|---|---|---|---|
| MEC | Mayville Engineering Company, Inc. | Q3 2022 | 2022-11-05 | B+ |
| CAG | Conagra Brands, Inc. | Q2 2017 | 2016-12-22 | C+ |
| SOHO | Sotherly Hotels Inc. | Q3 2016 | 2016-11-08 | D |
| RCL | Royal Caribbean Cruises Ltd. | Q1 2016 | 2016-04-29 | C+ |
| HPP | Hudson Pacific Properties, Inc. | Q4 2015 | 2016-02-25 | C |
HPP · Q4 2015 → YESThe question is: Does management convey that the company is currently charging LESS for what it sells than the market would presently bear — that its own prices, rates, fees, or terms sit meaningfully...YES The transcript shows management explicitly describing a gap between its current charges and what the market now supports, then confirming that the company is already closing it through mark-to-market resets and higher new/renewal rents. Victor Coleman states that the company has “rolled out 80% plus mark to market” on recent leases 2.5 years old, and that cash rent spreads on 1.6 million square feet executed since the acquisition were “north of 30%” with “20%, 25% mark-to-market for 2016 and 2017.
MEC · Q3 2022 → YESThe question is: Does management convey that the company is currently charging LESS for what it sells than the market would presently bear — that its own prices sit meaningfully below the value custom...YES Management explicitly states that they have taken pricing actions in 2022 and have "more room for margin expansion through continued value pricing even beyond the pricing actions taken during 2022." This conveys that their current prices sit below what the market would support, and they are actively beginning to close that gap with further value pricing.
SOHO · Q3 2016 → YESThe question is: Does management convey that the company is currently charging LESS for what it sells than the market would presently bear — that its own prices, rates, fees, or terms sit meaningfully...YES The transcript shows management explicitly identifying a rate gap at the Laurel hotel (and similar situations at other properties) where current charges sit below the competitive set/market, while describing active steps already underway to close that gap through continued ramp-up and occupancy/rate improvements.