Monday, August 3, 2015

Third Point's Q2 Letter: Allergan, Suzuki Motor, Constellation Brands, Mohawk, Roper

Dan Loeb's hedge fund firm Third Point is out with its second quarter letter.  The hedge fund has generated annualized returns of 20.5% over the last two decades.

Third Point's Q2 letter outlines their thesis on 5 stocks.  Here's the brief summary with the full letter below.

Allergan (AGN):  Formerly Actavis, this company recently sold its generics business for ~17x EBITDA and Third Point thinks the company is poised to grow as a pure-play pharma company.  Branded assets + unlevered balance sheet + valuation below comparables = opportunity.

Suzuki Motor: This could be largely viewed as a play on India to capitalize on a growing middle class given the company's stake in Maruti as more people purchase cars. Overhang on shares due to litigation with Volkswagen.

Constellation Brands (STZ):  The next three stocks Third Point has labeled as 'compounders,' or companies that have good management and generate a lot of cash flow that's then allocated wisely to drive returns.  They see margin improvement and solid volume trends for this alcoholic beverage company and also think capital return to shareholders will ramp up further once capex comes down.

Mohawk (MHK):  This global flooring company is at the beginning of a cyclical recovery and seeing margin improvement.  They also see a lot of potential acquisition targets for the company.

Roper (ROP):  This company has generated 18% annualized shareholder returns over the last 10 years.  ROP runs a decentralized strategies and acquires a lot of companies.  They like the company's organic revenue growth and think it'll see a 15% CAGR going forward.

Embedded below is Third Point's Q2 letter:

You can view additional portfolio activity from Third Point here.

Glenview Capital Boosts HealthSouth Stake

Larry Robbins' hedge fund firm Glenview Capital has filed a 13G with the SEC regarding shares of HealthSouth (HLS).  Per the filing, Glenview has disclosed a 6.46% ownership stake in the company with over 5.9 million shares.

This is up from the 1.7 million HLS shares Glenview owned at the end of the first quarter.  The new filing was made due to activity on July 21st.

We also recently highlighted how Glenview added to its Tenet Healthcare (THC) stake.

Glenview has been extremely successful with their bets on the healthcare industry since the Affordable Care Act was initially introduced.  They've wagered on for-profit hospitals and insurers, among other things and have seen substantial returns from consolidation and increased profits at these companies.

Per Google Finance, HealthSouth is "an owner and operator of inpatient rehabilitation hospitals. The Company's inpatient rehabilitation hospitals offer rehabilitative care across an array of diagnoses, which include physical and cognitive disabilities or injuries due to medical conditions, such as strokes, hip fractures, head injuries, spinal cord injuries and a variety of debilitating neurological conditions. HealthSouth operates in around 33 states across the United States and in Puerto Rico and serves patients through its network of inpatient rehabilitation hospitals, home health agencies and hospice agencies. The Company's inpatient rehabilitation hospitals offer rehabilitative care across an array of diagnoses. As of December 31, 2014, the Company operated 107 inpatient rehabilitation hospitals. The Company's inpatient hospitals are concentrated in the eastern half of the United States and Texas."

You can view additional portfolio activity from Glenview here.