Third Point's Q3 Letter: EssilorLuxottica Thesis

Dan Loeb's hedge fund firm Third Point is out with its third quarter letter.  In it, they touch on activist investing, their successful investment in Sotheby's (BID), an update on Sony (SNE) and Argentine Credit, and also outline their thesis on newer holding EssilorLuxottica.

Of the latter, they write:

"Our analysis of potential merger synergies points to over €1 billion in additional profit through efficiencies and revenue growth, almost double the Company’s current targets.  In the near‐term, this will be driven by cross‐selling to wholesale customers, insourcing lens procurement, and supply chain efficiencies.  The longer‐term opportunity to disrupt the industry value chain is even more appealing: combining lens and frame to shrink raw material need and waste, reducing shipping costs by merging prescription labs with global distribution hubs, and providing a true omni‐channel sales offering.  These initiatives will transform the way glasses are sold, significantly improving the customer experience."

Third Point sees the company earning over 8 euros of EPS in 2023 and for earnings and FCF to grow at a mid-teens compound annual growth rate.

Embedded below is Third Point's Q3 letter:



You can download a .pdf here.

For other recent hedge fund letters, you can also read Howard Marks' latest letter here.

Third Point's Q4 Letter: Updates on Baxter, Campbells Soup, United Technologies & Nestle

Dan Loeb and Third Point are out with their fourth quarter letter to investors.  Third Point finished 2018 down 11.3%, only the 4th time in 24 years they've lost more than 1% in a year. 

Their Q4 letter includes a large section on the state of the credit markets, as well as portfolio updates on some of their equity holdings like Baxter (BAX), Nestle (NSRGY), Campbells Soup (CPB), and United Technologies (UTX).


Third Point's Q4 Letter: Updates on Equity Positions

On CPB: They settled their proxy fight that gave them a mix of board representation as well as regular access to the board and executives.   They helped CPB recruit Mark Clouse as new CEO.  They're looking for the company to "repair the balance sheet, execute an operational turnaround of the business, and explore all options to create long-term value for  shareholders."


On UTX:  "Despite the separation announcement, UTC’s sum-of-the-parts  discount  has  continued  to widen  and  the  valuation  gap  versus  UTC’s  closest  multi-industry   peer,   Honeywell International, has reached a new 10-year high.The coming separation will shine a greater spotlight on the large valuation gap to UTC’s pure-play peers.During the separation process, we  expect  the  management  team  to  highlight  UTC’s  asset  quality  and  to  increase transparency  around  Pratt & Whitney’s very significant multi-year  inflection  in  free  cash flow generation."


On BAX: Operating margins of 17.4% have been achieved and they think there's further upside to 23%.  Since 2016 the company has returned $4 billion to shareholders and used another $1 billion for business development.  "Over the next 12-24 months, Baxter  expects  to  start  reaping  the  fruits  of  its  labor  with  several  new  product  launches including Spectrum IQ and Evo IQ pumps, and new generic injectable drugs. The innovation cycle  should  serve  to  drive  revenue  growth  acceleration  and  contribute  positively  to underlying operating margins."


Embedded below is Third Point's Q4 letter:



For more recent investor letters, we also posted up Warren Buffett's annual letter, as well as excerpts from Baupost Group's letter and Sequoia Fund's letter too.

Third Point's Campbells Video: Empty the Can

As we've detailed previously, Dan Loeb's hedge fund firm Third Point is long Campbells (CPB) and has an activist position as they seek to replace the entire board.  We've posted their presentation on Campbells before. 

Now, Third Point has released a short 4-minute video regarding their campaign and the problems at Campbells and they continue to use the hashtag: #RefreshTheRecipe.

Embedded below is Third Point's video: "Empty the Can"

Third Point's Presentation on Campbells (CPB): Refresh the Recipe

Dan Loeb's hedge fund firm Third Point has an activist position in Campbells (CPB).  They recently released a presentation called #RefreshTheRecipe where they are pushing for change at the company.

Third Point highlights that Campbells has underperformed both peers and the S&P under various timelines (19% shareholder return vs 306% for S&P over the last 20 years).  Third Point seeks to replace the board to enact change and originally pushed for the company to sell itself or merge with another packaged foods company.

Dan Loeb's firm is looking to turnaround the soup business, stabilize the fresh food business and stop margin declines with disciplined cost management, and make the overall product offerings more relevant to modern consumers via ingredients/flavors and new designs/packaging.

For the snacks business, Third Point sees opportunity to innovate with new flavors, ingredients and packaging to drive market share, execute on deal synergies from the Snyder's-Lance deal, and wants them to explore divestitures of non-core brands like Pop Secret and Pepperidge Farm frozen cakes.

If the whole business were to be sold, they comp relevant transactions leading to a 14-15x EBITDA multiple, or between $52 and $58 per Campbells share.  CPB currently trades around $37.


Third Point's Campbell's Presentation: Refresh The Recipe

Embedded below is the slideshow:



For other recent hedge fund commentary, we posted up Bill Ackman's presentation on Starbucks as well as Greenlight Capital's Q3 letter.

Third Point's Q1 Letter: United Technologies, DowDuPont, Lennar & Dover

Dan Loeb's hedge fund firm Third Point is out with its first quarter letter.  During Q1, they returned -0.6%.  The letter talks about their new stake in United Technologies (UTX). 

They're pushing for a split-up into 3 companies: Otis, CCS, and an aerospace company.  They see this driving $20 billion of excess value (>20% of market cap) due to the fact that all three standalone companies should trade at higher multiples based on equivalent peers. 

They write, "Otis peers Kone and Schindler trade on average at 15x forward EV/EBITDA.  CCS peers, Allegion, Ingersoll-Rand, and Lennox, trade on average at 13x forward EV/EBITDA.  The remaining aerospace company would be the only liquid, US large-cap aerospace supplier other than TransDigm, which trades at 15x forward EV/EBITDA."  They also note though that management seems 'less open' to a three-way split than shareholders might want. 

Third Point also provide updates on their positions in DowDuPont (DWDP) and Lennar (LEN).  The former is one of their largest positions and they see a discount to intrinsic value that has widened.  The latter they view as the best homebuilder in the industry with the best set of veterans.  They also updated their Dover (DOV) position, noting the event-driven nature of the company now. 

You can read Third Point's full Q1 2018 letter embedded below:



You can download a .pdf copy here.

Free Chapter From Dear Chairman Book: Dan Loeb and Hedge Fund Activism

Jeff Gramm's book, Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, has been featured on the site before and we reviewed it here.

We wanted to let everyone know that Gramm has generously made the chapter about Third Point's Dan Loeb available for free.  The chapter is entitled: Daniel Loeb and Hedge Fund Activism: The Shame Game.  This was one of our favorite parts of the book so if you haven't read it yet, check it out.

You can download a .pdf copy of the free chapter on the book's website here.

And if you haven't already, definitely be sure to pick up a copy of Dear Chairman.

Third Point Trims Baxter Stake

Dan Loeb's hedge fund firm Third Point has filed a Form 4 with the SEC regarding its position in Baxter International (BAX). 

Per the filing, Third Point sold 5 million BAX shares at $64.23 on November 6th.  After this sale, they still own over 36 million shares and one of their partners, Munib Islam, is on Baxter's board.

For more on this fund, we've also posted Third Point's Q3 letter here.

Per Google Finance, Baxter International "provides renal and hospital products. The Company operates through two segments: Hospital Products and Renal. Its Hospital Products business manufactures sterile intravenous (IV) solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, parenteral nutrition therapies, infusion pumps, inhalation anesthetics and biosurgery products. The Renal business offers a portfolio to meet the needs of patients with end-stage renal disease, or irreversible kidney disease and acute kidney injuries, including technologies and therapies for peritoneal dialysis (PD), hemodialysis (HD), continuous renal replacement therapy (CRRT) and additional dialysis services. Its products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors' offices and by patients at home under physician supervision. "

Third Point's Q3 Letter: New Dover Position

Dan Loeb's hedge fund firm Third Point has released its third quarter letter.  Thus far for 2017, they're up 14.5% in their Offshore Fund and up 23% in their Ultra Fund.

While they feel earnings multiples are high by historical standards, they think earnings growth and low interest rates combine to make an environment ripe for higher valuations anyways.

The biggest risk they see currently?  A recession.  However, they feel the risk is low as economic growth rates are high.

Third Point's New Position in Dover (DOV)

During the third quarter, Third Point initiated a brand new position in Dover (DOV), an industrial conglomerate.  They've engaged management and think there's a 3 main areas for value creation: separate the energy segment, address the underearning core industrial portfolio, and optimize capital allocation.

Their letter also gives updates on DowDuPont, Honeywell (HON), as well as their activist position in Nestle.

Embedded below is Third Point's Q3 letter:



You can download a .pdf copy here.

Third Point Q2 Letter: Re-enters Alibaba, Adds BlackRock Stake

Dan Loeb's hedge fund firm Third Point was up 4.6% for the second quarter and is up 10.7% for the year.  Third Point's second quarter letter reveals they've re-entered Alibaba (BABA).  They feel now is the time to re-enter due to the company's launch of personalized advertising, new ad tech for brand advertisers, as well as revenue potential from higher ad loads, among other reasons.

Backing out net cash and some other stakes, Loeb's firm feels Alibaba's core business alone is worth $121 per share (around 15x their 2019 EPS estimate of $8.20) with earnings growing 30% year-on-year.  They feel BABA can close the valuation gap with competitors like Tencent, which trades at 32x consensus 2018 EPS.

Third Point also reveals a stake in BlackRock (BLK) in the letter.  Rather than simply being an asset manager. they feel it's "becoming a network or index-like business, with earnings power driven by ETFs (via iShares) and data & analytic services (via Aladdin).  They point out they're basically oligopoly businesses.

Also, a few months ago we highlighted how this hedge fund has gone activist on Nestle and we posted Third Point's letter on Nestle here.

Embedded below is Third Point's Q2 2017 letter:



You can download a .pdf copy here.

For other recent hedge fund letters, you can also read Greenlight Capital's Q2 letter here.

Third Point Takes $3.5 Billion Nestle Stake: Letter

Dan Loeb's hedge fund firm Third Point has released a letter that reveals they've taken a $3.5 billion stake (including options) in Nestle in their hedge funds as well as a special purpose vehicle they raised for the opportunity.

They see four areas for improvement:

1) Improving productivity: adopt a formal margin target

2) Capital return: adopt a leverage target and buyback stock

3) Re-shape the portfolio: perhaps sell some businesses

4) Monetize their L'Oreal stake


Third Point feels that Nestle can hit earnings per share 50% higher than today.

Embedded below is Third Point's letter on Nestle:



You can download a .pdf copy here.

We've also posted other recent portfolio activity from Third Point here and you can also read Third Point's Q1 letter.

Third Point Trims Baxter Stake

Dan Loeb's hedge fund firm Third Point has filed a 13D and Form 4 with the SEC regarding its stake in Baxter International (BAX). Per the 13D, Third Point now owns 7.5% of BAX with 41 million shares.

The Form 4 indicates Third Point sold 5 million shares on June 1st at $59.5. After this sale, they still own over 41 million shares.

For more from this fund, check out Third Point's Q1 letter.

Per Google Finance, Baxter "provides renal and hospital products. The Company operates through two segments: Hospital Products and Renal. Its Hospital Products business manufactures sterile intravenous (IV) solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, parenteral nutrition therapies, infusion pumps, inhalation anesthetics and biosurgery products. The Renal business offers a portfolio to meet the needs of patients with end-stage renal disease, or irreversible kidney disease and acute kidney injuries, including technologies and therapies for peritoneal dialysis (PD), hemodialysis (HD), continuous renal replacement therapy (CRRT) and additional dialysis services. Its products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors' offices and by patients at home under physician supervision. ."

Third Point's Q1 Letter: Thesis on Honeywell, UniCredit, E.On

Dan Loeb's hedge fund firm Third Point returned 5.9% in the first quarter of 2017.  Their Q1 letter to investors was just released and outlines their thesis on stocks such as Honeywell (HON), UniCredit, and E.On.

Honeywell (HON)

Basically, they're looking for the company to spin-off its aerospace division.  They think this "would result in a sustained increase in shareholder value in excess of $20 billion.  Spinning off Aerospace would transform Honeywell into an industrial growth company with a focus on automation and productivity."

UniCredit

Third Point sees the first quarter as a 'turning point' for European financials as they've traded at lower valuations and UniCredit recently raised 13 billion Euros in capital in March.  They write, "We were drawn to UniCredit by its low valuation and the rights issue.  We believe in the medium-term story because of its new CEO, Jean Pierre Mustier."

E.On

"Following a spin-off of its generation assets into Uniper last year, the company has emerged as a regulated grids and renewables business that is currently misunderstood by the market and attractively priced."

To see the full thesis on all of these names, check out the full letter. 

Embedded below is Third Point's first quarter letter:



You can download a .pdf copy here.

You can also view other recent portfolio activity here.

Third Point Adds To Kadmon Holdings

Dan Loeb's hedge fund firm Third Point has filed a Form 4 with the SEC regarding its position in Kadmon Holdings (KDMN).  Per the filing, Third Point bought 1.48 million shares of KDMN on March 13th at $3.36 per share.  After this transaction, they now own over 9.4 million shares.  Included in the transaction were 595,238 warrants to purchase 0.40 shares of common stock each.  These have an expiration date of April 13, 2018 and an exercise price of $4.5.  We've posted other recent portfolio activity from Third Point here.

Per Google Finance, Kadmon Holdings is "an integrated biopharmaceutical company engaged in the discovery, development and commercialization of small molecules and biologics to address disease areas of various unmet medical needs. The Company is developing product candidates in a number of indications within autoimmune and fibrotic disease, oncology and genetic diseases. Its product pipeline consists of KD025, Tesevatinib and KD034. The Company's other products include Ribasphere RibaPak, Ribasphere, Qsymia, Tetrabenazine and Valganciclovir. KD025 is an orally available, selective small molecule inhibitor of Rho-associated coiled-coil kinase 2 (ROCK2), a molecular target in multiple autoimmune, fibrotic and neurodegenerative diseases. Tesevatinib is an oral tyrosine kinase inhibitor (TKI) designed to block key molecular drivers of tumor growth, metastases and drug resistance. KD034 is the Company's portfolio of enhanced formulations of trientine hydrochloride for the treatment of Wilson's disease."

Third Point Trims Baxter International Stake

Dan Loeb's hedge fund firm Third Point has filed an amended 13D and a Form 4 with the SEC regarding its stake in Baxter International (BAX).  Per the filing, Third Point now owns 8.5% of BAX with just over 46 million shares.

Per the Form 4, they sold over 5.9 million shares on February 28th at $50.35.  As detailed in our Hedge Fund Wisdom newsletter, Baxter has been Third Point's top position for some time, with a stake worth over $2 billion.  You can view the rest of Third Point's portfolio in the brand new issue.

Per Google Finance, Baxter International is "provides a portfolio of essential renal and hospital products, including home, acute and in-center dialysis; sterile intravenous (IV) solutions; infusion systems and devices; parenteral nutrition; biosurgery products and anesthetics, and pharmacy automation, software and services. The Company operates through two segments: Hospital Products and Renal. Its Hospital Products business manufactures IV solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, infusion pumps, inhalation anesthetics, and biosurgery products. The business also provides products and services related to pharmacy compounding, and drug formulation. The Renal business provides products and services to treat end-stage renal disease, or irreversible kidney failure and acute kidney injuries."

For more on this hedge fund, also check out Third Point's Q4 letter.

Third Point's Q4 Letter: Bullish on Financials

Dan Loeb's hedge fund Third Point finished 2016 up 6.1%.  Third Point's fourth quarter letter outlines their bullish stance on markets, noting that de-regulation and tax decreases under various policies from President Donald Trump should spur US economic activity.

That said, they're still keeping an eye out on the potential for trade wars and/or inflation.

Particularly, they like financials and increased exposure to the sector in November and December: "We reallocated half our initial holdings from high-multiple, FCF businesses in payments, ratings, and P&C (which traditionally outperform during periods of deflation), to more traditional reflationary exposures in banks, brokers, and geographically, in Japan."

Third Point highlights that the bank stocks they're playing trade for less than 10x earnings with EPS growth in the high-teens.

Embedded below is Third Point's Q4 letter:



We've also posted up other letters today, so be sure to also check out Greenlight Capital's Q4 letter as well as Oaktree Capital's Howard Marks' latest memo.

Third Point's Q3 Letter: Macro Areas They're Focused On

Dan Loeb's hedge fund firm Third Point is out with its third quarter letter.  In it, they talk about what macro areas they're focused on now, some credit investments, and their Third Point Ventures private portfolio.

Third Point says they're focused on a few key areas:

- "Understanding the global shift from monetary to fiscal policy"

- "Will fiscal expansion become the new world order?"

- Still see "reasons for concern" in China

- Note we're in the "late stages of a business cycle"

- Earnings estimates "may be inflated at these levels"


They touch on their credit positions in Dell and Sprint and also talk about private investments such as Apigee and Akarna Therapeutics, which was acquired by Allergan (AGN). 


Embedded below is Third Point's Q3 letter:

Third Point Files Amended 13D on Enphase Energy Holdings

Dan Loeb's hedge fund firm Third Point has filed an amended 13D with the SEC regarding its stake in Enphase Energy (ENPH).  Per the filing, Dan Loeb now has exposure to 11.2% of ENPH with over 6.7 million shares. 

Per the filing, 6.28 million shares are owned by Third Point funds (including 34,101 shares of common stock issuable upon exercise of warrants). and 423,684 shares are owned directly by Loeb. 

Third Point's last 13F filing detailing positions as of the end of the second quarter had them previously owning 6,248,987 shares.

Per Google Finance, Enphase Energy is "a provider of energy management solutions. The Company is engaged in designing, developing, manufacturing and selling microinverter systems for the solar photovoltaic industry. Its semiconductor-based microinverter system converts direct current (DC) electricity to alternating current (AC) electricity. Its microinverter system consists of three components: Enphase microinverters, an Envoy gateway and Enlighten cloud-based software. Its Enphase microinverters provide power conversion at the individual solar module level by a digital architecture that incorporates custom application specific integrated circuits (ASIC), specialized power electronics devices, and an embedded software subsystem. Envoy bi-directional communications gateway provides collecting and sending data to Enlighten software. Enlighten cloud-based software provides the capabilities to remotely monitor, manage, and maintain an individual system or a fleet of systems."

Third Point Discloses Kadmon Holdings Equity Stake

Dan Loeb's hedge fund Third Point has filed a 13G with the SEC regarding its position in Kadmon Holdings (KDMN).  Per the filing, Third Point now owns 17% of the company with over 7.61 million shares.

This is a newly disclosed equity position for the fund and the filing was made due to activity on July 26th.  The company recently completed its initial public offering (IPO).

Third Point was originally a 'second lien' debt holder of Kadmon prior to its IPO.  This debt converted into common shares at an 80% discount to the IPO price.  Third Point was the largest holder of second lien debt.

For more on this hedge fund, head to Third Point's Q2 letter which talks about some of their latest investments.

Per Google Finance, Kadmon Holdings is "a biopharmaceutical company, which is engaged in the discovery, development and commercialization of small molecules and biologics. The Company is developing product candidates within autoimmune and fibrotic diseases, oncology and genetic diseases. The Company offers KD025, Tesevatinib in Oncology, Tesevatinib in polycystic kidney disease (PKD) and KD034. It offers tablets and capsules, such as Ribasphere RibaPak, Ribasphere tablets, Ribasphere, Qsymia, Tetrabenazine and Valganciclovir. KD025 is its candidate in its rho-associated coiled-coil kinase 2 (ROCK2) platform, which is an oral, selective ROCK2 inhibitor. Tesevatinib is an oral tyrosine kinase inhibitor (TKI) designed to block molecular drivers of tumor growth, metastases and drug resistance. KD034 is its portfolio of formulations of trientine hydrochloride, a chelating compound for the removal of excess copper from the body, for the treatment of Wilson's disease."

Third Point Q2 Letter: Long Didi Chuxing & Energy Credit

Dan Loeb's hedge fund Third Point is out with its Q2 letter.  In it, they talk about their new private investment in Didi Chuxing, a Chinese ridesharing service that currently has more market share than Uber in China.  Apple (AAPL) also recently invested. 

Third Point also updates their stake in Baxter (BAX) and talks about their increased energy credit exposure.

Third Point's Q2 letter is embedded below:



You can download a .pdf copy here.

For other recent hedge fund letters, check out Greenlight Capital's Q2 letter.

Third Point's Q1 Letter: Playing Merger Arb & Pro Forma Situations

Dan Loeb's Third Point is out with its first quarter letter.  In it, they talk about how hedge funds have seen a lot of carnage as of late.

Specifically, they see the decimation in merger arbitrage land as an opportunity, writing, "many of these combined businesses should compound in value thanks to the benefit of synergies, modest financial leverage, and strong or improved management teams that have a history of successful capital allocation."

Their letter outlines their thesis on the following plays:

- Dow / DuPont
- ABInBev / SAB Miller / Molson Coors
- Time Warner Cable / Charter Communications
- Chubb / ACE
- Danaher

Embedded below is Third Point's Q1 letter: