By Serkan Unal
Larry Robbins, a former trader at Leon Cooperman's Omega Advisors, founded Glenview Capital, a multi-strategy hedge fund, in 2001. The fund currently has over $7 billion in assets under management. The fund has been a consistent outperformer, returning, on average, 14.2% annually for the decade since its inception.
As a hedge fund manager, Larry Robbins seeks out respectable businesses that have modest valuations and excess capital as well as above-average earnings growth. His current portfolio is heavily weighted towards the healthcare sector. This is so because Robbins believes that there is plenty of asset mispricing in the sector. Robbins is particularly bullish about hospitals, which he considers overcapitalized, and life sciences companies. His big bets in the healthcare sector are hospital owners Tenet Healthcare Corp. (THC) and HCA Holdings Inc. (HCA), and a life-sciences company Life Technologies Corporation (LIFE), his single largest holding. Robbins is also a big fan of pharmaceutical distribution companies, including McKesson Corporation (MCK) and Cardinal Health Inc. (CAH).
Robbins also invests in technology, industrial, and financial sectors. For dividend and value investors, several of his holdings may appear especially appealing. Here is a closer look at Robbins's five largest positions that yield at least 2% and are reported in Glenview Capital's latest 13F filing.
Xerox Corp. (XRX) was the eight-largest position in Glenview Capital's third-quarter portfolio, valued at more than $257 million. Best known as a copier maker, Xerox provides document systems and services. Its dividend yield is 2.4% on a payout ratio of 19%. For the reference, Xerox's competitor Accenture Plc (ACN) pays a dividend yield of 2.3%, while rivals Canon Inc. (CAJ) and Hewlett-Packard Corporation (HPQ) pay yields of 4.0% and 3.6%, respectively. Over the past five years, Xerox saw its EPS contract at an average rate of nearly 6.0% per year, while its dividends were on hold since December 2007. However, in November, the company raised its dividend, payable as of April 2013, by 35% and boosted its share repurchase program by $1 billion. The firm's EPS growth is forecast to average 4.0% per year for the next five years. Xerox is cheap based on high dividend yield, exceptional free cash flow yield of 14.7%, a 30% discount to book value, and a discount to its industry based on a forward P/E of 6.5x (versus 16.4x for Accenture Plc and 16.0x for the business support services industry on average). The lion's share of the company's service revenues is recurring or annuity-like, which assures stable cash flows for future dividend payments. Xerox's ROE is 9.7%. The stock is also popular with the short-trades master David Einhorn.
Fidelity National Information Services, Inc. (FIS) was the 12th biggest holding in Glenview Capital's third-quarter-portfolio, valued at nearly $213 million. This banking and payments technology company pays a dividend yield of 2.3% on a payout ratio of 54%. Its competitor DST Systems Inc. (DST) pays a dividend yield of 1.3%, while rival Fiserv Inc. (FSRV) does not pay any regular dividends. Over the past five years, FIS's EPS and dividends grew, on average, by 94% and 32%, respectively. Analysts predict that the firm's EPS growth will average 12.7% annually for the next five years. FIS recently posted strong quarter and signed a new five-year contract with long-time client BMO Harris Bank. This has been a positive catalyst for the stock which in early December rallied to a new all-time high. FIS is attractive on valuation: its price-to-book of 1.6 is well below its respective industry's ratio of 3.0. With a forward P/E of 13.1x, the stock is trading at a discount to its respective industry (with a forward P/E of 16.3x). The stock has a free cash flow yield of 5.7% and ROE of 7.8%. The stock has rallied almost 38% over the past 12 months. Among fund managers, Boykin Curry (Eagle Capital) and Alan Fournier (Pennant Capital) are big fans of the stock.
Cardinal Health was another large dividend-paying position in Glenview Capital's latest 13F. The position was worth $174 million at the end of the third quarter. Cardinal Health, a drugs and medical and surgical supplies wholesaler, is currently yielding 2.6% on a payout ratio of 35%. Its competitors McKesson Corporation and AmerisourceBergen Corporation (ABC) pay yields of 0.8% and 1.9%, respectively. Over the past half decade, Cardinal Health expanded its EPS and dividends at average annual rates of 8.6% and 16.6%, respectively. The company's EPS is expected to grow, on average, by a faster 10% per year for the next five years. The company raised its dividend by 16% in October 2012. In a recent Cardinal Health's debt rating, Fitch asserted that "the amount of cash returned to shareholders will likely continue to grow," mainly due to the company's strong liquidity with robust cash flow generation. According to Fitch, "steady pharmaceutical demand, oligopolistic market position, (and patent cliffs) support (Cardinal Health's) stable operating profile, profit margins, and core cash flows." The stock is attractive based on valuation. It trades with a price-to-book ratio below that of its respective industry. It also has a miniscule price-to-sales ratio of 0.1. Its forward P/E of 11.9x is slightly lower than its industry's average of 12.3x. The stock has a free cash flow yield of 4.8% and ROE of 18.4%. It is popular with Viking Global's Andreas Halvorsen.
Computer Sciences Corporation (CSC) was also a dividend-paying position in Glenview Capital's third-quarter portfolio, valued at $144 million. CSC is an IT and professional services firm with clients in the commercial and government sectors. It pays a dividend yield of 2.0% on a payout ratio of 62% of free cash flow. Its competitor Accenture Plc pays a dividend yield of 2.3%. CSC's quarterly dividends have been kept flat at $0.20 since last year. The company is forecast to grow its EPS by 29% next year, and, on average, by 8.8% per year for the next five years. In November, CSC increased its fiscal year 2013 EPS guidance from the range of between $2.10 and $2.30 to a new range of between $2.30 and $2.50. The Street was looking for $2.22. CSC has entered into an agreement to sell its credit services business assets and operations to Equifax Inc. (EFX) for $1 billion (up to $800 million after tax). The company plans to use between $300 million and $400 million for share repurchases. The stock has attractive valuation and a superb free cash flow yield of 15.6%. Its forward P/E of 13.4x is lower than the computer services industry's average of 15.3x. The stock's price-to-book, price-to-sales, and price-to-cash flow are well undervalued relative to the peer group. The stock has an exceptionally low price-to-sales ratio of 0.4. Over the past 12 months, this stock has gained nearly 53%. David Einhorn is also bullish about this stock.
URS Corporation (URS) is another dividend-yielding position in Glenview Capital's third-quarter portfolio, valued at almost $132 million. According to the company, URS Corporation engages in "program management; planning, design and engineering; systems engineering and technical assistance; construction and construction management; operations and maintenance; information technology; and decommissioning and closure services." Its largest customers are the U.S. Federal and state and local governments. URS Corporation pays a dividend yield of 2.1% on a low payout ratio of 22%. The company's competitors EMCOR Group Inc. (EME) and KBR Inc. (KBR) each pay dividend yields of 0.7%, while rival AECOM Technology Corporation (ACM) does not pay any dividends. Over the past five years, URS Corporation's EPS grew at an average annual rate of 13.9%. The company's EPS is forecast to expand, on average, by 11.8% annually for the next half decade. The company started paying quarterly dividends in 2012. Recently, the company won several new contracts, so it will be providing disposal services involving radioactive waste from a nuclear power plant in Idaho, construction services for Freeport-McMoRan Copper & Gold's (FCX) mine-tailings facility in Arizona, and maintenance and flight training support to the U.S. Army. The company's forward P/E of 8.9x is way below its respective industry's of 16.0x. The stock is trading below book value, with a price-to-book of 0.8 versus the industry's average of 1.7. Its price-to-sales ratio is only 0.3, below the industry's of 0.5. URS Corporation's price-to-cash flow ratio is half that of its industry. The stock has a high free cash flow yield of 10.6%. The stock is popular with billionaire D. E. Shaw (check out his top picks).