Jana Partners was found in 2001 by Barry Rosenstein. The firm is a value-oriented firm focused on event -driven activist opportunities. Typically, the company uses a fundamental value approach to their investment process in hopes of identifying one or more catalysts to unlock shareholder value. If the firm deems it necessary, they will act as the instrument to create catalysts that unlock shareholder value. The firm's strategy, "Invest in Change," has generated exceptional returns over the years for investors. According to Reuters, they've only had 3 down years since inception.
Looking at activist funds like Jana is important for investors because they create catalysts that unlock shareholder value. Ultimately, the activist activity helps close the gap between current price and actual intrinsic value of the company in a shorter time frame for investors.
Here are three companies from Jana's portfolio that we find interesting at current levels:
Hertz (NYSE:HTZ) - Forward P/E of 5.79, EV/EBITDA of 5.02, P/B of 1.41, and P/S of 0.33
In the most recent fiscal quarter, Hertz reported revenue of $2.98 billion, compared to $3.12 billion in the same quarter a year ago. Net earnings were $237 million ($0.52 per share diluted) compared to $149 million ($0.32 per diluted share) in the same periods. The company's shares are down 67% over the past 12 months and trade at $7.53 per share (five-year lows).
Hertz is a global leader in the car and equipment rental market. Barring a sudden halt of global travel or construction, Hertz should continue to capitalize on growing global trends long-term with their position in the market.
If the company can produce operating margins back to the 12-15% range, we could see the company generating $3-4 per share in FCF. At current prices, that gives us a FCF yield of ~16% if Hertz can right the ship. It appears that much of the downside has already been priced into this stock. Long-term investors may be interested in Hertz at currents levels.
The debt level is a bit disconcerting, but shares look appealing at current levels with a Forward P/E of 5.79, EV/EBITDA of 5.02, P/B of 1.41, and P/S of 0.33
Qualcomm (NASDAQ:QCOM) - Forward P/E of 9.32, FCF Yield of 7.42%, EV/EBIT of 12.55, Dividend Yield of 4.27%
The company has come under pressure from increased regulatory issues. South Korean regulators believe that Qualcomm's licensing deals are anticompetitive. Apparently, Qualcomm has fought back on this and says that the policies are not only legal; but they also conform to the worldwide precedent. The company has already paid $1 billion in fines to Chinese regulators regarding the same licensing deals. Also, they had to lower the licensing rate.
On top of the recent regulatory spats, emerging market demand (specifically China) has come under pressure. I expect the current issues to be exogenous in nature, and QCOM should continue its dominance as a leader in technological innovative. On the back of all this uncertainty, the company's shares are down 39% over the past 12 months and trade at $42.96 per share (near 52-week lows).
The licensing issues in South Korea and drop in demand from China are likely priced in at current levels, as shares have already dropped to multi-year lows. Long-term investors should find shares appealing at current levels with a Forward P/E of 9.32, FCF Yield of 7.42%, EV/EBIT of 12.55, and Dividend Yield of 4.27%.
Baxter (NYSE:BAX) - Forward P/E of 21.23, EV/EBIT of 18.01, Dividend Yield of 3.51%
On the back of spinning off Baxalta (biopharma business), the company turned in better than expected quarterly results. The company continues to be aggressive in improving its cost structure with the operating margin exceeding expectations for the quarter. We are keeping a close eye on the operating margin improvements in the coming quarters to see if the company is gaining traction with the new product launches and cost restructuring. Baxter's shares are only down 3% over the past 12 months, showing the resiliency of the company.
Jana said, "Our experience informs us that our Baxter investment will require patience; the progression toward higher margins will require sharper attention to costs, a re-constitution of the portfolio and better execution." Shares look appealing at current levels with a Forward P/E of 21.23 and EV/EBIT of 18.01. These multiples may appear high at the moment, but the company has room for margin improvement which should help the company's fundamentals improve. At the very least, investors are being paid to wait with a dividend yield of 3.51%.
Disclosure: I am/we are long HTZ.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.