AllianceBernstein L.P. is an investment advisory and hedge fund firm managing ~$150 bn in equity assets. The firm is a subsidiary of AXA S.A., which holds 64.7% stake in AB and 34.6% in AllianceBernstein Holding L.P. The firm manages the AllianceBernstein series of mutual funds in addition to other funds and caters to individuals and institutions.
I discussed the Top Buys of AllianceBernstein L.P in a previous article. In addition to buys, it is also interesting to have a look at top companies where AllianceBernstein L.P is booking profit and selling its holdings. In this article, I will be discussing AllianceBernstein's top sells from the last quarter, as released in its most recent 13F filing with the SEC.
ConocoPhillips (COP): My Take - Sell
AllianceBernstein sold 14,385,288 shares of ConocoPhillips last quarter. ConocoPhillips is an integrated energy company. The company operates three segments: Exploration and Production, Midstream Services, and Refining and Marketing business. In July 2011, COP announced its intent to separate its upstream and downstream businesses. The spin-off is expected to be completed by Q2 2012. COP's PE multiple has expanded over the last few quarters in anticipation of the spin-off. I don't see any further chances of multiple appreciation from these levels.
In fact, once the spin-off is completed, there could be downside in the stock prices of individual entities, as COP shifts from an integrated energy business to the pure-play E&P business. E&P businesses are usually valued using cash flow multiples. COP's E&P assets seem less attractive than its pure-play peers, with expected long-term growth of 3%-4%, which is well below the large-cap E&P average of 8%-9%. Also, COP's low organic free cash flow is likely to limit its ability for share buybacks after its asset divestiture program is completed, and its dividend might be at risk as well.
Limited Brands Inc. (LTD): My Take - Sell
AllianceBernstein sold 3,411,555 shares of Limited Brands last quarter. Limited Brand sells intimate apparel, personal care and beauty products, and accessories under the following brands: Victoria's Secret, Pink, Bath & Body Works [BBW], C.O. Bigelow, La Senza, White Barn Candle Co, and Henri Bendel. The company operates approximately 3,000 stores in the United States and Canada, as well as a direct-to-consumer business.
Limited Brands' investment spending may inflate its operating expenses going forward. At the same time, higher costs for packaging inputs for BBW may persist beyond a drop in cotton costs, in addition to higher resin costs hinting new challenges to maintain earnings. Things don't look encouraging on the top-line front as well. Without strong comps, revenue growth will be constrained by minimal square-footage growth. An international expansion program should pick up speed with further opportunities in Canada, but domestic sales will remain much more important to earnings for the foreseeable future. La Senza continues to struggle in Canada, trying to reposition itself focusing more on intimates now whilst the retail environment in the country is deteriorating. The company has largely realized a significant portion of its long-term margin target, and I expect earnings growth to be more subdued going forward.
Johnson Controls Inc. (JCI): My Take - Sell
AllianceBernstein sold 3,165,983 shares of Johnson Control last quarter. Johnson Controls is a $40 billion diversified industrial supplier, world leader in automotive seating and interior components and systems. It is also the largest North American automotive battery supplier and leading supplier of control systems and facilities management services.
Johnson Controls reported below consensus 1Q 2012 results and also lowered its guidance for the current quarter. The guidance reduction was attributed to weak performance from Automotive Experience, lower Building Efficiency segment sales and foreign exchange headwinds.
Going forward, supply issues from Japanese vehicle manufacturers, higher than expected AE start-up costs and R&D costs are expected to affect margins. With weak aftermarket battery shipments, shutdown of Shanghai plant, soft demand in residential HVAC and lowered European industrial vehicle production, near-term margin recovery is unlikely. The company is trading at a premium to its peers. I don't think JCI warrants a premium given the string of company-specific operational issues including poor execution. I recommend a sell on the stock.
Amgen Inc (AMGN): My Take - Sell
AllianceBernstein sold 2,787,760 shares of Amgen, Inc. last quarter. Amgen Inc., a biotechnology company, discovers, develops, manufactures and markets human therapeutics based on advances in cellular and molecular biology in the United States, Europe and Canada. Its flagship drugs include Aranesp, Epogen, Neupogen and its second generation compounds.
Amgen has had a good run in the last three months. Management's recent capital deployment strategy has worked well and resulted in Amgen's recent outperformance since November. But with this catalyst now behind, I believe positive pipeline news will be required for Amgen's multiple expansion from here as its P/E closely correlates with long-term growth. However, the company doesn't have any major pipeline catalyst for 2012. Also concerning is the declining Epogen and Arnesp sales due to increasing competition and maturing markets. The stock has already run up ~25% since November lows and I don't see any further upside.
Oracle Corporation (ORCL): My Take - Buy
AllianceBernstein sold 2,640,757 shares of Oracle Corporation last quarter. Oracle Corporation is an enterprise software company which develops, manufactures, markets, distributes and services database and middleware software, applications software and hardware systems, consisting primarily of computer server and storage products. It operates in three segments: Software, hardware systems and services. Oracle's EPS forecast for the current year is 2.34 and next year is 2.56. According to the consensus estimates, its top line is expected to grow 4.40% in the current year and 6.60% next year.
On its analyst day last year, Oracle management mentioned its medium-term target of 20% EPS growth rate. This is way above 9-11% current consensus estimates. Clearly, if Oracle is able to execute and post ~20% growth, it will surprise the market positively and result in a significant upside in the stock. Oracle also laid out the formula for sustaining 20% EPS growth, which appears reasonable. The key points include:
1. Growing distribution 15-20% with an increased focus on SAAS and verticals.
2. Leveraging the technology portfolio into bigger deals and market share gains.
3. Driving new opportunities around Exa, Fusion and other emerging products.
4. Expanding operating margins above 50%.
In addition to the good growth prospects, Oracle's strong cash position makes it a good defensive play in current uncertain times and I believe the stock offers a favorable risk reward.