|New Threads Only:|
|New Threads & Replies:|
Forum List » Guru News and Commentaries|
Guru News, Stock picks and commentaries
Baron Funds Comments on Pall Corp.
Posted by: guruhl (IP Logged)
Date: May 1, 2013 07:32PM
During the quarter, we initiated a position in Pall Corp. (PLL), a leading supplier of filtration, separation and purification technologies. Pall's products are used by companies in the life sciences and industrial industries in a wide variety of applications. For example, biotechnology companies use Pall's products to remove contaminants during the biotechnology drug manufacturing process. Industrial customers use Pall's products in oil and gas production, municipal water filtration, aircraft fluid systems and semiconductor manufacturing, among other applications.
Our investment thesis has two components. First, we believe that Pall's business has attractive characteristics and good growth prospects. We particularly like Pall's life sciences business, in which Pall supplies a broad range of filtration products to the biotechnology industry.We think Pall is an attractive way to participate in the growth of the biotechnology sector without assuming the risks associated with the success or failure of any one particular biotechnology drug. Because of regulatory requirements, once Pall's products are incorporated into a biotech customer's manufacturing process, Pall's products are likely to be sold during the life cycle of the product, which provides an annuity-like revenue stream. Beyond the biotech business, Pall is well positioned to benefit from secular growth drivers that include stricter environmental regulations and growing demand for clean water and energy. Across the company's different end markets, Pall's products are largely non-discretionary for customers and represent a small portion of operating costs even though they perform critical roles. As a result, Pall has an ability to maintain stable pricing. In addition, most revenue comes from the sale of consumable products that need to be replaced, resulting in relatively predictable, recurring revenue. Pall's competitive advantages include close working relationships with customers; global distribution, service and support; and scientific, engineering and applications expertise.
The second element of our investment thesis is based on the transformation taking place at the company with a new management team at the helm. Pall's new CEO, Larry Kingsley, assumed the CEO role in October 2011 and has been implementing changes to improve business performance, expand margins and increase cash flow generation. Kingsley's long-term objective is to generate organic sales growth at over twice the rate of GDP and incremental operating profit margins of 30-40%. Kingsley also plans to utilize the company's balance sheet, which is underleveraged relative to the company's cash flow, to make acquisitions to enhance top line growth and generate attractive returns on invested capital. Through acquisitions and/or share repurchases, we believe that Pall should be able to generate mid-teens or better earnings growth. We think the company's valuation is attractive relative to our estimate of the company's future growth potential. (Neal Kaufman)
From Baron Funds’ first quarter 2013 letter.
Guru Discussed: Ron Baron: Current Portfolio, Stock Picks
Stocks Discussed: PLL,
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.