Leon Cooperman founded Omega Advisors in 1991 after 25 years at Goldman Sachs. He is a more eclectic investor than Warren Buffett, and will buy any stock or bond at the right price if the company has honest management, he told Forbes in 2009. As a long-term investor, stocks that are fundamentally mispriced appeal to him. While at Columbia University’s business school, he studied security analysis under value investor Roger Murray. He recently wrote an open letter to President Obama criticizing his “divisive, polarizing” tone of his class rhetoric. In the fourth quarter, he took advantage of price dips to purchase 18 new stocks. His biggest buys were: Express Scripts Inc. (ESRX), Warnaco Group Inc. CL A (WRC), PVH Corp. (PVH) Medco Health Solutions Inc. (MHS).
Express Scripts Inc. (ESRX)
Express Scripts is a pharmacy benefit manager that generates revenue through delivering prescription drugs through its network of contracted retail pharmacies, specialty pharmacy services, home delivery and EM services.
Express Scripts’ stock tumbled to a 52-week low of $34.37 at the end of the third quarter, from a high of $60.89. Cooperman bought 719,000 shares of the company at an average of $43 per share. He previously owned shares of Express Scripts in 2007 when the price was about $23 per share, and sold over the next several quarters as the stock climbed to $34 in the second quarter of 2008, when he closed his position.
Express Scripts Inc. has a market cap of $24.76 billion; its shares were traded at around $50.17 with a P/E ratio of 17.8 and P/S ratio of 0.5. Express Scripts Inc. had an annual average earnings growth of 28.6% over the past 10 years. GuruFocus rated Express Scripts Inc. the business predictability rank of 5-star.
Over the past decade, Express Scripts has generated strong and growing free cash flow, which grew from $1.6 billion in 2009 to a record of almost $2 billion in 2010.
In October, the company had to lower its earnings per share guidance from the previously expected $3.15 to $3.25, to a range of $2.95 to $3.05. The decrease was due to multiple factors: a greater shortfall in claims versus expectations, a stagnant economy impacting claims volumes, additional expenses, including accelerating spending on projects in preparation for the integration of Medco Health Solutions Inc., expenses to support clients and members as they transfer from Walgreen’s pharmacies and to comply with new regulations. The company is also facing heightened competition.
Later, on October 25, the company announced that it expects 95% of its clients’ prescription volume to continue after it loses Walgreens as a network supplier in 2012. It also expects that the merger with Medco, another PBM, will be slightly accretive to EPS in the first full year after closing and moderately accretive once fully integrated. Together, the two companies will aim to make prescription drugs more cost-effective and improve the quality of care.
Warnaco Group Inc. CL A (WRC)
Warnaco Group Inc is a manufacturer of intimate apparel, menswear, jeanswear, swimwear, men's and women's sportswear, better dresses, fragrances and accessories sold under a variety of recognizable brands.
Cooperman bought 508,1000 shares in the fourth quarter of 2011 at about $48 per share.
Warnaco Group Inc. Cl A has a market cap of $2.38 billion; its shares were traded at around $58.49 with a P/E ratio of 15.9 and P/S ratio of 1. Warnaco Group Inc. Cl A had an annual average earnings growth of 26.2% over the past 10 years.
Warnaco had been having negative cash flow for the years 2006 to 2009. It turned positive at $67.6 million in 2010, but for the trailing 12 months it is negative $238 million. It is also at rather high historical valuations:
If management is one of Cooperman’s key criteria, however, he may have liked the fact that they recently got a new CEO. Helen McCluskey was elected president and CEO, succeeding Joe Gromeck, who retired. McCluskey joined Warnaco in 2004 as Group President-Intimate Apparel and eventually rose to chief operating officer in 2010.
PVH Corp. (PVH)
PVH Corp. designs and markets branded dress shirts, neckwear, sportswear, footwear and other related products. Cooperman bought 352,300 shares of PVH Corp. in the fourth quarter at an average of $67 per share.
PVH has a market cap of $5.35 billion; its shares were traded at around $81.3 with a P/E ratio of 15.5 and P/S ratio of 1.3. The dividend yield of PVH Corp. stocks is 0.2%. PVH Corp. had an annual average earnings growth of 9.3% over the past 10 years.
PVH recently drastically increased its revenue, from $2.4 billion in 2010 to $4.6 billion in 2011, helped by its 2010 acquisition of Tommy Hilfiger. Earnings, however, were lower, falling from $162 million in 2010 to $53.8 million in 2011, as the cost of goods sold was increased significantly as well. The company expects earnings growth for 2012 to occur in the second half of the year as the first half’s margins will be pressured from higher product costs over last year.
The company recently raised its 2011 earnings per share guidance to a range of $5.28 to $5.30 from the previously expected range of $5.23 to $5.25. The raised guidance came due to strong performance in its Calvin Klein and Tommy Hilfiger businesses. Year over year fourth quarter sales are expected to increase by 15% in the Calvin Klein business, 12% in the Tommy Hilfiger North America business, 12% in the Tommy Hilfiger International business and 4% in the Heritage Brands business.
PVH Corp. had about $782 million in cash on its balance sheet at the end of the third quarter, and approximately $3.1 billion in long-term liabilities and debt.
Medco Health Solutions Inc. (MHS)
Cooperman also bought shares of Medco, the company merging with his largest new holding, Express Scripts. Under their agreement, Medco shareholders will receive $71.36 per share in cash and stock, or $2.9 billion. Medco shareholders will receive $28.80 in cash and $0.81 shares for each Medco share they own upon closing of the transaction.
David Snow, chairman and CEO of Medco, commented: "Our organizations represent two great success stories in American business. We have each been successful in creating shareholder value because we are both passionate about driving value to our customers through service, innovation and a focus on cost and quality. We have a shared desire to improve the way healthcare is delivered in this country and I believe this creates a strong best-of-breed foundation, culturally, for a very successful merger.
Medco is the nation’s largest pharmacy benefits manager with more than 20,000 employees worldwide and 65 million members, and ranks 34th on the 2011 Fortune 500 list. The merger with Express Scripts is expected to close in the first half of 2012.
Medco Health Solutions Inc. has a market cap of $23.47 billion; its shares were traded at around $60.82 with a P/E ratio of 15.7 and P/S ratio of 0.3. Medco Health Solutions Inc. had an annual average earnings growth of 24.3% over the past 10 years. Medco grew its revenue at a 20% annual rate over the last ten years to $66 billion in 2010, and its free cash flow at an 11% annual rate to over $2 billion in 2010.
Leon Cooperman bought 400,000 shares of the company at an average of $53 per share in the fourth quarter of 2011.