Larry Robbins Dives Into Laboratory Corp of America

Guru reveals 2nd-quarter portfolio

Aug 26, 2020

Glenview Capital Management leader Larry Robbins (Trades, Portfolio) revealed his firm's second-quarter portfolio earlier this month.

With the goal of delivering attractive absolute returns, the guru's New York-based hedge fund focuses on deep fundamental research and individual security selection. It operates two funds: the Glenview Fund, a long-and-short strategy, and the Glenview Opportunity Fund, which is more concentrated. Most of its investments are in U.S. stocks, but it does have some exposure to Western Europe.

Sticking to these criteria, the investor revealed he established 10 new positions during the quarter, exited 10 stocks and added to or reduced a number of other holdings. Notable transactions included the addition of Laboratory Corp of America Holdings (LH, Financial) to the portfolio, the sale of the Flex Ltd. (FLEX, Financial) stake and reductions of the Iqvia Holdings Inc. (IQV, Financial), Hologic Inc. (HOLX, Financial) and FMC Corp. (FMC, Financial) positions.

Laboratory Corp of America

After previously exiting a position in Laboratory Corp of America in the fourth quarter of 2018, the guru invested in a new 734,044-share holding. It was given 3.36% space in the equity portfolio. The stock traded for an average price of $160.44 per share during the quarter. It is now the guru's 10th-largest holding.

More commonly known as LabCorp, the Burlington, North Carolina-based company, which operates one of the largest clinical laboratory networks in the world, has a $17.44 billion market cap; its shares were trading around $178.48 on Wednesday with a price-earnings ratio of 48.93, a price-book ratio of 2.38 and a price-sales ratio of 1.53.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 6 out of 10, however, is more inclined toward it being undervalued even though the share price and price-sales ratio are near multiyear highs.

GuruFocus rated LabCorp's financial strength 5 out of 10. While the company has adequate interest coverage, the Altman Z-Score of 2.43 suggests it is under some pressure since assets are building up more quickly than revenue is growing. The weighted average cost of capital also exceeds the return on invested capital, indicating its projects are struggling to produce a profit.

The company's profitability scored a 9 out of 10 rating. Although margins are declining, LabCorp's returns outperform over half of its competitors and it has a moderate Piotroski F-Score of 5, which implies operations are stable. As a result of revenue growth slowing down over the past year, the predictability rank of five out of five stars is on watch. GuruFocus data shows companies with this rank typically return an average of 12.1% annually over a 10-year period.

John Rogers (Trades, Portfolio) is LabCorp's largest guru shareholder with 0.77% of outstanding shares. Steven Cohen (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), Charles Brands, First Eagle Investment (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Richard Snow (Trades, Portfolio) and several other gurus also have positions in the stock.

Flex

With an impact of -2.69% on the equity portfolio, Robbins sold the 11.7 million remaining shares of Flex. Shares traded for an average price of $9.53 each during the quarter.

GuruFocus estimates he gained 52.23% on the investment.

The electronics manufacturer, which is headquartered in Singapore, has a market cap of $5.31 billion; its shares were trading around $10.59 on Wednesday with a price-earnings ratio of 56.81, a price-book ratio of 1.79 and a price-sales ratio of 0.23.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 5 out of 10, however, suggests it is fairly valued.

Flex's financial strength was rated 5 out of 10 by GuruFocus. As a result of issuing approximately $583.37 million in new long-term debt over the past three years, the company has weak interest coverage. The Altman Z-Score of 1.95 also indicates it is under pressure due to a loss in operating income over the past several years. The WACC also exceeds the ROIC, indicating poor returns on its investments.

The company's profitability did not fare much better, scoring a 6 out of 10 rating on the back of declining margins and returns that underperform over half of its industry peers. Flex also has a moderate Piotroski F-Score of 4, but its two-star predictability rank is on watch due to declining revenue per share. GuruFocus says companies with this rank return an average of 6% per year.

Of the gurus still invested in Flex, PRIMECAP Management (Trades, Portfolio) has the largest stake with 14.46% of outstanding shares. Other top guru shareholders include Richard Pzena (Trades, Portfolio), Cohen, NWQ Managers (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and Brandes.

Iqvia Holdings

Impacting the equity portfolio by -3.43%, the guru curbed the Iqvia Holdings position by 67.84%, selling 1.16 million shares. The stock traded for an average per-share price of $135.10 during the quarter.

Robbins now holds 551,258 shares total, which represent 2.16% of the equity portfolio. According to GuruFocus, he has gained an estimated 23.98% on the investment since the fourth quarter of 2017.

The Durham, North Carolina-based company, which provides advanced analytics, technology solutions and contract research services to the life sciences industry, has a $30.06 billion market cap; its shares were trading around $157.01 on Wednesday with a price-earnings ratio of 230.97, a price-book ratio of 5.37 and a price-sales ratio of 2.81, which GuruFocus notes are approaching multiyear highs.

Based on the Peter Lynch chart, the stock appears to be overvalued.

Weighed down by $3.3 billion in new long-term debt and low interest coverage, GuruFocus rated Iqvia's financial strength 3 out of 10. The Altman Z-Score of 1.69 also warns the company could be in danger of going bankrupt since its assets are building up at a faster rate than revenue is growing. The WACC is also higher than the ROIC, indicating it is generating poor returns on its investments.

The company's profitability fared better, scoring a 7 out of 10 rating. Although the operating margin is in decline, it still outperforms over half of the players in its industry. Its returns are also outperforming competitors. Iqvia is also being supported by a moderate Piotroski F-Score of 5.

With a 0.99% stake, Daniel Loeb (Trades, Portfolio) is Iqvia's largest guru shareholder. The Vanguard Health Care Fund (Trades, Portfolio), Frank Sands (Trades, Portfolio), Pioneer, Stanley Druckenmiller (Trades, Portfolio), Primecap, Joel Greenblatt (Trades, Portfolio), Cohen, Ken Fisher (Trades, Portfolio), Ron Baron (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio) and Dodge & Cox also hold the stock.

Hologic

Robbins trimmed the Hologic stake by 50.5%, selling 1.97 million shares. The transaction had an impact of -1.89% on the equity portfolio. During the quarter, the stock traded for an average price of $48.78 per share.

He now holds 1.9 million shares, which account for 3.04% of the equity portfolio. GuruFocus data shows the guru has gained an estimated 21.01% on the investment since establishing it in the second quarter of 2018.

The medical device manufacturer focused on women's health, which is headquartered in Marlborough, Massachusetts, has a market cap of $17.07 billion; its shares were trading around $65.92 on Wednesday with a price-earnings ratio of 26.72, a price-book ratio of 7.57 and a price-sales ratio of 5.33.

The Peter Lynch chart and GuruFocus valuation rank of 3 out of 10 both indicate the stock is overvalued, especially since the share price and price ratios are near 10-year highs.

Hologic's financial strength was rated 4 out of 10 by GuruFocus. Already weighed down by weak interest coverage, the company's Altman Z-Score of 2.62 indicates it is under some pressure since revenue per share growth slowed over the past 12 months. The ROIC, however, outperforms the WACC, suggesting good returns on its investments.

The company's profitability scored a 6 out of 10 rating, driven by margins and returns that outperform a majority of industry peers. Hologic also has a high Piotroski F-Score of 7, which indicates operations are healthy, and a one-star predictability rank. According to GuruFocus, companies with this rank return, on average, 1.1% annually.

Pioneer is the company's largest guru shareholder with 0.75% of outstanding shares. Other top investors include Vanguard, Barrow, Hanley, Mewhinney & Strauss, Cohen, Greenblatt, Kahn Brothers (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Robert Olstein (Trades, Portfolio), Fisher and Lee Ainslie (Trades, Portfolio).

FMC

With an impact of -1.78% on the equity portfolio, the guru reduced his stake in FMC by 40.95%, selling 765,594 shares. During the quarter, shares traded for an average price of $92.09 each.

Robbins now owns 1.14 million shares, representing 3.15% of the equity portfolio. GuruFocus says he has gained an estimated 50.57% on the investment since the first quarter of 2015.

The Philadelphia-based chemical manufacturer has a $13.99 billion market cap; its shares were trading around $108 on Wednesday with a price-earnings ratio of 29.56, a price-book ratio of 4.96 and a price-sales ratio of 3.06.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 2 out of 10 supports this assessment as the share price and price-sales ratio are near multiyear highs.

GuruFocus rated FMC's financial strength 5 out of 10. Although the company has issued approximately $1.8 billion in new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 2.74, however, indicates it is under some pressure since it has recorded a loss in operating income over the past several years and assets are building up faster than revenue is growing. It also has good returns on its projects since the ROIC surpasses the WACC.

The company's profitability fared better with an 8 out of 10 rating, driven by strong margins and returns that outperform a majority of competitors, a high Piotroski F-Score of 7 and a one-star predictability rank.

Robbins is the company's largest guru shareholder with a 0.89% stake. Pioneer, Michael Price (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Greenblatt, Louis Moore Bacon (Trades, Portfolio), Simons' firm, Ray Dalio (Trades, Portfolio) and Jones also have positions in the stock.

Additional trades and portfolio composition

During the quarter, Robbins also entered new positions in DaVita Inc. (DVA, Financial), Quest Diagnostics Inc. (DGX, Financial), Marriott International Inc. (MAR, Financial), Thermo Fisher Scientific Inc. (TMO, Financial), Expedia Group Inc. (EXPE, Financial) and several other stocks.

Around 70% of the guru's $3.63 billion equity portfolio, which is composed of 44 stocks, is invested in the health care sector.

Disclosure: New positions.