Daniel Loeb (Trades, Portfolio), whose fund is posting negative returns this year, reported on Wednesday that he unloaded a portion of one of his highly profitable bets, health care company Baxter International (BAX, Financial).
Loeb sold 22.2% of his stake in the company that he started more than three years ago. The sale resulted from the “portfolio concentration level” it had reached in the portfolio of his hedge fund, Third Point. At third quarter-end, the company ranked as his largest long position at 19.4% of reported holdings, almost twice that of his next largest holding, an 11% weighting in Far Point Acquisition Corp. (FPAC, Financial).
Loeb had no further plans to sell Baxter but would “re-evaluate at any time based on, among other things, performance of the Issuer and market conditions” over the ensuing 90 days, he said in the related filing. The activist investor did not attribute the sale to any displeasure with management.
“The Reporting Persons are pleased with the performance of the Issuer’s CEO and are confident in his ability to continue to create value for shareholders,” he said.
Loeb’s sale constituted 8 million shares, dropping his holding to 28,008,125 shares. The sale, executed at a price per share of $68.62, represented a sizable gain from average share price when he purchased most of the stock in the third quarter of 2015 around $38.
When he invested in the company, which focuses on renal care and medical products, Loeb in a shareholder letter called it “one of the most promising positions in our portfolio.” The stock then went on to post two strong years, rising 63.68% after a near 1% decline overall in 2018.
Loeb’s optimism about the company centered on the CEO he helped install on Jan. 1, 2016, Jose “Joe” Almeida,” formerly of health products company Covidien before its sale to Medtronic (MDT, Financial). Over the next two years, Almeida enacted a reduction in costs, the exit of some unprofitable products and a focus on high-margin businesses.
Despite strong operational performance over his tenure, the stock plunged 9% on Oct. 31, erasing its gains for the year, when it reported third quarter results and fourth-quarter guidance, as investors worried he could not continue the momentum. Baxter had revenue growth of 2% to $2.8 billion, along with a 117% increase in net income to $544 million.
But the company disappointed investors by lowering its revenue projection for full-year 2018 on a reported basis to 5% from a range of between 6-7% it predicted at the start of the year. Baxter also lowered its guidance for sales growth on an operational basis to 3% from a previously expected 4%.
Shares of Baxter International fell 0.7% on Thursday to $66.79 per share. They had a price-earnings ratio of 30.19, price-sales ratio of 3.92 and price-book ratio near a one-year low at 3.94.
Loeb’s hedge fund Third Point, which has pursued changes at Campbell Soup (CPB, Financial) and Nestle (XSWX:NESN, Financial) this year, fell 5.2% through November. The S&P 500 rose 5.1%.
See Daniel Loeb (Trades, Portfolio)'s portfolio here.
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