A 13G filed with the SEC has disclosed that Brahman Capital, a hedge fund managed by Peter Hochfelder and his team, owns 6.3 million shares of Endo Health Solutions Inc (NASDAQ:ENDP), a $4.3 billion market cap pharmaceutical company. We track quarterly 13F filings from hedge funds such as Brahman as part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year) and so we can see that this position is more than double the 2.7 million shares that the fund had owned at the end of March; Brahman had only started buying shares earlier this year. See more of Brahman’s stock picks from the end of Q1. The fund’s stake in Endo has grown to 5.7%.
In Endo Health Solutions Inc (NASDAQ:ENDP)’s most recent 10-Q, the company reported a small increase in revenue compared to the first quarter of 2012. However, a number of costs- including R&D expenses- were cut over this time frame and so if we exclude special items such as litigation and asset impairment charges we get operating income of more than $140 million as opposed to an operating loss in last year’s Q1. Even including these special items as charges Endo Health Solutions Inc (NASDAQ:ENDP) turned a profit during the quarter. We would note, however, that a large increase in working capital caused cash flow from operations to be negative.
Analysts expect adjusted earnings per share to be $4.32 for this year, making for a current-year P/E multiple of 9. While that seems low, the sell-side (which for many companies is often accused of being too optimistic) expects EPS to decline considerably in 2014. Their projections make for a forward earnings multiples of 10, and for the stock to be a value play it would likely have to keep its business constant from that point forward. In May, we had noticed Tiger Cub John Griffin’s Blue Ridge Capital reporting a position of 6.6 million shares in Endo Health Solutions Inc (NASDAQ:ENDP) itself, giving that hedge fund close to 6% ownership as well (find Griffin’s favorite stocks). 12% of the float is held short.