Glenview Capital, managed by Larry Robbins, is a New York-based hedge fund with an estimated $7 billion in assets under management. Prior to founding Glenview in 2001, Robbins worked as a trader at Leon Cooperman’s Omega Advisors. His current fund employs a variety of long/short equity strategies, with a focus on the GARP (growth at a reasonable price) model. In most quarters, Glenview has fewer than 50 stock holdings in its 13F portfolio, and Robbins has had a history of becoming a large shareholder in his top-rated companies. It appears that this strategy has been very effective, as Glenview returned over 300% between January 2001 and December 2010.
In a Form 3 filing with the SEC after yesterday's closing bell, Glenview reported that it was making a similar move with Tenet Healthcare Corporation (NYSE:THC). At the end of the second quarter of this year, the fund’s 13F filings showed that it held approximately 41.3 million shares in the company worth a total value of $216.4 million. Glenview’s newest purchase of the stock has increased its total ownership of Tenet to 49.8 million shares worth a value in excess of $300 million. Due to the nature of this filing, it can be confirmed that Glenview’s stake in Tenet Healthcare is now above 10%, with broad-based estimates putting the fund's total ownership at about 12.7% of common stock outstanding.
Due to the fact that this is an enormously bullish bet initiated by one of the most successful money managers in the world, it’s worth exploring Tenet Healthcare a bit further. Since the start of 2012, shares of the healthcare services company have returned 18.7%, below the medical care industry’s average (22.8%), Community Health Systems (NYSE:CYH) at 67.2%, HCA Holdings Inc. (NYSE:HCA) at 48.3%, and DaVita Inc. (NYSE:DVA) at 31.3%, but above the likes of Universal Health Services, Inc. (NYSE:UHS) at 14.8%, and Fresenius Medical Care AG & Co. (NYSE:FMS) at 5.0%.
In its most recent earnings release, Tenet Healthcare reported a second-quarter adjusted EPS of 11 cents a share, more than double what the Street was expecting ($0.05). By the end of 2012, analysts are predicting that the company will reach earnings of 58 cents a share, which would mark a 7.4% increase from the $0.54 it reported in 2011. Moreover, Tenet’s bottom line is expected to expand another 15.4% between 2012 and 2013, with year-ahead EPS estimates averaging 67 cents a share. At it’s current price of close to $6 a share, it appears that the markets are not fully appreciating Tenet’s earnings potential.
The stock trades at a Forward Price-to-Earnings ratio of 9.2X, below DaVita (14.4X), Universal Health Services (9.3X), and Fresenius Medical Care (17.1X). From a P/S (0.3X) and P/B (2.1X) standpoint, a similar undervaluation can be seen, as Tenet trades at an average discount of 40% in relation to industry average sales and cash flow multiples.
Due to the company’s healthy earnings outlook and its attractive valuation, we can see that Tenet Healthcare fits the necessary requirements set forth by Larry Robbins’s GARP strategy, and it appears that some of the industry’s most prominent hedge fund managers agree. At the end of this year’s second quarter, Cliff Asness, Israel Englander, and Steven Cohen increased their holdings of the company by an average of 299% in just three months' time.
One interesting tidbit to note: with their most recent purchase, Glenview Capital and Larry Robbins now hold more shares of Tenet than any of their peers combined, and it isn’t even close. These 19 other hedge funds hold a total value of close to $90 million worth of Tenet in their 13F portfolios, less than one-third of Glenview’s total holdings. In short, this stock may be a good addition to individual investors’ portfolios not just because of Robbins’s impressive track record, but because it has the appealing combination of growth at a reasonable price.
For a complete look at the hedge fund industry’s sentiment towards this stock, continue reading here.