Tiger Cub John Griffin’s Blue Ridge Capital Up to 6% of Endo Health Solutions Inc (ENDP)

Blue Ridge Capital, a hedge fund managed by John Griffin, has filed a 13G with the SEC to disclose a position of 6.6 million shares in Endo Health Solutions Inc (NASDAQ:ENDP), a $4.1 billion market cap pharmaceutical company. Griffin had previously worked for legendary investor Julian Robertson at Tiger Management; he and the other hedge fund managers who got their start there are often called “Tiger cubs.” We track quarterly 13F filings from hedge funds and other notable investors as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and can also see using our database that Blue Ridge had not owned any shares at the beginning of this year (find Griffin’s favorite stocks).

Endo Health Solutions Inc (NASDAQ:ENDP) has reported its results for the first quarter of 2013. According to the company’s 10-Q, revenue increased by 3% versus a year earlier. With costs of goods sold falling and the business spending less than half as much as it had in Q1 2012 in research and development, operating income came in at over $140 million after adding back a special item related to legal contingencies. Endo Health Solutions Inc (NASDAQ:ENDP) had actually taken an operating loss in the first quarter of last year, so this is a noticeable improvement. Because of an increase in working capital, however, the company used almost $60 million in cash for its operating activities in the quarter; between that, capital expenses, and paying down a term loan its cash balance was reduced to about $340 million.

BLUE RIDGE CAPITALWall Street analysts are expecting $4.50 in earnings per share for this year, placing Endo Health Solutions Inc (NASDAQ:ENDP)’s stock price at a current-year P/E multiple of only 8. The sell-side is projecting EPS to decline in the following year, and as a result the forward earnings multiple is 10. That’s still fairly cheap, but we would be a bit concerned that business would continue to shrink. John Levin’s Levin Capital Strategies initiated a position of 2.8 million shares in Endo Health Solutions Inc (NASDAQ:ENDP) during the fourth quarter of 2012 (see Levin’s stock picks). Billionaire Steve Cohen’s SAC Capital Advisors cut its stake by about 50% between October and December, though it still closed the year with 2.2 million shares in its portfolio (check out more stocks SAC owned).

Other drug companies include Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), Gilead Sciences, Inc. (NASDAQ:GILD), Abbott Laboratories (NYSE:ABT), and Pfizer Inc. (NYSE:PFE). Teva is the cheapest of these companies in terms of consensus earnings forecasts for 2014, with a forward P/E of only 7. However, that figure assumes a considerable improvement on the bottom line from current conditions despite revenue and earnings being down recently. Pfizer is a somewhat interesting dividend stock, with a yield of 3.3% at current prices; its earnings were up over 50% last quarter compared to the first quarter of 2012, but revenue was actually down 9%. It does look a bit cheap, and so might be worth looking into why its financials are behaving this way. Abbott and Gilead trade between 16 and 18 times forward earnings estimates. Gilead’s trailing P/E is considerably higher as the stock has more than doubled in the last year, but the company has been recording good growth numbers and the market is apparently anticipating further increases in earnings in the future.

As a result it might also be worthwhile to check out what the next few years could look like for Gilead and see if it is in fact an attractive growth stock. We’ve also mentioned Pfizer as being of interest. As for Endo Health Solutions Inc (NASDAQ:ENDP), it’s interesting that Griffin is buying but as we’d mentioned analysts (who are normally bullish) are looking for EPS to decline going forward and so it might be best to wait for another quarter or two of results to see if those are in line with sell-side targets.

Disclosure: I own no shares of any stocks mentioned in this article.

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