Dover Corp (DOV), DowDuPont Inc (DWDP) & More: Billionaire Dan Loeb’s Third Point Q3 Letter and Portfolio Updates

During the third-quarter, Third Point initiated a stake in Dover Corp (NYSE:DOV) and has already engaged in “constructive dialogue with management regarding several compelling value creating opportunities.” The industrial conglomerate caught Third Point’s attention due to its leading position in consolidated end markets and the underperformance that the stock had shown compared to its industry peers.

The underperformance was caused by the drop in earnings registered by Dover Corp (NYSE:DOV)’s energy business and the decline of oil prices. To address this issue, Third Point proposed the separation of the energy segment, which would be an attractive acquisition opportunity for many buyers, given that the segment has strong cash flow and recurring parts and service revenue. On the other hand, Dover Corp (NYSE:DOV) would be able to reduce its earnings volatility as its business won’t be so tied to the cyclicality in energy prices.

Moreover, Third Point thinks that Dover Corp (NYSE:DOV) should focus more on its core industrial portfolio, such as printing and identification and retail fueling, where the company has either the largest or the second-largest market shares. While more than half of Dover’s industrial EBIT is generated in these consolidated markets, its margins are lower in comparison to peers. Dover’s management recently addressed this issue by setting a target of 300 basis points in margins increases by 2019 and Third Point was reassured that the company is going to commit to these goals. The investor also believes that Dover Corp (NYSE:DOV) should optimize its capital allocation.

Dover Corp (NYSE:DOV) has already taken some of the steps suggested by Dan Loeb and his team. In addition to the margin targets, management has announced that it is exploring strategic alternatives for its energy business and plans to switch to the “adjusted EPS” reporting system to highlight its cash flow generation. Third Point still considers Dover Corp (NYSE:DOV)’s stock attractive, as it is trading at 14-times 2019 estimated free cash flow, significantly lower compared to the 18-times 2019 consensus free cash flow of its peer group.

In Honeywell International Inc. (NYSE:HON), Third Point initiated a stake during the third-quarter of 2016 and last reported ownership of almost 1.28 million shares of it, as of the end of June. In March, Honeywell International Inc. (NYSE:HON) appointed a new CEO, Darius Adamczyk, and Third Point outlined its position that a “more streamlined Honeywell could accelerate growth and yield sustainable value creation,” during a meeting with him. The fund also suggested spinning off Honeywell’s Aerospace division as the most impactful measure to streamline the company’s operations.

Earlier this month, Honeywell International Inc. (NYSE:HON) said it would spin off its home and transportation businesses, which have combined revenue of $7.5 billion, into two new separate companies. The move, which is expected to be completed by the end of 2018, was approved by Third Point. The investor said it is confident that Mr. Adamczyk will continue to execute on improving Honeywell International Inc. (NYSE:HON)’s portfolio.

On the next page, we will present Third Point’s updates regarding its investments in DowDuPont Inc (NYSE:DWDP) and Nestle SA.