Highlights From Greenlight’s Q4 Letter: Micron Is Out & Two New Positions

During the fourth quarter, Greenlight established a position in Macy’s, Inc. (NYSE:M), at an average price of $45.69 per share, betting on the eventual spin-off of the company’s real estate into a REIT, which could unlock plenty of value. However, the management decided this move would not be good for the company’s operational flexibility. Between October and December, the stock fell to below $35. Around those valuations, “the math might make more sense,” the letter added.

“While it’s unlikely that management will reverse course on its own, it wouldn’t surprise us if a private equity firm teamed up with a REIT to buy the company and unlock the value privately. Even if this doesn’t happen, the shares are cheap at 5x EBITDA, 7x equity free cash flow, and less than 9x 2015 EPS, with a healthy balance sheet and strong history of share repurchases. We think a portion of the recent sales weakness was driven by unseasonably warm weather and a strong dollar impacting tourist business, which should set up for favorable comparisons in 2016,” Greenlight said.

Another company added to the Greenlight’s portfolio is Mylan NV (NASDAQ:MYL), a large-cap generic pharmaceutical company, whose stock tumbled by 29% in the first nine months of 2015 and by more than 45% from their mid-year highs, after Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) dropped its hostile takeover bid for Mylan.

“During the fall, the market became overly focused on a series of overhangs including potential earnings dilution from a proposed and ultimately failed buyout of Perrigo (a private-label OTC business); corporate governance concerns, including an unusual takeover-defense mechanism; and widespread unease about the pharmaceutical sector amidst scrutiny of specialty pharmaceutical manufacturers like Valeant. We acknowledge eventual headwinds for the company’s branded EpiPen product, which could encounter competition from generics in late 2016. However, we see medium-term upside from a competitor recall, an announced share repurchase, and board review of corporate governance complaints. Ultimately, we expect MYL to earn close to $7 per share in 2018, driven by a robust pipeline of respiratory, injectable and biologic drugs and by further capital deployment including share repurchases. We initiated our position at an average price of $45.32, about 9x 2016 consensus EPS estimates. MYL shares ended the quarter at $54.07.”

 Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.