Raging Capital Double-Shorting Valeant, Goes Long AFI, CAVM, Others

Raging Capital Management is a New Jersey-based hedge fund founded in 2006 by William Martin. The fund manages a U.S. equity portfolio worth over $650 million as of June 30, and invests primarily in technology, energy, industrial, consumer goods, and utilities stocks. Mr. Martin also founded Raging Bull, one of the earliest online stock trading platforms of the dot com era. Raging Capital has been a strong performer in 2016, having returned 5.1% in the second quarter, and 14% so far this year. The investment firm has also delivered a compound annual growth rate of 21.2% since its inception.

In this article we’ll take a look at several moves made by the activist hedge fund during the second quarter, and the latest concerning its shorting of embattled pharmaceutical company Valeant.

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William Martin Raging Capital Management

Armstrong Flooring Inc (NYSE:AFI)

– Shares Owned by Raging Capital Management (as of June 30): 2.66 million

– Value of Raging Capital Management’s Holding (as of June 30): $45.02 million

Raging Capital acquired approximately 2.66 million shares of Armstrong Flooring Inc (NYSE:AFI) during the three-month period ended June 30. The stake in the Pennsylvania-based flooring solutions company accounts for around 6.9% of the value of the activist hedge fund’s equity portfolio. The company reported a 33.8% fall in profits for the second quarter, having earned $0.56 per share on $314.3 million in revenue, though the results did beat analysts’ estimates of $0.51 in EPS and $311.65 million in revenue. In an interview with Value Investor Insight at the end of May, Mr. Martin said that the company is well positioned in a robust housing market with its leading hardwood-floor brands, and that he expects its performance to improve as the recently-spun off company addresses some missteps made by its former parent company. 16 hedge funds in our system own shares of Armstrong Flooring Inc (NYSE:AFI) as of June 30, and are very overweight the stock, owning 45.20% of its float.

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Cavium Inc (NASDAQ:CAVM)

– Shares Owned by Raging Capital Management (as of June 30): 834,925

– Value of Raging Capital Management’s Holding (as of June 30): $32.22 million

California-based semiconductor company Cavium Inc (NASDAQ:CAVM) is another noteworthy new addition to Raging Capital’s portfolio during the second quarter. The fund acquired 834,925 shares of the company, worth $32.22 million on June 30. Last week, Cavium completed its acquisition of QLogic, a networking and storage solutions company, which it bought for $1.3 billion. Cavium Inc (NASDAQ:CAVM) earned $0.41 per share during the second quarter, in-line with estimates, while revenue of $105 million narrowly exceeded the forecasts of $104.9 million. The stock is down by over 16% so far this year.

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On the next page we’ll discuss the other big moves made by Raging Capital during the second quarter.

TriNet Group Inc (NYSE:TNET)

– Shares Owned by Raging Capital Management (as of June 30): 920,429

– Value of Raging Capital Management’s Holding (as of June 30): $19.14 million

Raging Capital bought 920,429 shares of Cloud-based human resources provider TriNet Group Inc (NYSE:TNET) during the second quarter. The aggregate value of the position stood at $19.14 million on June 30. The company reported second quarter EPS of $0.27, better than the estimates of $0.25, while revenue for the quarter came in at $149.2 million, above the consensus target of $148.11 million. Following the results, Piper Jaffray reiterated its ‘Neutral’ rating for TriNet Group Inc (NYSE:TNET) and upped its price target on it to $21. Eric Bannasch’s Cadian Capital owns 2.13 million shares of the company as of June 30.

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Range Resources Corp. (NYSE:RRC)

Raging Capital dumped all its Range Resources Corp. (NYSE:RRC) stake during the second quarter, selling over 1.1 million shares of the Texas-based oil and gas company. The company reported a second quarter net loss of $224.9 million, nearly double the loss of $118.6 million that it reported for the same quarter of last year. Revenue of $363 million did sharply beat analysts’ estimates of $326.91 million however. The stock has gained over 62% year-to-date. Andreas Halvorsen’s Viking Global had over 9.33 million shares of Range Resources Corp. (NYSE:RRC) in its portfolio at the end of June.

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Valeant Pharmaceuticals Intl Inc (NYSE:VRX)

Raging Capital Management owns a short position in Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) that has been extremely prosperous. Raging Capital’s short positions should get the attention of traders, as its short book has gained 14.3% in the first half of 2016, fueled in part by Valeant’s downfall, as it started shorting the company when it was trading at around $170. It now trades at a mere $31.27. In the second quarter letter to clients, Raging Capital warned that Valeant could go bankrupt. The fund does not believe that the company will improve its financial position by selling its assets and has also started shorting Valeant’s unsecured notes to make a “meaningful” profit as the risk of the company’s bankruptcy swells. On Monday, Valeant Pharmaceuticals appointed Paul Herendeen, a drug industry veteran, as its CFO. The beleaguered company is reportedly facing criminal charges for allegedly defrauding insurers by hiding its relationship with a specialty pharmacy that helped boost its drug sales. Valeant Pharmaceuticals Intl Inc. (NYSE:VRX)’s stock has lost over 69% so far in 2016.

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Disclosure: None