Activist Jeffrey Smith’s Bloomberg Summit Interview and Comments About Targets

Jeffrey Smith of the $4.4 billion activist hedge fund Starboard Value is laser focused on one thing and one thing only. He’s willing to do whatever it takes, including fighting with entrenched management in proxy fights, to get it. Smith is focused on guiding management into the right path and unlocking value for shareholders. Given Starboard Value’s annual return of 16.2% since 2002, Smith has done an admirable job so far. Smith recently did an interview at the Bloomberg Summit, and below are some of the interview highlights:

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Smith first talked about how his fund works and how it is different from other activist funds. Starboard Value invests in undervalued companies where there is an alternative plan different from management’s existing plan to unlock value. Starboard first approaches management in a friendly manner and requests management take some or all of their advice. If management doesn’t see the wisdom, Starboard will go activist and challenge management with a proxy fight. Smith’s fund is different from other funds in that Starboard is more operationally focused, and works with management to guide the company through future challenges and opportunities. The fund isn’t in it for the quick buck, and doesn’t ask a company to leverage up to pay its shareholders a big dividend.

Among the many companies Starboard is involved in, Smith talked extensively about three of them in the interview, Advance Auto Parts, Inc. (NYSE:AAP), Brink’s Company (NYSE:BCO), and Yahoo! Inc. (NASDAQ:YHOO).

Smith believes Advance Auto Parts, Inc. (NYSE:AAP) is substantially undervalued because it isn’t run as well as it should. Smith notes that similar competitors Autozone, Inc. (NYSE:AZO) and O’Reilly Automotive Inc (NASDAQ:ORLY) have operating margins of around 20% while Advance Auto Parts has operating margins of 12%. He believes Advance Auto Parts’ operating margins could be just as high as its competitors if management’s execution improves, non-core assets are monetized, and some working capital comes out of the business. Smith has a price target of $360 per share and Starboard owns 3.7% of Advance Auto Parts’ float. Other elite investors who are also long Advance Auto Parts include Stephen Mandel‘s Lone Pine Capital and Jeffrey Tannebaum’s Fir Tree.

Smith feels Brink’s Company (NYSE:BCO) is undervalued as well, as Starboard has a 12.4% stake in the company. Smith believes Brink’s has best in class scale and brand but has dramatically worse margins than its competitors. Smith believes the stock could be worth anywhere from $45 to $73 per share if management adopts his advice. Last week we covered Starboard’s demands and the company’s response in detail in this article. Other elite holders in Brink’s include Matt Sirovich And Jeremy Mindich’s Scopia Capital and Dan Friedberg’s Sagard Capital Partners Management Corp.

Starboard also owns 3.55 million shares of Yahoo! Inc. (NASDAQ:YHOO), a company Smith feels is undervalued. Although Yahoo shares are down 34.9% year to date as Alibaba sinks due to slowing growth and a weakening Chinese economy, Smith is optimistic on Yahoo and believes the benefits of the future spin off of Yahoo’s Alibaba holdings isn’t reflect by the stock price at all. Other major holders of Yahoo include Daniel S. Och’s Oz Management and Christian Leone’s Luxor Capital Group.

Disclosure: none