Taro Pharmaceutical Industries Ltd. (TARO) Gaps Open After Release of FY2016 Financial Results

Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is in the spotlight today after the company reported adjusted EPS of $2.68 on sales of $265.1 million for its fourth quarter of fiscal year 2016. Sales rose by 8.6% year-over-year while operating income rose by $28.2 million to $181.7 million, despite relatively flat volumes. The net income was $2.68 per share was down from $3.56 per share a year ago, being impacted by unfavorable forex movements. For the full fiscal year, Taro earned $12.62 per share, up from $11.31 a year earlier. Revenue was $950.8 million, up by 10.2% year-over-year despite a 5% volume decline. The company ended the fiscal fourth quarter with $1.2 billion in cash and marketable securities. Shares of TARO are up by 2.39% this morning.

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Ackman’s recent Valeant losses). However, it is still good idea to keep an eye on hedge fund activity (see the details here). With this in mind, as the latest round of 13F filings has just ended, let’s examine the smart money sentiment towards Taro Pharmaceutical Industries Ltd. (NYSE:TARO).

Taro Pharmaceutical Industries Ltd. (NYSE:TARO) was in 21 hedge funds’ portfolios at the end of the first quarter of 2016. TARO shareholders have witnessed an increase in enthusiasm from smart money of late. There were 19 hedge funds in our database with TARO positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as American Campus Communities, Inc. (NYSE:ACC), China Southern Airlines Co Ltd (ADR) (NYSE:ZNH), and Allegion PLC (NYSE:ALLE) to gather more data points.

Of the funds tracked by Insider Monkey, Renaissance Technologies, founded by Jim Simons, holds the biggest position in Taro Pharmaceutical Industries Ltd. (NYSE:TARO). Renaissance Technologies has a $70.4 million position in the stock, comprising 0.1% of its 13F portfolio. On Renaissance Technologies’ heels is Jonathan Savitz of Greywolf Capital Management, with a $35.1 million position; his fund has 6% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism include Robert B. Gillam’s McKinley Capital Management, Anders Hallberg and Carl Bennet’s HealthInvest Partners AB, and Tim David’s Guardian Point Capital.

On the next page we’ll look at some funds that took up positions in TARO during Q1, as well as compare the stock to a handful of others with similar market caps.

Consequently, some big names were breaking ground in TARO themselves. HealthInvest Partners AB assembled the biggest position in Taro Pharmaceutical Industries Ltd. (NYSE:TARO), having $13.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $4.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Ken Griffin’s Citadel Investment Group, and Cliff Asness’ AQR Capital Management.

Let’s now review hedge fund activity in other stocks similar to Taro Pharmaceutical Industries Ltd. (NYSE:TARO). We will take a look at American Campus Communities, Inc. (NYSE:ACC), China Southern Airlines Co Ltd (ADR) (NYSE:ZNH), Allegion PLC (NYSE:ALLE), and The Middleby Corporation (NASDAQ:MIDD). This group of stocks’ market valuations resemble TARO’s market valuation.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $355 million. That figure was $169 million in TARO’s case. Allegion PLC (NYSE:ALLE) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (ADR) (NYSE:ZNH) is the least popular one with only 4 bullish hedge fund positions. Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ALLE might be a better candidate to consider a long position.

Disclosure: None