Vulcan Value Partners Talks Oracle (ORCL)’s Value, Plus New Positions in McKesson (MCK), Qorvo (QRVO), More

Vulcan Value Partners, Llc is a Birmingham-based hedge fund. The fund invests in publicly-traded companies using a long-term investment horizon. The fund also tries to identify stocks which are trading at significant discounts in comparison to their intrinsic value. The fund has a public equity portfolio containing holdings valued at $10.89 billion as of September 30, with 27% of that value being invested in stocks from the Information Technology sector, followed by 24% in the Finance sector.

In this article we will look at the fund’s positions in Oracle Corporation (NASDAQ:ORCL), McKesson Corporation (NYSE:MCK), UnitedHealth Group Inc. (NYSE:UNH), Qorvo Inc (NASDAQ:QRVO), and Dover Corp (NYSE:DOV), as well as its comments on some of those positions from its third-quarter investor letter.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

Ken Wolter/shutterstock.com

Oracle Corporation (NASDAQ:ORCL)

– Shares Owned by Vulcan Value Partners (as of September 30): 22.33 million

– Value of Vulcan Value Partners’ Holding (as of September 30): $877.29 million

Vulcan Value Partners’ largest holding is in Oracle Corporation (NASDAQ:ORCL), despite reducing its stake in the stock by 3% during Q3, to 22.33 million shares worth $877.29 million. According to Vulcan Value Partners, its high customer retention rate of 90% makes Oracle intriguing. The company’s contract for licensing agreements takes care of inflation, which makes it lot like quality REITs. The company can, however, add more services in cloud computing and look to acquire more customers. Vulcan Value Partners expects Oracle to grow its bottom-line by 8%. Also, having net cash on its balance sheet means that the company can grow two-times faster than an REIT without any leverage. Oracle trades at 11.5-times free cash flow while the return on its cash flow is 8.8%.

The company recently announced the completion of its acquisition of NetSuite Inc (NYSE:N) for $9.3 billion in cash. Overall, 53% of the latter’s shares were tendered. This is the second-biggest acquisition for the company, trailing only its PeopleSoft purchase for $10.3 billion in 2005. Oracle was forced to change its strategy due to tough competition from rivals like salesforce.com for enterprise services. The acquisition will help the company reach small clients like mid-market enterprises, which is an area where Oracle Corporation (NYSE:ORCL) has struggled to make its presence felt.

McKesson Corporation (NYSE:MCK)

– Shares Owned by Vulcan Value Partners (as of September 30): 1.69 million

– Value of Vulcan Value Partners’ Holding (as of September 30): $281.09 million

Vulcan Value Partners added a new position in medical supplies and healthcare information technology company McKesson Corporation (NYSE:MCK) to its portfolio during Q3. The fund bought 1.69 million shares of the company during the quarter, valued at $281.09 million at the end of the period. McKesson reported lower-than-expected third-quarter results recently, as the company reported EPS of $2.94 and revenue of $50 billion, missing estimates by $0.11 per share and $1.2 billion respectively. The company also slashed its fiscal year 2017 EPS forecast to $12.35-$12.85 from the previous range of $13.43-$13.93. That pushed it well below the Street’s estimate of $13.59. Vulcan Value likes McKesson because of the high barrier of entry in its industry.

On the next page we’ll look at the fund’s thoughts and activity as it related to UnitedHealth Group Inc. (NYSE:UNH), Qorvo Inc (NASDAQ:QRVO), and Dover Corp (NYSE:DOV).

Qorvo Inc (NASDAQ:QRVO)

– Shares Owned by Vulcan Value Partners (as of September 30): 4.80 million

– Value of Vulcan Value Partners’ Holding (as of September 30): $267.62 million

Vulcan Value Partners added Qorvo Inc (NASDAQ:QRVO) to its portfolio in Q3, acquiring 4.80 million shares worth $267.62 million on September 30. The company reported revenue of $863.7 million for the second quarter of its fiscal 2017, topping estimates by $28.93 million, while EPS of $1.29 was $0.12 below estimates. Qorvo’s gross margins also fell to 42.8% from 48.2% in the previous quarter. The impact on gross margin was attributed to a fall in manufacturing productivity. Vulcan Value sees Qorvo as fulfilling a vital role in cell phone production with its RF and other chips, which it believes only a few companies can produce on the scale of Qorvo.

UnitedHealth Group Inc. (NYSE:UNH)

– Shares Owned by Vulcan Value Partners (as of September 30): 929,431

– Value of Vulcan Value Partners’ Holding (as of September 30): $130.12 million

UnitedHealth Group Inc. (NYSE:UNH) is another stock in which Vulcan Value Partners created a new position in during the third quarter. The fund bought 929,431 shares of the company worth $130.12 million at the end of the quarter. Vulcan Value Partners believes that the market undervalues Optum, a healthcare information services company owned by UnitedHealth. Novocure Ltd (NASDAQ:NVCR) recently announced that United Healthcare will cover Optune as an adjunctive therapy for glioblastoma (GBM) treatment. United Healthcare, the largest health insurer in the U.S, provides medical benefit plans to over 44.7 million individuals.

 – Related Reading: 10 Countries With Lowest Healthcare Costs.

Dover Corp (NYSE:DOV)

Vulcan Value Partners sold off its entire stake in Dover Corp (NYSE:DOV) during the third quarter. The position had consisted of 1.30 million shares valued at $90.01 million on June 30. Vulcan felt the company no longer offered the margin of safety that it demands from positions after the stock gained 18% this year. The company reported third-quarter revenue of $1.71 billion, which was in-line with analysts’ estimates, while EPS of $0.83 missed estimates of $1.02. Dover Corp (NYSE:DOV) expects full year EPS of between $3.00 and $3.05, while anticipating that revenue will decline by 7-8%.

Disclosure: None