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Dan Loeb Discusses Long Amgen (AMGN), eBay (EBAY) and Alibaba (BABA) in Q3 Letter; Sells Sony (SNE)

October 21, 2014 2:02 PM EDT

(Updated - October 21, 2014 2:25 PM EDT)

Dan Loeb's Third Point LLC hedge fund released its third quarter letter. In the letter, Loeb discussed Amgen (NASDAQ: AMGN), eBay (NASDAQ: EBAY) and Alibaba (NYSE: BABA) long. He also disclosed that he has sold his long Sony (NYSE: SNE) stake. Simultaneously, Loeb also mentioned Amgen at today's Robin Hood conference.

On Amgen, Loeb said the stock trades at a substantial discount to peers and even trades at a discount to the U.S. pharmaceutical sector, despite superior revenue and earnings growth rates. He believes this discount can be easily unlocked. The firm cites three reasons the market has penalized the stock: 1) its historical lack of R&D productivity; 2) more than a decade of flat operating margins; and 3) the suspension of its share repurchase program in 2013 following its $9 billion acquisition of Onyx Pharmaceuticals. He believes the company can easily address these sources of frustration. He said if shares are valued at one turn below its phama peers it should be worth $189 by the end of 2016. If Amgen fully seizes the opportunity outlined in their recommendation, EPS can reach $12.82 in 2017, implying a price of $218 at the same multiple. If the company strategically separated into two standalone businesses, shares could be worth almost $249 per share.

On eBay, the firm is pleased with the plan to separate PayPal. "Following the spinoff, eBay/PayPal will offer two appealing growth, relative value, and capital return profiles for investors," Loeb said.

On Alibaba, Loeb notes that they argued "the Case for Alibaba" two and a half years ago. Now that it is a public they have "established a significant direct investment in Alibaba shares." The firm is confident the company can generate long-term value in its core markets and compete in new ones, making it a compelling potential multi-year investment. Loeb said they are focused on Alibaba's multiple hidden assets that represent under-apprenticed sources of value, including: Aliyun / Alibaba Cloud Computing, China Smart Logistics, and AliPay. "We believe that Alibaba's $200 billion enterprise value (adjusted for public stakes)suggests we are getting valuable call options in Aliyun, China Smart Logistics and AliPay/Ant Financial for free," Loeb said.



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