On Sale: You Can Buy Dan Loeb's Latest $2 Billion Bet at an 8% Discount

September 1, 2015 1:59 PM EDT

Like many of his hedge fund peers, Dan Loeb's Third Point LLC had a rough August. The fund dropped 5.2 percent during the chaotic month, but is still up 1.2 percent for the year, according to Reuters. At the beginning of the month, before all the chaos ensued, Loeb & Company disclosed their latest massive bet - a $2 billion long position in Baxter International (NYSE: BAX). With the recent market correction, you can now own the stock for 7.8% cheaper than Mr. Loeb paid.

Third Point disclosed in its 13D that it paid $2,122,774,805 for their 52,500,000 shares of Baxter, or about $40.43 per share. The current price is $37.29 per share.

The firm's stake is equal to 9.6% of the outstanding shares.

In the filing, Loeb, known in the past as "rabble rouser", took a more friendly approach to Baxter. He applauded the company's successful spinoff of Baxalta and said he was "pleased" by the decision to implement a CEO succession plan. Loeb also said they are "most impressed" by the company's willingness to consider new Directors for the Board to compliment the new CEO. Given their large position, the firm discussed nominating their representatives for two Board seats. Loeb highlighted their "excellent track record of participating on corporate boards and on CEO search committees in particular, as demonstrated by our role in hiring several stellar, high-performing CEOs." Loeb did criticize the staggered Board, saying it is shareholder unfriendly and archaic.

Well, now that you have an opportunity to buy Mr. Loeb's large, well-research investment on the cheap should you?

Following the spinoff of Baxalta, Baxter is considered a margin expansion story. The company is targeting 14% operating margins by 2020. As for sales growth, the pipeline is the biggest driver of sales growth acceleration over the next 5 years, although this leaves execution risk, according to Leerink Partners analyst Danielle Antalffy, who rates the stock a Market Perform with a $40 price target.

"Overall, while we find BAX’s margin expansion/sales growth reacceleration story compelling – positioning BAX for double-digit EPS growth in 2016 & beyond, in the top tier of comparable large-cap MedTech firms – we believe investors are already giving BAX credit for this and further upside to current estimates," Antalffy commented. "With BAX shares currently trading at a 60%+ premium to the large-cap MedTech universe, we struggle to see the incremental upside from here."

Leerink Partners is not the only Wall Street firm with a subdued view on Baxter. The overall Wall Street rating score on Baxter is 3.8 out of 10, according to Ratings Insider data. This places it in the 35% percentile for rating scores. This suggests sentiment on the stock is low and Dan Loeb's bet is contrarian in nature, which is not a bad place to be.

Meanwhile, while the consensus view about the stock is muted, well-respected Wall Street research firm Goldman Sachs recently went against the grain and launched coverage with a Buy rating and $45 price target.

With a CEO succession plan catalyst, board changes, margin and sales growth, and low Wall Street sentiment, Baxter could be a stock to watch and potentially following Dan Loeb in.



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