Whitney Tilson in his email discusses Citron’s short report on Monster Beverage Corporation (MNST); He also attaches JHL Capital’s presentation on Conglomerate Boom 2.0 – Valeant (VRX).
Whitney Tilson on Andrew Left’s short report on Monster Beverage Corporation (MNST)
1) At first glance, trading at 9.3x revs, 48x trailing earnings and sporting a huge $28B market cap, it sure looks like Andrew Left is onto something with his short report on MNST released today (attached)… Here’s the summary from Activist Shorts:
On 1-29-2016, Citron Research said that Monster Beverage Corporation was not a product company with a broad suite of unique products but was instead a marketing company that was trying to differentiate its brand among many competitors. Citron also noted that the company’s market valuation was up 500%, while its revenues were up 90%, but Citron said that the company was neither a technology company nor “virally scalable.” Citron also said that Coca Cola’s investment eliminated the possibility of an eventual purchase, and it added that Monster’s entry into China committed the company to an expensive brand-building exercise at lower margins. Citron questioned whether Monster would have a “Chipotle moment,” and it noted increasing risks shadowing the energy drink market, including government regulation and health concerns. Citron set a price target of $80, or about 42% downside.
See full citron short report on MSNT below:
Whitney Tilson: Conglomerate Boom 2.0: A Stable Platform?
2) Attached is a presentation JHL Capital Group made at the Grant’s conference last October entitled: Conglomerate Boom 2.0: A Stable Platform? and below is an article about it.
A dark narrative about the stock market is starting to take hold on Wall Street
A new narrative about today’s stock market is starting to take hold on Wall Street.
It’s a throwback to a time when many Wall Street titans had never even dreamed of investing — the 1960s conglomerate boom.
“Top lines are weak, and therefore to get growth, synergies are appealing,” Altman said in his interview.
“Mergers generate substantial synergies,” he added, “so that provides for earnings and cash flow growth, even if it doesn’t provide for revenue growth, and I think that’s a big driver, so at the margin [this shows] weakness.”
The first we heard of this narrative was from a presentation at the James Grant Interest Rate Observer conference, when an investor named James Litinsky of the Chicago-based JHL Capital Group presented his slide deck, “Conglomerate Boom 2.0: A Stable Platform?”
Litinsky created an index of conglomerates from the 1960s, including Teledyne, Textron, and Ogden Corp., and charted their boom-and-bust cycle against the S&P 500’s performance over the same period.
It looks like this:
Indeed, Valeant is on Litinsky’s index of conglomerates poised to suffer from the market’s changing environment. He calls this index The Platform Boom Index, and it includes the companies Anheuser-Busch InBev, Danaher, and Allergan Pharmaceuticals.
Valeant’s share price has been cut in half over the past month on accusations of fraudulent accounting and other nefarious activities perpetrated by Philidor Pharmacy, its once-secret distributor.
But some observers had decried Valeant’s business model even before allegations of fraud threw the company into the spotlight.
One of them was short-seller Jim Chanos, who over a year ago said the company was an accounting roll-up. A roll-up is a company that does not grow organically but relies on serial acquisitions and aggressive accounting to show growth.
Charlie Munger, Warren Buffett's 91-year-old partner, said the same thing at an investor conference months ago. He compared Valeant to the 1960s conglomerate ITT.
See full JHL Capital's presentation on Conglomerate Boom 2.0 below.