Activist short-seller Ben Axler reveals his first long position in over 3 years
Activist short-seller Ben Axler, the CIO and founder of Spruce Point Capital, has made a name for himself betting against stocks. But he just made his first long call in over three years.
Axler is betting that shares of Henry Schein (HSIC), a healthcare products distributor, will move higher anywhere from 30% to 50%. Right now, Henry Schein trades just above $84, above the average analyst price target of $80. Axler’s base case is $106, and his bull case is $126.
In recent years, Axler has been gun-shy about putting out a long idea because it’s been tough to find attractive growth at reasonable prices with the right risk/reward in this bull market.
According to Axler, investors have been somewhat negative on Henry Schein, reflected in the 11% short interest on the stock. This is most likely attributable to the views of the dental business.
Axler often looks at stocks that are heavily shorted to understand what’s going on.
His bullish thesis for Henry Schein centers around the potential for unlocking value with the company’s upcoming spin-off of its fast-growing animal health distribution business. Once Henry Schein spins off the animal health business, it will merge with privately-held Vets First Choice to form a new company.
Using an algo to analyze a private company
Since Vets First Choice is private, Spruce Point took a different approach to due diligence. The hedge fund built an algorithm to run 40,000 U.S. zip codes through VFC’s vet finder and, as a result, believes that the company is on pace to onboard 9,000 veterinary practices by the end of the year on its prescription management platform, about 54% more than the 5,100 the company last disclosed in April. The algorithm also suggests there are 7,900 vet practices on the platform to date. Spruce Point also conducted 100 surveys of vets to understand customer satisfaction and they found overwhelmingly positive feedback.
In sum, they think it will be a synergistic merger with significant revenue uplift potential.
“Vets First Corp will be the 3rd largest pure-play animal health company and be the fastest EBITDA growth story in its space. As a result, we expect VFC to attract significant attention from growth-starved investors,” Axler wrote in an investor presentation.
As a short seller, Axler typically operates as a forensic financial researcher, using an investigative investment style that includes looking for companies that might be hiding financial strain through aggressive accounting or using M&A to paper over problems. He then publishes his findings publicly on his website. To date, he’s exposed more than $1 billion in alleged frauds. Just last month, Axler told Yahoo Finance that there are plenty of opportunities for shorting certain stocks in this frothy bull market.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.
