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Elliott management tilts towards growth with recent tech positioning
March 3, 2020
5 min read
Recent additions to the high-profile hedge fund Elliot Management’s portfolio point to an appetite for growth.
Few investors are worth paying as close attention to as Elliott Management.
That’s because the elite hedge fund has established an enviable track record. It has $40 billion in assets under management and has been operating for 43 years. During that time, it has delivered returns of about 14% annually.
So it’s noteworthy that a slew of recent additions to its portfolio is instead companies that are delivering strong growth or executing solid turnarounds.
These companies are also coming off of upbeat quarterly earnings calls, as reflected in their AlphaSense Sentiment Scores. For example, the sentiment scores for VMware (60), Equinix (34), NortonLifeLock (42), and LogMeIn (22) are all well above average for the Information Technology sector (6).
Elliot has recently added a slew of growth-oriented companies firing on all cylinders to its portfolio, a notable move for a firm best known for distressed and activist investing.
Investors should note that when a traditionally value-oriented investor like Elliott buys into growth stocks, it could speak to more than the potential for just the stores themselves. Since growth stocks tend to outperform in bullish scenarios, it could also mean that Elliott sees more upside ahead for markets broadly.
We used the AlphaSense platform to hone in on key growth drivers in management commentary and analyst research for the new additions to Elliott’s portfolio.
Software virtualization firm VMware (VMW) is firing on all cylinders. “We are thrilled to deliver more than $10 billion in revenue for full fiscal year ’20 with double-digit top-line growth, a significant milestone for VMware,” Patrick Gelsinger, the CEO of VMware, said in the company’s most recent earnings call. He added that fourth-quarter revenue increased 11% year-over-year, while the fiscal year 2020 revenue increased 12%.
Analysts at Morningstar predict VMware’s next wave of growth to come from software for hybrid clouds and network virtualization.
Global data center operator Equinix (EQIX) delivered revenue growth of 15% in its most recent quarter, analysts at Raymond James note, and analysts at Morningstar expect the company to average a top-line growth rate of 8% over the next decade. The steady growth is driven by how deeply embedded Equinix tends to be in customers’ data operations. As a result, the company represents the best opportunity for large-cap investors looking for better-than-average development mixed with consistency in the companies they cover, Raymond James analysts note.
While NortonLifeLock (NLOK) is amid a turnaround, it’s also now delivering growth. Revenue grew one percent year over year in the most recent quarter, making it the first time the company grew revenue in two years, analysts at UBS note. In addition, average Revenue per User (ARPU) rose 3% year over year, while billings were up 4%. These metrics show that the company’s disciplined investing was “turning the tide on growth,” the UBS analysts note. In addition, analysts at Morningstar pointed out that the company added 66,000 subscribers in the quarter – the first time it demonstrated user growth in two years.
NortonLifeLock management aims to use these positive developments to position the company long-term. “It is the first positive quarter of net customer adds in a long time, but to be fair, one quarter does not make a trend,” NortonLifeLock CEO Vincent Pilette said in the company’s most recent conference call. “While customer count is stabilizing, our focused execution and reprioritized investments have us on the right path to deliver long-term sustainable growth.”
LogMeIn (LOGM) – also in the middle of a business model transition – is also demonstrating modest growth. In its most recent quarter, the revenue of $323 million was up 4% year over year, while billings grew 5% in that timeframe, analysts at KeyBank note. Moreover, they project revenue to accelerate to 7% for the year ahead as the company resolves sales execution issues.
LogMeIn CEO William Wagner said the company plans to make the investments necessary to “win in the market, putting us on a path to double-digit growth and creating a much more valuable company,” in the company’s most recent conference call.
Investors are often quick to follow Elliott’s lead in activist and distressed situations. But they would be wise to pay equal attention when the hedge fund is buying into growing and improving companies.
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