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Turnaround Letter
Out-of-Favor Stocks with Real Value

August 11, 2023

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We comment on earnings from Bayer AG (BAYRY), Berkshire Hathaway (BRK/B), Brookfield Reinsurance Ltd (BNRE), Elanco Animal Health (ELAN), Kopin Corporation (KOPN), L.B. Foster (FSTR), Six Flags Entertainment (SIX), TreeHouse Foods (THS), Tyson Foods (TSN) and Viatris (VTRS).

Next week, only Macy’s (M) is scheduled to report earnings.

Earnings Updates

Bayer AG (BAYRY)Bayer is a major German crop science, pharmaceutical and consumer health products conglomerate. Weak leadership led to underperforming operations and the disastrous $63 billion deal for Monsanto in 2018 which brought major liabilities amid allegations that glyphosate, the active chemical in Roundup, causes cancer. Other worries include litigation risk from PCBs, glyphosate pricing pressure, and upcoming patent expirations on Xarelto and Eylea, its two largest pharmaceuticals. However, the company is significantly undervalued, despite the legal issues, with sizeable and stable profits and cash flow. The new outsider CEO should bring stronger operational execution and perhaps major strategic changes (break-up). The balance sheet carries a reasonable debt burden.

Bayer reported a weak quarter due entirely to weaker glyphosate results. So far, there is little change in the underlying trajectory or strategy under the new leadership, but it is very early in this turnaround story.

Organic revenues fell by 8% and were 7% below estimates. Adjusted earnings of €1.22/share fell 37% and were about 1% below estimates. Adjusted EBITDA of €2.5 billion fell 25% and was 6% below estimates. Free cash flow was negative at €(473) million, compared to positive €1.14 billion a year ago.

Glyphosate sales, within the Crop Science segment, fell 70%. While it may seem like the product’s future is collapsing, the sharp decline is about half due to pricing reverting to historical levels following a surge in 2021 and 2022. The other half was due to lower volumes driven by one-time inventory reductions at Bayer’s channel partners in the U.S. as well as what are hopefully drought conditions in many geographies. Excluding glyphosate, Crop Science and total company revenues and operating profits would have been flat or higher.

The company said it had little in the way of updates on the glyphosate and PCB litigation matters.

Pharmaceutical segment sales were flat while profits slipped 7%. Consumer Health segment sales rose 5% and profits rose 2%.

Berkshire Hathaway (BRK/B) – Recommended at the end of March 2020 in the depths of the market’s pandemic-driven sell-down, Berkshire Hathaway is an exceptionally well-managed financial and industrial conglomerate.

Berkshire reported a healthy quarter, with operating earnings rising 7% from a year ago. Insurance underwriting profits, recently a drag on overall results as the industry slumped from rising costs, jumped 74% (although this was helped by the Allegheny Corp acquisition) and contributed essentially all of the total increase in operating profits. Higher insurance investment income and in its “Other Businesses” generally offset weaker profits in railroads and “Other.” Berkshire repurchased a relatively small $1.4 billion of its shares.

The shares reached a record high, helped by the company’s ongoing strong results and the steady increase in the price of Apple stock. In hindsight, we should have restored Berkshire’s Buy rating during the price dip.

Brookfield Reinsurance Ltd (BNRE) – Recently spun out of highly regarded Canadian investment management firm Brookfield Asset Management, BAM Re is a new investment company that acquires the assets of and future contributions to pension plans and life insurance books. It invests these assets with the expectation that the returns will be significantly greater than the build-up in the related payout obligations. Over time, excess returns can build up considerable value for shareholders.

Brookfield Re continues to roll forward, increasing its assets by 18% and producing $1.0 billion in distributable earnings before realizations, up 15% from a year ago on an adjusted basis. The pending acquisition of American Equity Life should help accelerate the company’s build-out. The pending Argo Group acquisition remains on track for a second-half 2023 closing. Once these two deals are completed, Brookfield will have nearly $100 billion in insurance assets. We remain committed to this intriguing situation to see how well it plays out.

Elanco Animal Health (ELAN) – Elanco is one of the world’s largest providers of pet and farm animal health products, ranging from flea and tick collars to prescriptions and farm animal nutritional supplements. Its share price has tumbled since our initial recommendation, weighed down by concerns over its Seresto flea and tick collar, lackluster new product roster and elevated debt. The shares have admittedly been a value trap – a falling share price but no change in valuation as earnings have tumbled. However, the company may finally be getting its act together: it has now fully integrated its Bayer Animal Health acquisition, has a promising new product pipeline and is seeing stabilization in its revenues, helped by price increases.

The company reported flat revenues and weak profits, but these were nevertheless above estimates across the board. Elanco fractionally raised its full-year guidance – for a chronic disappointer like Elanco, raising guidance rather than maintaining or reducing guidance is a positive, even if the increase was tiny and likely pre-orchestrated.

However, progress remains slow, particularly with Elanco’s new product pipeline and with overall revenue and margin improvements. We (as well as other investors) also need to see a clean exit from the ERP blackout period that weighs on the company’s credibility as well as results. The company illustrates how the cash drain from its various post-spin-off projects will fall sharply starting in 2024, but the spin-off occurred in 2021 – an eon ago – and it is disappointing that this “project” has taken so long to wind down.

Elanco’s debt is elevated but (hopefully) strong future free cash flow will help to reduce it. Favorably, the nearest meaningful debt maturity is in 2027.

In the quarter, revenues fell 9% but were flat when adjusted for management’s estimate of the effect of the ERP blackout period. Revenues were 1% above estimates. Adjusted earnings of $0.18/share fell 54% from a year ago, or only 20% when factoring in the ERP blackout. The earnings were sharply better than estimates for profits of $0.05. Adjusted EBITDA of $222 million fell 27% but was flat ex-ERP blackout and nearly double the consensus estimate.

Kopin Corporation (KOPN)This small company is developing high-performance optical display technologies, including headsets and other applications, for military, enterprise, industrial and consumer products. Since its launch in 1992, the company had been run as a money-losing research hobby by its brilliant founder. However, seismic changes are underway at Kopin that look poised to radically change this company’s trajectory, most notably that the founder has stepped away. He has been replaced by a capable outsider who is focused on creating a sustainably profitable and growing business. Kopin is well-funded and has zero debt. While the risks are high, so is the potential reward.

The company reported a reasonable quarter, with revenues increasing 12% while net income was an $(8.2) million loss. Revenues will likely continue to be volatile from quarter to quarter given the small base until the company develops and launches new and successful products. The cost structure continues to be reined in and re-focused on the new priorities. Operating losses narrowed to $(4.8) million from $(5.5) million a year ago. From a cash perspective, excluding the doubling of stock option expenses, the operating loss would have been considerably smaller. All-in, the company is making progress with its turnaround.

L.B. Foster (FSTR) – After years of weak share price performance, this small-cap manufacturing and distribution company, with a focus on railroad industry products and precast concrete structures, is undergoing a strategic overhaul. A new leadership team, a refreshed board and a halt to its previously steady stream of acquisitions and divestitures are allowing the company to emphasize improving its operating efficiency and trimming its unwieldy debt burden. This slow-moving turnaround seems to be on the right track but the stock market hasn’t recognized this yet.

The company reported a strong quarter. Revenues increased 13% (organic) and were about 5% above estimates. Adjusted net income of $0.41/share more than doubled from a year ago and was a sizeable 46% above estimates. New business trends look encouraging, as orders rose 30% and backlog increased 16% to a record level. Profit margins expanded significantly – the EBITDA margin of 27.1% compared to 23.2% a year ago – driven by profits from new business and the effects of previously completed acquisitions/divestitures. Foster incrementally raised its full-year profit guidance. Debt remains elevated at 2.5x EBITDA but will likely be reduced when seasonal working capital rolls off. In the quarter, the company repurchased about a half-percent of its shares.

Six Flags Entertainment (SIX)This company is one of the world’s largest theme park operators. Since mid-2018, the shares have collapsed due to stalled growth, over-expansion and the pandemic. This has led to a complete changeover in the board of directors and senior leadership. Six Flags is implementing a new strategy focused on raising prices while significantly improving the guest experience to attract more families. Investors worry that this strategy will not be successful. We see an asymmetric payoff: the shares assume a dour future, but a reasonable turnaround could produce sharp gains. Six Flags generates considerable free cash flow that will help reduce the company’s elevated debt. A long-time 20% shareholder provides valuable shareholder-oriented oversight to keep management properly focused.

The company reported a reasonable quarter that indicated stabilized revenues despite the unfavorable weather (wet in the northeast, hot in the south). Season passes, which were promoted to boost attendance after last year’s pricing debacle, are proving to be popular but led to lower in-park spending. Interestingly, compared to pre-pandemic 2019, Six Flags is generating higher North American profits on 32% lower attendance.

Management said that it is on track to generate somewhere around $510 million of EBITDA this year and is aiming for $700 million in a few years. While this is encouraging, the company is raising its capital spending plans, which, while probably needed from an operational perspective, siphons off cash that otherwise would help cut the elevated debt burden. The balance sheet carries $2.3 billion in net debt, down $100 million from a year ago.

Revenues rose 2% but were 3% below estimates. For our purposes, this is close enough. Attendance increased 6% while total spending per guest fell 5%. Adjusted earnings of $0.74/share rose 9% but were 5% below estimates. The major adjustment to earnings and EBITDA was for a large one-time increase in self-insurance reserves. Cash operating costs were essentially flat.

Modified EBITDA, which is a cleaner measure of operational performance for Six Flags than Adjusted EBITDA, rose 5%. This was essentially in line with estimates that likely included both metrics.

TreeHouse Foods (THS) – As a major contract producer of private label foods, TreeHouse has struggled with poor execution and elevated debt resulting from its acquisition-driven strategy even as the private label food industry remains healthy. The company remains profitable and generates reasonable free cash flow. Respected activist investor JANA Partners has a large 9.2% stake and is pressuring this undervalued company to get its act together.

The company reported a decent quarter and raised its full-year guidance. However, the guidance boost was largely due to the acquisition of the Texas coffee facility. And, overall volumes fell 7%, suggesting that revenue growth will likely run out of steam as price increases will likely be more limited in the future. The secular (or at least cyclical) tailwinds of rising grocery prices and wide discounts to national brands continue to drive good results for TreeHouse, although this tailwind has likely peaked. These trend changes drove the shares meaningfully lower. We retain our Buy rating as the operational and strategic turnaround likely has more improvements ahead.

Revenues rose 4% (organic) and were about 1% above estimates. Adjusted earnings of $0.42/share improved from $0.05 a year ago and were in line with estimates. Adjusted EBITDA of $76 million rose 44% and was 3% above estimates. TreeHouse said its target of generating at least $200 million in free cash flow remains intact.

Tyson Foods (TSN)Tyson is a major food company specializing in beef products (37% of sales), chicken (32%), pork (12%) and Prepared Foods (18%). Its chicken operations are vertically integrated, while its beef and pork operations buy from independent farmers. The shares have slid sharply due to an unusual simultaneous downcycle in all three protein groups. The profit wipe-out, combined with a multi-year boost in capital spending, is leading to elevated debt. While Tyson is admittedly an average company in a commodity industry, its share price assumes dim earnings prospects. We see an eventual upturn that offers considerable upside potential. The hardest time to invest in a cyclical company is at the bottom of the cycle when it appears that there is little chance of a recovery.

Tyson reported a weak quarter as the simultaneous downturn continues, but it appears that the cycle is reaching its nadir. Revenues fell 3% and were 4% below estimates. Adjusted earnings of $0.15/share, essentially breakeven, fell from $1.97 a year ago. The balance sheet remains over-leveraged, but liquidity looks more than adequate. Tyson is closing four chicken processing facilities to contain costs.

We’re debating whether Tyson is a low-quality company in a commodity industry being run by an inept management team, or if the management team is incredibly savvy as they help prolong the downturn (backed by their immense scale and capital resources) to wipe out much of their smaller/weaker competition. So far, the evidence points to the former, but if management is truly savvy then outsiders won’t be able to detect it.

Adjusted operating income of $179 million compared to $998 million a year ago. About a third of the erosion was due to revenue pressure from weaker chicken and pork prices, while two-thirds was due to higher cattle and labor costs, partly offset by lower hog costs and other incrementally favorable costs.

Beef revenues were flat (a 5% slide in volume was offset by higher pricing) while operating profits fell 84% to marginally above break-even. Management’s outlook for this segment remains weak but the deterioration has probably troughed.

Pork revenues fell 18% due mostly to weak pricing, which produced an operating loss. This segment hasn’t yet reached bottom, and Tyson trimmed their already-weak profit outlook.

Chicken revenues fell 4% and sizeable year-ago profits of $269 million became a $(63) million loss this quarter, but this segment appears to be troughing. Prepared Foods remains a strong contributor as revenues fell 3% but profits rose 18% to $220 million. Prepared Foods’ profits were more than 100% of the total company’s $179 million in operating profits.

Viatris (VTRS)Viatris was formed in November 2020 through the merger of pharmaceutical generics producer Mylan, N.V. and Pfizer’s Upjohn division. Declining revenues, limited drug pipeline visibility, elevated debt, and a confusing change in strategy have continued to drag the shares lower since our initial recommendation. However, a new CEO along with increased visibility into its new strategy and better operational execution offer the potential for a fundamental turnaround and a higher share price.

The company reported a decent quarter and maintained its full-year guidance. With its new CEO capably taking charge, Viatris is showing progress with its overly complex and so-far disappointing turnaround. Its “Phase 1” is winding down, with “Phase 2” ramping up next year. Revenues were bolstered by $124 million from new products and Viatris said it remains on track for meeting its $500 million new product revenues target for 2023. This is encouraging as the company faces continuous revenue and margin pressure on its existing products.

The company meeting its full-year guidance would not only indicate respectable progress with its turnaround and that the business environment decay may be ending, but also that the management is capable of accurately projecting its results and may actually be in control of its business. After years of steady and large disappointments and a confusing strategy, this would be a major positive turn.

Another confidence booster would be for Viatris to report clean year-over-year results with no acquisitions, divestitures, transition charges, special charges or other supposed one-offs. These distractions cast doubt on management’s credibility and have been a chronic weight on the shares.

Steadily meeting respectable guidance and reporting clean results with the generous free cash flow being used for debt paydown and payments to shareholders could readily bring Viatris shares back into favor with investors. But, this seems like a stretch right now.

In the quarter, revenues fell 5% but rose 1% on an organic basis and were about 1% above estimates. Adjusted earnings of $0.75/share fell 15% but were 6% above estimates. Adjusted EBITDA of $1.3 billion fell 8% on an organic basis but was 4% above estimates.

Viatris produced $447 million of free cash flow and continues to chip away at its elevated debt (repaid $181 million in the quarter). Additional divestitures are ahead.

Friday, August 11, 2023, Subscribers-Only Podcast:

Covering recent news and analysis for our portfolio companies and other topics relevant to value/contrarian investors.

Today’s podcast is about 10 minutes.

Please know that I personally own shares of all Cabot Turnaround Letter recommended stocks, including the stocks mentioned in this note.

Market CapRecommendationSymbol



Price at





Rating and Price Target
Small capGannett CompanyGCIAug 20179.22 3.34 - Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.68 7.65 - Buy (20)
Small capDril-QuipDRQMay 202128.28 27.90 - Buy (44)
Small capL.B. FosterFSTRJul 202313.60 16.05 - Buy (44)
Small capKopin CorpKOPNAug 20232.03 1.77 - Buy (5)
Mid capMattelMATMay 201528.43 21.53 - Buy (38)
Mid capAdient plcADNTOct 201839.77 42.13 - Buy (55)
Mid capXerox HoldingsXRXDec 202021.91 15.526.4%Buy (33)
Mid capViatrisVTRSFeb 202117.43 11.164.3%Buy (26)
Mid capTreeHouse FoodsTHSOct 202139.43 45.43 - Buy (60)
Mid capKaman CorporationKAMNNov 202137.41 23.213.4%Buy (57)
Mid capThe Western Union Co.WUDec 202116.40 12.037.8%Buy (25)
Mid capBrookfield ReBNREJan 202261.32 34.551.6%Buy (93)
Mid capPolarisPIIFeb 2022105.78 124.38 - Buy (160)
Mid capGoodyear Tire & RubberGTMar 202216.01 13.10 - Buy (24.50)
Mid capJanus Henderson GroupJHGJun 202227.17 26.945.8%Buy (67)
Mid capESAB CorpESABJul 202245.64 71.091.4%Buy (68)
Mid capSix Flags EntertainmentSIXDec 202222.60 21.82 - Buy (35)
Mid capKohl’s CorporationKSSMar 202332.43 27.867.2%Buy (50)
Mid capFirst Horizon CorpFHNApr 202316.76 13.454.5%Buy (24)
Mid capFrontier Group HoldingsULCCApr 20239.49 7.58 - Buy (15)
Large capGeneral ElectricGEJul 2007304.96 113.570.3%Buy (160)
Large capNokia CorporationNOKMar 20158.02 3.952.3%Buy (12)
Large capMacy’sMJul 201633.61 15.704.2%Buy (25)
Large capToshiba CorporationTOSYYNov 201714.49 15.966.5%Buy (28)
Large capHolcim Ltd.HCMLYApr 201810.92 13.663.2%Buy (16)
Large capNewell BrandsNWLJun 201824.78 10.682.6%Buy (39)
Large capVodafone Group plcVODDec 201821.24 9.3510.9%Buy (32)
Large capBerkshire HathawayBRK.BApr 2020183.18 356.98 - HOLD
Large capWells Fargo & CompanyWFCJun 202027.22 43.673.2%Buy (64)
Large capWestern Digital CorporationWDCOct 202038.47 42.15 - Buy (78)
Large capElanco Animal HealthELANApr 202127.85 12.22 - Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.53 29.236.5%Buy (70)
Large capVolkswagen AGVWAGYAug 202219.76 15.106.1%Buy (70)
Large capWarner Bros DiscoveryWBDSep 202213.13 14.12 - Buy (20)
Large capCapital One FinancialCOFNov 202296.25 110.542.2%Buy (150)
Large capBayer AGBAYRYFeb 202315.41 14.443.7%Buy (24)
Large capTyson FoodsTSNJun 202352.01 53.753.6%Buy (78)

Disclosure: The chief analyst of the Cabot Turnaround Letter personally holds shares of every Rated recommendation. The chief analyst may purchase securities discussed in the “Purchase Recommendation” section or sell securities discussed in the “Sell Recommendation” section but not before the fourth day after the recommendation has been emailed to subscribers. However, the chief analyst may purchase or sell securities mentioned in other parts of the Cabot Turnaround Letter at any time. Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at or to our friendly customer support team at Due to the time and space limits we may not be able to cover every topic, but we will work to cover as much as possible or respond by email.

Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.